Task: Consider Porter's Five Forces and Lenovo using information from both the memo and from other sources.

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LENOVO GROUP LIMITED – A GOOD INVESTMENT FOR THE FUND?1 Ken Mark wrote this case under the supervision of Professors Craig Dunbar and Stephen Foerster solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com. Copyright © 2013, Richard Ivey School of Business Foundation Version: 2013-11-22 INTRODUCTION On June 3, 2013, Peter Grisham, a portfolio manager for Penhall Investment Funds, was reviewing the financial data his team had prepared on Lenovo Group Limited, one of the major holdings in Penhall’s Global fund. Penhall managed a number of mutual funds aimed at individual and institutional investors and had delivered strong investment performance by identifying key growth sectors and investing in a leading company in each sector that Penhall’s research indicated would outperform its competitors. Grisham had been attracted to the personal computing devices industry because of strong growth prospects. While desktop computers and laptops used to define the personal computer (PC) industry, a broader definition, “smart connect devices,”2 was developed to encompass new categories, such as tablets and smartphones. In June 2012, Grisham had invested in Lenovo stock a few months after Lenovo overtook Dell to become the world’s second largest PC manufacturer behind Hewlett-Packard (HP). Lenovo was founded by Li Chuanzhi in 19843 as a distributor of computers and was incorporated in 1988 as Legend Computer Co. Ltd. After changing its name to Lenovo in 2003, the firm boosted its growth prospects in May 2005 by purchasing IBM’s personal computing business.4 Currently, Lenovo was the market share leader in major emerging markets, such as China (the world’s largest market), India and Russia.5 Its stock price reflected its growth, rising from a low of US$0.176 on January 23, 2009 to $0.91 on June 3, 2013.7 The firm wanted to become more than just the largest manufacturer of PCs by volume. It aimed to become a leading manufacturer of other devices, such as smartphones and tablets, and it was focusing on

1 This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives presented in this case are not necessarily those of Lenovo Group Limited or any of its employees. 2 Dan Graziano, “Smartphone, Tablet and PC Shipments to Surpass 1.7 Billion in 2014,” June 11, 2013, bgr.com/2013/06/11/smartphone-tablet-pc-shipments/, accessed July 12, 2013. 3 Legend Holdings, “Liu Chuanzhi”, www.legendholdings.com.cn/en/Leadership/FullBioLCZ.aspx, accessed July 12, 2013. 4 Lenovo, “Company History,” www.lenovo.com/lenovo/us/en/history.html, accessed July 12, 2013. 5 Lenovo Annual Report 2011-2012, page 6. 6 All currencies are in U.S. dollars unless otherwise stated. 7 Yahoo Finance, accessed July 12, 2013.

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innovation as a key capability. Grisham was impressed by Lenovo’s results so far; the stock was up 7.5 per cent in a year. But, given the decline in the traditional PC segment, the competitive nature of the industry and global economic conditions, he wondered if Lenovo should continue to be a key holding in the global fund. LENOVO GROUP LIMITED With two headquarters — one in Beijing and the other in Morrisville, North Carolina — Lenovo was positioning itself as a global PC company. It had its initial public offering in 1994 and was listed on the Hong Kong Stock Exchange under the ticker “0992.” Lenovo had 27,000 employees in 2012 and sold a wide variety of electronic devices: PCs, tablet computers, netbooks, smartphones, servers, printers, televisions, scanners and storage devices. While the PC industry typically outsourced manufacturing to contractors, Lenovo was a vertically integrated firm, producing half of its products in-house. Yang Yuanqing, Lenovo’s chairman and chief executive officer (CEO), indicated that Lenovo was looking for growth beyond the traditional PC market: “We will accelerate our transformation and become not just a PC market share leader, but a global PC+ innovation leader.”8 Information on Lenovo’s strategy can be found in Exhibit 1. INDUSTRY AND ECONOMIC CONDITIONS Grisham read that demand for traditional PCs — defined as a computing device with an attached keyboard — was slowing after two decades of growth. The overall personal computing market was still growing, driven by more portable devices, such as tablets and smartphones. In the first quarter of 2013, International Data Corporation (IDC), a market research firm for the technology industry,9 reported a 13.9 per cent decline in PC shipments even as Microsoft was launching Windows 8, a revamped version of its popular operating system. The fall in year-over-year quarterly demand was the worst ever recorded by IDC in two decades. For the first quarter of 2013, the top five PC vendors in the world were HP, with a 15.7 per cent share; Lenovo, with 15.3 per cent; Dell, with 11.8 per cent; Acer Group, with 8.1 per cent and ASUS, with 5.7 per cent. IDC forecasted global demand for PCs to be 346 million units in 2013, down from 350 million in 2012.10 In contrast, demand for other personal computing devices, such as tablets, was expected to rise to 230 million in 2013, up from 145 million in 2012.11 Demand for smartphones was expected to rise to 959 million units, up from 723 million in 2012.12 In mid-2013, prospects for the global economy continued to be mixed. While the U.S. economy seemed to be improving slowly, the reduced demand for commodities in Asia was dampening growth prospects in

