RESEARCH TRIANGLE PARK, N.C. – “Lenovo’s Phantom Profits” reads the headline.
Get your attention? Certainly did mine.
Forbes’ online site published the sensational headline late Thursday, citing a previously undisclosed $100 million deal with Intel to use and advertise Intel chips in Lenovo’s computers.
Reporter Shu-Ching Jean Chen, writing out of Hong Kong, said the “$100 million annual incentive deal” could be giving a boost to Lenovo’s profit margin that is only temporary rather than as a sign that the world’s third largest PC manufacturer has improved margins in a ruthless, profit-thin business.
But whether this is a that leads to problems for Lenovo or is a story that simply sheds some light on the kind of advertising and marketing deals that apparently are routine in the PC business remains to be seen.
The headline certainly doesn’t seem to be fully supported by the story. Lenovo is profitable without the Intel deal, as the story notes. The two problems as far as investors could see is whether Lenovo’s profit margin is as good as it looks in its latest quarterly report and also whether someone might start a legal fight about undisclosed deals.
As Forbes notes, problems for Dell have been worsened by a lawsuit about Dell’s own $1 billion chip incentive deal with Intel.
But companies compensating each other for marketing and advertising expenses is nothing new. Book publishers pay book chains and book sellers for shelf space and advertising support. And companies such as IBM support resellers and systems integrators with co-marketing funds.
The Forbes story includes comments from several people who are split about the Intel deal. Plus, Lenovo didn’t deny it had an arrangement with Intel.
"In order to remain competitive, we negotiate the best prices and terms that we can with all of our partners and suppliers, and while we believe what we get is competitive, we do not believe it is anything special,” Lenovo spokesperson Julie Gottlieb told Forbes.
As sensational as the headline is, Lenovo was probably hurt much worse by IBM’s recent decision to accelerate its selling of the shares it took in Lenovo as part of the $1.75 billion deal in 2005 when Big Blue sold its PC division to Lenovo. That stock announcement triggered an immediate sell-off and a big price drop. In fact, trading in Lenovo shares was stopped on the Hong Kong exchange.
So will the Forbes story have more legs than the IBM deal? The Forbes report did produce an interesting headline on a U.K. Web site, The Inquirer: “The marchitecture war continues.”
(Google marchitecture. Definition of that term makes for more interesting reading.)