Lenovo Group Ltd. plans to ramp up its PC production by spending US$30 million on two new manufacturing and fulfillment plants in Mexico and India, the company said on Thursday.
Lenovo is making the investment over a five-year period, spending roughly $10 million on the plant in India and around $20 million on the Mexican plant, according to Gerry Smith, senior vice president of Lenovo's global supply chain.
The facilities will help Lenovo further fill out its global manufacturing framework as well as assist the company in making its products more cost-competitive, he said.
Lenovo, the world's third-largest PC manufacturer, is also scouting locations in central and eastern Europe for other plants, part of the company's strategy to beef up its presence in what it called "economically vital" markets. The company hopes to open a European plant by year-end, Smith said.
The Monterrey, Mexico, facility is due to open in mid-2008. It will represent Lenovo's largest manufacturing investment outside of China, capable of producing five million PCs annually. It will employ 750 staff and supply computers to the Americas with the exception of Brazil, where Lenovo will maintain its current relationship with a local partner, Smith said. Brazil has challenging tax laws governing the importation of computing goods, he added.
The smaller plant at Baddi, in Himachal Pradesh, India, could start churning out PCs as soon as September and will eventually have a capacity of two million computers annually, Lenovo said. That plant will have 350 employees and supply the growing market in India. Having a plant in the north of India complements the company's existing plant in Pondicherry in the southeast of the country, Smith said, enabling Lenovo to reach around 95 percent of the country's inhabitants.
The plants are designed to be able to handle all Lenovo products, Smith said, to ensure manufacturing flexibility as the company grows.
Last month, Lenovo announced it will open a new fulfillment center in Whitsett, North Carolina early next year. It also has manufacturing facilities in Beijing, Huiyang, Shanghai and Shenzhen, China, and Pondicherry, India.
Lenovo decided on the Monterrey and Baddi locations after running a lot of complex simulations, Smith said. The simulations were based on a wide range of factors including the company's desire to create an end-to-end supply chain and deliver its products to customers on a timely basis as well as the size of the available labor pools. He didn't reveal what Lenovo considers to be the optimum time between receiving customer orders and when individuals receive their computers. However, with the new plants in place, Smith said Lenovo would hit its internal targets for that optimal time window.
Once the Mexican, second Indian and European plants are all operational, there will still be some areas of the world that Lenovo isn't effectively reaching, including the Middle East and Africa. The company definitely plans to look at those regions and evaluate how it can extend coverage to them, Smith said.
Lenovo executives spoke earlier this year about the vendor's strategy to sell more computers directly over the Web to home and small business customers. Thursday's announcements of new plants haven't been driven by ambitions in any particular sales channel, said Lenovo spokesman Ray Gorman. "We're positioning the company for growth," he said. "We're expanding all our distribution channels."
Lenovo managed to snag the number-three spot for second-quarter PC shipments from rival Acer Inc. But Acer is expected to overtake Lenovo by the end of the year in a tough, low-margin PC market. The world's second largest PC maker, according to analysts like IDC, is Dell Inc., with Hewlett-Packard Co. the number-one supplier of PCs.
After some rough times, Lenovo's fortunes have been gradually improving. In May, the company announced its Americas business was again turning a profit, following cost cuts that included plans announced in April to lay off around 5 percent of its work force.
Lenovo acquired IBM Corp.'s PC business in 2005. The company has struggled with integrating that unit into its business and with revamping its overall supply chain.