8 Lenovo defined PC+ as PCs, smartphones and tablets, Lenovo Annual Report 2012, p. 8. 9 IDC, “About IDC”, www.idc.com/about/about.jsp, accessed July 10, 2013. 10 IDC, “PC Market Forecast to Decline for Second Consecutive Year in 2013, According to IDC”, March 4, 2013, www.idc.com/getdoc.jsp?containerId=prUS23987313 accessed July 12, 2013. 11 IDC, “ IDC Forecasts Worldwide Tablet Shipments to Surpass Portable PC Shipments in 2013, Total PC Shipments in 2015”, March 28, 2013, www.idc.com/getdoc.jsp?containerId=prUS24129713 accessed July 12, 2013. 12 IDC - Press Release, “Smartphones Expected to Grow 32.7% in 2013 Fueled By Declining Prices and Strong Emerging Market Demand, According to IDC”, 4 Jun 2013 www.idc.com/getdoc.jsp?containerId=prUS24143513 accessed July 12, 2013.

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Canada, Australia and other resource-focused nations. In China — the world’s largest market for PCs13 and smartphones14 — economic growth as measured by Gross Domestic Product (GDP) slowed to 7.7 per cent in the first quarter of 2013, down from 7.9 per cent in the previous quarter.15 Nine countries in the Eurozone had been in recession for the past 18 months16 as the continent struggled to deal with the costs of bank bailouts, high unemployment and austerity measures. While central banks around the world were keeping interest rates low in an attempt to spark economic growth, the prospect of rate hikes loomed. THE COMPETITORS Grisham identified Lenovo’s main competitors: Acer Inc., Apple Inc., Research In Motion Limited (BlackBerry), Dell Inc., Hewlett-Packard Company, Nokia Corporation and Samsung Group. Acer Group was a Taiwanese multinational electronics manufacturer and the fourth largest computer manufacturer in the world. Its product lineup included desktop and notebook PCs as well as smartphones, servers and storage, peripherals, televisions, video projectors and e-business services for business, government, education and home users. Apple Inc. was an American multinational corporation with a focus on designing and manufacturing consumer electronics and software products. The company’s best-known hardware products included the iPhone, the iPad and the iPod lines of consumer electronic devices. It was the world’s third largest mobile phone manufacturer by units sold after Samsung and Nokia.17 In addition to its devices, Apple had a line of PCs, computer software, and a popular music and software download site. Its charismatic chief executive officer and co-founder, Steve Jobs, passed away in 2011. BlackBerry, formerly known as Research In Motion, was a Canadian manufacturer of smartphone devices. Once the market leader in smartphones, BlackBerry had fallen in popularity as its keyboard-focused devices were overtaken by touchscreen offerings from Apple, Samsung and other firms. Dell was once the largest PC manufacturer in the 1990s, and was focused on producing low-cost PCs, selling them direct to consumers and businesses. It manufactured other products, including televisions, handheld devices, music players and printers. Due to its focus on cost effective PC manufacturing, Dell’s stock price fell as lower cost competitors entered the market. The firm also missed out on the smartphone trend. In February 2013, Dell announced that it had a leveraged buyout deal that would see its shares delisted as the company was to become private. But the privatization deal had yet to be concluded due to disagreements between activist shareholders and Michael Dell, the founder, and the withdrawal of Blackstone Group after it had completed its due diligence on the firm in April 2013.

