Lenovo set to hike prices as currency moves raise costs

A Lenovo Group Ltd store in Yichang, Hubei province. The electronics giant is planning to raise PC prices to offset rising costs due to the weakening yuan. [Liu Junfeng / For China Daily]

Component imports from South Korea, US and Japan may become expensive

The yuan's depreciation is forcing local electronics makers to lift their product prices to offset the rising costs of imported components, according to a report on the technology website Digitimes, citing upstream suppliers.

Lenovo Group Ltd, the world's biggest personal computer maker, could even raise the prices of some products sold in China later this month, said Digitimes. Acer Corp and Asustek Computer Inc too are likely to lift their prices early September.

The companies refused to comment on the report on Wednesday.

The yuan's central parity rate against the US dollar dropped by 1.86 percent on Aug 11 and by a further 1.6 percent the following day, the steepest falls since 2005.

Although a cheaper yuan is likely to spur PC exports, companies such as Lenovo are still faced with paying foreign suppliers for components including batteries, processors and liquid crystal displays.

Selling products built using parts imported from the United States, South Korea and Japan, for instance, is likely to add significant costs to Chinese companies.

Lenovo's operating margins in China have already fallen 0.7 of a percentage point in the second quarter, to 4.8 percent, it said in its most-recent announcement.

China accounted for one-third of Lenovo's total $10.7 billion sales in the quarter ended June, and PC sales were a major contributor to profits.

The company did not disclose how much more it was paying for imported parts, but industry analysts said they would not be surprised if it did within its next set of results.

Gene Cao, from Forrester Research Inc, said Lenovo has already been struggling to attract new customers over the past two to three years.

He said, however, the Chinese firm may not be facing immediate cost increases from some foreign suppliers because many components were ordered at last year's prices, and that possible yuan depreciation could also have been factored into its operational projections.

One senior source within Lenovo's PC marketing department told China Daily that price hikes are now "very much on the table, especially as top executives are aiming at a stable but more profitable PC business to support other troubled units, such as the mobile business group".

Earlier this month, the company acknowledged the recent exchange rate changes had been hitting business.

Currency fluctuations, it said, were one of the major causes for its worse-than-expected smartphone sales in Brazil and other Latin American economies.

Sluggish global demand for PCs and poor sales of Lenovo smartphones were blamed for the company's 51 percent year-on-year decline in net income in the second quarter of the year.

Chief Executive Yang Yuanqing subsequently announced it was axing around 3,200 staff to bring down operating costs.

Premier Li Keqiang said earlier this week the exchange rate will be kept "basically stable at an adaptive and equilibrium level".

"Li's comments will offer Lenovo great comfort," said Cao from Forrester.

gaoyuan@chinadaily.com.cn