China-based Lenovo Group went on a spending spree in the past 30 days, announcing deals totaling more than $5 billion to acquire low-end servers and mobile device product lines, including $2.9 billion to buy Motorola Mobility.
While Motorola has struggled against Samsung and Apple, the buy allows Lenovo quick entry into the U.S. mobile device market at a time when PC sales globally are slumping. Meanwhile, Lenovo also purchased IBM’s budget server business for $2.3 billion to help shore up profit margins in the U.S. long-term.
Shortly after those purchases, various business reports in Asia had Lenovo buying a large share of Sony’s Vaio laptop and PC line. While the price tag varied depending on the report, investors didn’t need to know the specifics. They had heard enough.
Lenovo’s stocks took a steep dive on the Hong Kong exchange, falling almost 16.5 percent by close Tuesday, closing just over $8 per share. That came after analysts at Morgan Stanley, UBS AG, Jefferson Group LLC and JI-Research Ltd unloaded Lenovo stock, with the analysts agreeing that the tech giant will likely struggle to turn a profit in the immediate future.
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Lenovo executives have not yet commented on the potential Sony deal. Sony, meanwhile, described the reports as inaccurate, but did acknowledge it was looking at various possibilities to fix its troubled Vaio line. Sony’s stock was recently downgraded to junk status by Moody’s, which questioned the company’s ability to turn a profit.
Government service and computer contracts represent a significant portion of Lenovo’s business in the U.S. The company, which sells almost 20 percent of all PCs worldwide, has targeted government IT services as a way to grow revenues. Lenovo also offers significant discounts to government employees for personal PC purchases.