13 Wall Street Journal, “China Passes U.S. as World's Biggest PC Market,“ August 24, 2012, online.wsj.com/article/SB10001424053111903461304576525852486131230.html accessed July 12, 2013. 14 Forbes, “China Now The World's Largest Smartphone Market”. August 30, 2012, www.forbes.com/sites/ericsavitz/2012/08/30/china-now-the-worlds-largest-smartphone-market/ accessed July 12, 2013. 15 Wall Street Journal, “China GDP Growth Slows to 7.7%,” April 14, 2013, online.wsj.com/article/SB10001424127887323346304578423431110506270.html, accessed June 20, 2013. GDP was measured in real terms, after adjusting for inflation. The four major components of GDP were personal consumption expenditure, business investment, government spending, and net exports of goods and services. 16 CBC News, “Eurozone Now in Recession for 1.5 Years,” May 16, 2013, www.cbc.ca/news/business/story/2013/05/15/business-euro-recession.html, accessed June 20, 2013. A recession is generally considered to occur if real GDP growth is negative for at least two consecutive quarters. 17 Christina Bonnington, “Apple Now the World’s Third Largest Cellphone Maker, IDC Say,” February 2, 2012, www.wired.com/gadgetlab/2012/02/apple-third-largest-mobile/, accessed June 20, 2013.

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Hewlett-Packard was the world’s largest manufacturer of PCs. It specialized in building desktop PCs, notebook PCs, servers, printers, calculators, software and home media devices, among other technology related products. HP acquired Compaq Computer Corporation in 2002 and in recent years had emphasized leading edge design of its laptops to appeal to a consumer base that was increasingly fashion conscious when purchasing a PC. HP experienced a series of missteps after 2010, including the purchase and subsequent $8.8 billion writedown of Autonomy Corporation, a software acquisition. Meg Whitman, its current CEO, was in the midst of a multi-year turnaround of the business. Nokia Corporation was the world’s second largest manufacturer of smartphones in terms of units sold. Its other businesses included mobile computers and telecommunications network equipment and services. By focusing on entry-level mobile phones, Nokia had missed the emergence of smartphones in 2007. Its current CEO, Stephen Elop, was making a series of strategic adjustments in an effort to turn around the firm’s fortunes. Samsung Electronics, the world’s largest manufacturer of smartphones, was part of the Samsung Group, a Korean multinational conglomerate. It had moved from its focus on computing components, such as lithium-ion batteries, to become a player in the smartphone and tablet market. Samsung’s lineup included consumer electronics, telecommunication equipment, semiconductors and home appliances. THE ANALYSIS Grisham’s team had collected comparative financial information — balance sheets, income statements, statements of cash flow — on the five firms (see Exhibits 2 through 4), as well as five years of financial ratios for Lenovo (see Exhibit 5). They created a set of common-sized financial statements (see Exhibits 6 and 7). A common-sized financial statement displays all items as a percentage of a common base figure. This type of financial statement facilitated comparative or trend analysis. Grisham also reviewed stock price charts for Lenovo and its peer group (see Exhibits 8 and 9), as well as valuation metrics and economic data for Lenovo and its competitors (see Exhibit 10). The team had created a set of ratios with which to compare the companies’ relative performance (see Exhibit 11). Ratio definitions can be found in Exhibit 12. Last, the team also compiled analysts’ forecasts of key measures, including sales and earnings before interest, taxes, depreciation, and amortization (EBITDA) and valuation metrics, which can be found in Exhibit 13. As he started to conduct his analysis, Grisham wondered what insights the data might uncover.

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EXHIBIT 1: LENOVO’S STRATEGY Strategy Lenovo was a global brand in the PC market — the second largest globally according to PC shipments — with an established leadership position in China. PC sales accounted for 90 per cent of revenues in 2012, but the company was looking to diversify its sources of revenue.18 The PC market was characterized by a high degree of competition and slim margins. To improve profitability, Lenovo was launching new products, such as smartphones and televisions, into higher margin categories using the Lenovo brand familiar to global customers. The company believed it was the first to create a “hybrid PC,” in 2010, before Apple Inc. came out with its iPad tablet. In addition to these consumer products, Lenovo was looking to grow its higher margin server and storage businesses. According to the company, its strategy was to:

protect our core markets in China and global commercial PC sales, while attacking to gain share in emerging markets, consumer sales and mobile internet device sales. For the first time, our attack businesses — like mobile, consumer and emerging markets — delivered about half of our total revenue and these businesses also delivered improved profitability in almost every segment. This clear strategy drove strong execution worldwide. Our commitment to and investment in innovation that differentiates our products. Lenovo’s investments in innovations continued to pay off, both in PCs and in PC+ products. These innovations lead to differentiation that is embraced by customers.19

It was focused on serving the entire market: global enterprise customers, small and medium sized businesses, and consumers. While China-based Lenovo employed “a strong, diverse global team that harnesses the top talents at both a worldwide level and in key markets helps us ensure we have a clear, deep understanding of our industry and our customers. While incredibly diverse, this “global-local” team is united by our Lenovo Way culture of commitment and ownership.”20 Operations Similar to other PC firms, Lenovo outsourced 70 per cent of its production to Taiwanese subcontractors. Going forward, Lenovo was looking to bring some manufacturing back in-house in an attempt to reduce costs. On the other hand, some of the issues Lenovo had to contend with were rising wages and inflation in China. Lenovo had a global distribution network and was especially strong in its key market, China. It maintained relationships with the Chinese government and large enterprises.

This was important because China represented 40 per cent of its revenues and 70 per cent of its profits. 21 To gain an advantage over its competitors, Lenovo was focused on reducing time to market and on cutting costs. An article in Fast Company Magazine provides insights on how Lenovo executives managed their firm:

18 Stephen Yang, “Lenovo (992.HK) – Technology Sector”, Sun Hung Kai Financial Institutional Research, October 18, 2012, p. 11. 19 Lenovo Annual Report 2012, p. 6–7. 20 Lenovo Annual Report 2012, p. 6–7. 21 Stephen Yang, “Lenovo (992.HK) – Technology Sector”, Sun Hung Kai Financial Institutional Research, October 18, 2012, p. 11.

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Exhibit 1 (continued) Its LePhone A60, Lenovo’s new smartphone in China, took less than six months to develop, half the typical cycle. And the company is keeping as little as five weeks of inventory on hand so that stores can pivot based on sales. “You cannot tolerate high inventory,” Yang says, flashing his authoritarian side. Speed is highly valued in Lenovo’s decision-making process as well. Two years ago, Yang streamlined the company’s senior leadership team from more than two dozen members to nine. Although the leaders are based in six different cities on three continents, they meet at least bimonthly to review the business, typically spending three or four days together in a key market, visiting local stores and listening to partners, customers, and employees. While the goal is to align big-picture goals, the team also seeks quick action. After a visit to India, Lenovo boosted its marketing and overhauled store displays throughout the country. Market share promptly shot up. The emphasis on speed at Lenovo is particularly compelling because it’s twinned with a deliberate effort to slow other things down. Upon his return as chairman, Liu emphasized a concept called “fu pan”. It means “replaying the chess board.” The idea is to examine your every move to improve the next time. Lenovo trains its managers in fu pan, which can entail short reviews of an incident from that workday or a far more in-depth process.22

22 Chuck Salter, 22 “Protect and Attack: Lenovo’s New Strategy,” November 2011, www.fastcompany.com/1793529/protect- and-attack-lenovos-new-strategy, accessed July 12, 2013.

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For the exclusive use of S. JI, 2019.

This document is authorized for use only by SHENGCHAO JI in UD - Portfolio Management-1 taught by JON FULKERSON, University of Dayton from Jan 2019 to Jul 2019.

P ag

e 8

9B 13

N 01

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1 /2

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9 /2

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2 /2

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1 /2

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1 /2

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1 /2

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1 2 /3

1 /2

0 1 2

2 0 1 3

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R e ve

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3 3 ,8

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C o s t

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6 8

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9 6 ,7

8 5

G ro

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4 ,0

7 4

3 ,4

4 6

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8 8

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7 4

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1 8

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3 4

6 ,5

7 9

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8 6

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5 8

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2 ,7

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6 6

O th

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x p e n s e s

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8 1

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2 9

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5 8

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9 2

7 8

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1 9

O p e ra

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e 8 0 0

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1 7 0

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e 6 3 2

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C a s h f lo

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m o

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N e t

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e 6 3 2

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7 2

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2 5 )

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A d ju

s tm

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(1 6 4 )

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7 9

6 ,7

6 0

7 8 2

7 8 1

(2 5 )

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3 6

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8 0

5 ,2

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D e p re

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a m

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iz a ti o n

9 2

7 8

1 1 4

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3 ,2

7 7

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1 4

7 1 4

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1 ,1

4 4

9 3 6

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9 5

4 ,9

8 4

1 ,7

4 8

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2 0

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7 3

1 2 ,0

1 9

D e c re

a s e (

in c re

a s e )

in w

o rk

in g c

a p it a l

(1 ,7

0 2 )

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1 4 9

4 8 6

9 6 7

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3 3

1 ,4

5 3

3 9 6

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2 7 7

1 ,5

9 0

(3 8 2 )

1 ,5

9 6

1 9 6

(6 ,5

0 3 )

(2 ,7

3 9 )

N e t

c a s h p

ro vi

d e d b

y o

p e ra

ti n g a

c ti vi

ti e s

2 0

1 ,9

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5 6

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8 3

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7 1

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3 9

(4 6 7 )

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6 5

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7 9

C a s h f lo

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s ti n g a

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In ve

s tm

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p la

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6 0 )

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(5 1 3 )

(6 7 5 )

(3 ,7

0 6 )

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3 9 )

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(7 7 2 )

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0 9 )

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5 7 )

P ro

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y ,

p la

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a n d e

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s a le

2 6

1 0 3

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0 1 3 5

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9 9 9

(2 0 )

4 6 0 3

3 2 8

O th

e r

in ve

s ti n g a

c ti vi

ti e s

(1 4 1 )

(7 4 2 )

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(1 0 )

(3 9 ,9

3 2 )

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5 9 )

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2 7 )

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3 8 )

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9 1 )

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1 9 )

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6 9

2 ,7

0 7

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2 9 )

4 0 8

N e t

c a s h u

s e d i n i n ve

s ti n g a

c ti vi

ti e s

(2 4 5 )

(8 3 7 )

(5 6 )

(4 1 )

(4 8 ,2

2 7 )

(4 0 ,4

1 9 )

(2 ,2

4 0 )

(3 ,0

2 4 )

(3 ,3

1 6 )

(6 ,1

6 6 )

(3 ,4

5 3 )

(1 3 ,9

5 9 )

7 4 1

1 ,9

3 9

(2 9 ,3

3 5 )

(1 8 ,2

2 1 )

C a s h f lo

w s f ro

m f in

a n c in

g a

c ti vi

ti e s

R e p u rc

h a s e o

f c o m

m o n s

to c k

(4 4 )

0 0

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2 4 )

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1 7 )

(1 ,6

1 9 )

(1 0 ,1

1 7 )

0 0

In c re

a s e (

d e c re

a s e )

in d

e b t

2 2 9

(2 1 2 )

(0 )

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6 3

2 ,6

1 5

(1 ,9

5 4 )

8 ,3

3 6

(6 0 9 )

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1 ,2

5 4

2 ,4

0 0

O th

e r

fi n a n c in

g a

c ti vi

ti e s

(2 5 3 )

(1 0 4 )

(1 8 8 )

(4 0 3 )

(1 ,6

9 8 )

1 ,4

4 4

(3 6 )

(1 4 9 )

(5 4 9 )

6 7 9

(2 8 7 )

2 1 5

(4 )

(1 ,2

8 0 )

(3 ,0

0 0 )

2 8 4

N e t

c a s h p

ro vi

d e d b

y f in

a n c in

g a

c ti vi

ti e s

(6 8 )

(3 1 6 )

(1 8 8 )

(5 5 1 )

(1 ,6

9 8 )

1 ,4

4 4

(3 6 )

(1 4 9 )

(1 ,2

1 0 )

5 7 7

(3 ,8

6 0 )

(1 ,5

6 6 )

(6 1 3 )

(1 ,4

2 2 )

(1 ,7

4 6 )

2 ,6

8 4

N e t

in c re

a s e (

d e c re

a s e )

in c

a s h &

c a s h e

q u iv

a le

n t

(2 9 4 )

7 8 7

(3 4 )

5 1

9 3 1

(1 ,4

4 6 )

2 7

(2 6 1 )

(1 ,2

4 3 )

(6 2 )

3 ,2

5 8

(2 ,8

8 6 )

(3 3 9 )

1 ,9

8 8

4 ,4

8 4

4 ,2

4 2

E ff e c ts

o f e x c h a n g e r

a te

c h a n g e s

(1 0 )

1 6

(2 5 8 )

(3 4 2 )

0 0

(5 )

(3 )

(4 0 )

1 0

0 (3

6 )

1 3 8

(6 4 3 )

(1 3 )

C a s h &

c a s h e

q u iv

a le

n ts

a t

b e g in

n in

g o

f p e ri o d

3 ,7

5 8

2 ,9

5 4

2 ,0

0 2

2 ,2

5 9

9 ,8

1 5

1 1 ,2

6 1

1 ,5

2 7

1 ,7

9 1

1 3 ,8

5 2

1 3 ,9

1 3

8 ,0

4 3

1 0 ,9

2 9

1 2 ,1

7 4

9 ,8

5 0

1 3 ,7

6 0

8 ,4

5 0

C a s h &

c a s h e

q u iv

a le

n ts

a t

e n d o

f p e ri o d

3 ,4

5 4

3 ,7

5 8

1 ,7

4 4

1 ,9

1 7

1 0 ,7

4 6

9 ,8

1 5

1 ,5

4 9

1 ,5

2 7

1 2 ,5

6 9

1 3 ,8

5 2

1 1 ,3

0 1

8 ,0

4 3

1 1 ,7

9 9

1 1 ,9

7 6

1 7 ,6

0 1

1 2 ,6

7 9

N o

k ia

S a

m su

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L e

n o

v o

A c e

r A

p p

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la c k B

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in te

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pa id

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s su

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of l

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a ss

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an d

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tit ie

s, f

in an

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sp os

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a nd

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co m

S ou

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M er

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cc es

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Ju ly

2 0,

2 01

For the exclusive use of S. JI, 2019.

This document is authorized for use only by SHENGCHAO JI in UD - Portfolio Management-1 taught by JON FULKERSON, University of Dayton from Jan 2019 to Jul 2019.

P ag

e 9

9B 13

N 01

E X

H IB

IT 5

: S E

LE C

TE D

L E

N O

V O

’S R

A TI

O S

O V

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F IV

E Y

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R S

20 13

20 12

20 11

20 10

20 09

G ro

w th

a nd

P ro

fit ab

ili ty

G ro

w th

in r

ev en

ue s

14 .5

% 37

.0 %

30 .0

% 11

.4 %

-8 .9

G ro

ss p

ro fit

m ar

gi n

12 .0

% 11

.7 %

10 .9

% 10

.8 %

11 .7

N et

p ro

fit m

ar gi

n 1.

9% 1.

6% 1.

3% 0.

8% -1

.5 %

et ur

n on

e qu

ity 23

.6 %

19 .4

% 14

.9 %

8. 1%

-1 7.

Ef fic

ie nc

y (R

es ou

rc e

M an

ag em

en t):

ay s

of in

ve nt

or y

24 .1

17 .0

15 .3

21 .7

12 .5

ay s

of a

cc ou

nt s

re ce

iv ab

le 31

.1 29

.1 23

.1 22

.4 17

D ay

s of

a cc

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s pa

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e 44

.4 56

.6 41

.4 77

.4 55

T ot

al a

ss et

t ur

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r (s

al es

/t ot

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s) 2.

0 1.

9 2.

0 1.

9 2.

C ap

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(F in

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0. 02

0. 0

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39 7.

6 13

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8 3.

5 -5

S ou

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on lin

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E C

fi lin

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as e

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a cc

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d Ju

ly 2

0, 2

01 3.

For the exclusive use of S. JI, 2019.

This document is authorized for use only by SHENGCHAO JI in UD - Portfolio Management-1 taught by JON FULKERSON, University of Dayton from Jan 2019 to Jul 2019.

P ag

e 10

13 N

01 7

X H

IB IT

6 : C

O M

M O

N -S

IZ E

D B

A LA

N C

E S

H E

E TS

o f A

ss et

AS S

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20 13

20 12

20 11

20 12

20 11

20 13

20 12

20 13

20 12

20 11

20 12

20 11

20 12

20 11

C as

h &

m ar

ke ta

bl e

se cu

rit ie

s 20

.5 23

.7 22

.3 23

.4 16

.5 22

.3 20

.2 12

.9 26

.9 33

.3 10

.4 6.

2 11

.7 5.

4 20

.7 17

.3 A

cc ou

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.1 14

.8 30

.2 33

.6 6.

2 4.

6 17

.9 22

.3 13

.9 14

.5 15

.1 14

.1 18

.5 19

.8 13

.2 14

.1 In

ve nt

or ie

s 11

.6 7.

7 19

.1 16

.1 0.

4 0.

7 4.

6 7.

5 2.

9 3.

2 5.

8 5.

1 6.

4 9.

8 10

.1 P

re pa

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se s

& o

th er

c ur

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a ss

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24 .2

28 .3

3. 7

5. 7

9. 5

11 .1

11 .3

8. 7

15 .1

15 .2

15 .3

13 .3

34 .3

38 .6

4. 5

To ta

l c ur

re nt

a ss

et s

73 .4

74 .5

75 .4

78 .8

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For the exclusive use of S. JI, 2019.

This document is authorized for use only by SHENGCHAO JI in UD - Portfolio Management-1 taught by JON FULKERSON, University of Dayton from Jan 2019 to Jul 2019.

P ag

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This document is authorized for use only by SHENGCHAO JI in UD - Portfolio Management-1 taught by JON FULKERSON, University of Dayton from Jan 2019 to Jul 2019.

Page 12 9B13N017

EXHIBIT 8: LENOVO STOCK PERFORMANCE June 2008 to June 2013, monthly

(US dollars)

Source: Yahoo!Finance, accessed July 7, 2013.

For the exclusive use of S. JI, 2019.

This document is authorized for use only by SHENGCHAO JI in UD - Portfolio Management-1 taught by JON FULKERSON, University of Dayton from Jan 2019 to Jul 2019.

Page 13 9B13N017

EXHIBIT 9: COMPETITORS’ STOCK PRICES June 2008 to June 2013

Indexed to June 2008 = 100

Source: Yahoo!Finance, accessed July 7, 2013.

For the exclusive use of S. JI, 2019.

This document is authorized for use only by SHENGCHAO JI in UD - Portfolio Management-1 taught by JON FULKERSON, University of Dayton from Jan 2019 to Jul 2019.

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18 .1

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13 .5

% R

et ur

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3. 0%

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23 .7

% 22

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8% -1

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G R

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14 .5

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-5 .6

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44 .6

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32 .3

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N N

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N -6

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N 88

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R O

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35 .3

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22 .2

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Pr of

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23 .9

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As se

t t ur

no ve

r 2.

01 1.

86 1.

89 1.

91 0.

89 0.

93 0.

84 1.

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20 1.

39 1.

11 0.

98 1.

01 1.

07 1.

11 1.

06 Fi

na nc

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ev er

ag e

6. 3x

6. 5x

3. 0x

3. 3x

1. 5x

1. 4x

4. 5x

5. 0x

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3. 2x

2. 6x

1. 5x

Ap pl

e D

el l

H ew

le tt

-P ac

ka rd

Le no

vo Ac

er B

la ck

B er

ry N

ok ia

Sa m

su ng

“N

” i nd

ic at

es in

st an

ce s

w he

re it

w as

n ot

p os

si bl

e to

c al

cu la

te a

g ro

w th

r at

e be

ca us

e of

n eg

at iv

e nu

m be

rs in

o ne

o f t

he tw

o ye

ar s.

ou rc

e: M

er ge

nt on

lin e,

S E

C fi

lin gs

, C as

e w

rit er

s, a

cc es

se d

Ju ly

2 0,

2 01

For the exclusive use of S. JI, 2019.

This document is authorized for use only by SHENGCHAO JI in UD - Portfolio Management-1 taught by JON FULKERSON, University of Dayton from Jan 2019 to Jul 2019.

P ag

e 16

13 N

01 7

X H

IB IT

1 2:

R A

TI O

D E

FI N

IT IO

N S

IQ U

ID IT

Y C

as h

& m

ar ke

t. s

ec .

to t

ot al

a ss

et s

= (C

as h

+ M

ar ke

ta bl

e S

ec ur

iti es

) /

To ta

l A ss

et s

Q ui

ck r

at io

( ac

id t

es t)

= (C

as h

+ M

ar ke

ta bl

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ec ur

iti es

+ A

cc ou

nt s

R ec

ei va

bl e)

/ T

ot al

C ur

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bi lit

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C ur

re nt

r at

io =

To ta

l C ur

re nt

A ss

et s

/ To

ta l C

ur re

nt L

ia bi

lit ie

s W

or ki

ng c

ap ita

l / s

al es

= (T

ot al

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ta l C

ur re

nt L

ia bi

lit ie

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R ev

en ue

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( R

es ou

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in ve

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os t

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s of

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ay ab

C A

P A

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F in

an ci

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ev er

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t /

to ta

l a ss

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ay ab

le +

L on

g- Te

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eb t)

/ T

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(S ho

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on g-

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D eb

t) /

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m on

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ity Lo

ng -t

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d eb

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co m

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ity =

Lo ng

-T er

m D

eb t

/ C

om m

on E

qu ity

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l d eb

t /

E B

IT D

A =

(S ho

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ro w

in gs

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ab le

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on g-

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O pe

ra tin

g In

co m

e, B

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ep re

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IT D

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in te

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= O

pe ra

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m e,

B ef

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IT /

in te

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pe ra

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te re

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xp en

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B IL

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R et

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os s)

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om m

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qu ity

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R O

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P O

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( D

up on

t fo

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ar gi

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ve ra

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ro fit

m ar

gi n

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ci al

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= To

ta l A

ss et

s /

To ta

l E qu

ity

S ou

rc e:

C as

e w

rit er

For the exclusive use of S. JI, 2019.

This document is authorized for use only by SHENGCHAO JI in UD - Portfolio Management-1 taught by JON FULKERSON, University of Dayton from Jan 2019 to Jul 2019.

P ag

e 17

13 N

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be fo

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a nd

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ef or

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te re

st a

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or ec

as ts

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f or

t ha

t co

m pl

et e

fis ca

l ye

ar :

th e

20 13

c ol

um ns

pr es

en t f

or ec

as ts

fo r

th e

co m

pl et

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13 fi

sc al

y ea

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hi le

th e

20 14

c ol

um ns

r ep

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nt fo

re ca

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fo r

th e

su bs

eq ue

nt 2

01 4

fis ca

l y ea

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or ec

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om J

un e

20 13

. F

or ec

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f or

t he

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irm s

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J un

e 27

a nd

J un

e 28

, 20

13 .2

3 E

nt er

pr is

e va

lu e

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ef in

ed a

s “F

is ca

l P er

io d

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M ar

ke t

C ap

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at io

n pl

us P

re fe

rr ed

S to

pl us

M in

or ity

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t pl

us T

ot al

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t m

in us

C as

h” .2

4 F

or e

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A ,

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IT ,

an d

pr ic

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rn in

gs ,

th e

nu m

er at

re pr

es en

ts “

th e

la te

st E

nt er

pr is

e V

al ue

u si

ng c

ur re

nt m

ar ke

t c ap

ita liz

at io

n co

ns ol

id at

ed a

nd th

e la

te st

in te

rim v

al ue

s fo

r th

e co

m pa

ny "

w hi

le th

e de

no m

in at

or r

ep re

se nt

s "t

la te

st c

on se

ns us

f or

ec as

te d

E B

IT D

A (

or S

al es

o r

E B

IT )”

o ne

o r

tw o

ye ar

s fo

rw ar

T he

e nt

er pr

is e

va lu

e fig

ur e

us ed

in L

en ov

o’ s

fis ca

l y ea

r 20

14 “

E nt

er pr

is e

va lu

e/ sa

le s”

tim at

e re

lie s

on L

en ov

o’ s

st oc

k pr

ic e

on t

he d

at e

th e

fo re

ca st

w as

u pd

at ed

( Ju

ne 4

, 20

13 ,

in L

en ov

o’ s

ca se

T he

c al

cu la

tio n

fo r

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vo ’s

f is

ca l y

ea r

20 14

“ E

nt er

pr is

e va

lu e/

sa le

s” is

a s

fo llo

w s:

( M

ar ke

t C ap

C on

so lid

at ed

– C

as h

G en

er ic

+ S

ho rt

T er

m D

eb t +

L on

g T

er m

D eb

t + P

re fe

rr ed

S to

ck +

M in

or ity

In te

re st

) / F

or ec

as t E

B IT

D A

fo r

F Y

14 . T

he c

al cu

la tio

n fo

r Le

no vo

’s fi

sc al

y ea

r 20

14 “

E nt

er pr

is e

va lu

e/ sa

le s”

is a

s fo

llo w

s: (

M ar

ke t C

ap C

on so

lid at

ed –

C as

h G

en er

ic +

S ho

rt T

er m

D eb

t + L

on g

T er

m D

eb t +

re fe

rr ed

S to

ck +

M in

or ity

In te

re st

) / F

or ec

as t E

B IT

D A

fo r

F Y

2 01

“N ” i

nd ic

at es

n eg

at iv

e fig

ur es

in th

e de

no m

in at

or s.

ur ce

: T ho

m so

n O

ne ; W

or ks

co pe

, I B

E S

; C as

e w

rit er

s, a

cc es

se d

Ju ly

2 0,

2 01

23 J

un e

27 , 2

01 3:

A pp

le ; B

la ck

B er

ry ; D

el l.

J un

e 28

, 2 01

3: A

ce r;

S am

su ng

24 e

xt ra

ne t.d

at as

tr ea

m .c

om /D

at a/

W or

ld sc

op e/

in de

x. ht

m , d

ef in

iti on

o f W

or ld

sc op

e ite

m W

C 18

10 0

E nt

er pr

is e

V al

ue , a

cc es

se d

Ju ly

1 8,

2 01

For the exclusive use of S. JI, 2019.

This document is authorized for use only by SHENGCHAO JI in UD - Portfolio Management-1 taught by JON FULKERSON, University of Dayton from Jan 2019 to Jul 2019.