Dominating the headlines in the PC Industry last week were reports that Lenovo plans to purchase MSI’s gaming division.  Lenovo, had an impressive 18.8% share of the global PC market in 2014 (Gartner) and has one of the broadest PC lineups in the industry, including competitive products for consumers and businesses, but the area where it is lacking is gaming PCs.  Lenovo does offers Y-series laptops and Erazer-series desktops for gamers, but its gaming PCs are rather outdated and are not popular among many real gamers.  And if Lenovo was to acquire MSI, which is one of the leading gaming product makers, it would radically improve Lenovo’s position in the gaming market.  While rumors rarely come to fruition and hardware acquisitions are uncommon in the PC industry, the move does not seem unusual for Lenovo who has a history of making large-scale hardware acquisitions to strengthen its position, especially in the areas it views as opportunities.  

Lenovo Acquisition Timeline

You may ask why gaming PCs? Because the PC gaming market offers fast growth and is arguably Lenovo’s weakest segment.  Despite continued PC sales declines, gaming hardware is the only segment forecasted to see growth.  GPU leader, Nvidia, said that its gaming notebooks grew 5x in just three years, driving its GPU growth, adding that PC gaming represents almost 40% of the global gaming market, higher than consoles, or any other individual gaming segment. 

Nvidia is not alone in recognizing gaming PC growth.  Research from Open Gaming Alliance (OGA) notes that the PC gaming market is expected to exceed $35 billion by 2018 from $26 billion in 2014, and Lenovo, definitely does not want to miss out on this opportunity.  The report highlighted a core group of almost 86 million PC gamers for whom playing on the PC is a major pastime and who are spending not just on software, but also on PC hardware, as they buy expensive equipment to play, view, and record games.  According to gap intelligence’s data, a standard gaming notebook (17.3”, Core i7, 16GB, 1TB) sells for an average $1,699 retail price, which is much higher for an MSI configuration at $2,299, versus a consumer notebook with similar core specs that carries a $1,165 average retail price.  

OGA Forecast

Lenovo would be wise in going after MSI’s gaming business.  MSI recently said that while traditional laptop shipments are falling between 3% and 5% globally, its gaming laptops are growing between 11% and 15%.  gap intelligence is also seeing an increase in retail shelf space being dedicated to gaming machines.  Retail trends reveal that gaming laptop shelf placements grew 14% in just three months increasing their shelf share to 10% of all retail placements.  This increase in shelf placements is even more significant when seen in the light of shrinking retail.

Notebook Shelf Placements

Lenovo joins other large and powerful PC vendors that are also targeting gaming notebooks.  Alienware, with Dell behind it, can act on a global scale and offer extremely competitive products. HP, the world’s No. 2 computer maker, recently re-entered the gaming PC market with its Omen line.  Meanwhile, companies like Acer and Asus have revealed their increasing emphasis on the gaming notebook market with their respective Predator and ROG brands.  Lenovo too has its own gaming notebooks, but unfortunately its gaming PC product portfolio is not working well as Lenovo’s gaming notebook placement share fell by 50% in the last 13 weeks.  If Lenovo was to acquire MSI, it will help the company bring to the market leading edge-products tailored for serious gamers. 

Gaming Notebook Retail Shelf Share

It is not new news that the PC industry is in declines.  Lenovo has done a good job in climbing to the top position and maintaining its share.  However, to drive further growth, Lenovo will have to make sure that it is playing in every PC industry segment, especially in the ones that are growing.

In addition to the benefits to Lenovo, history supports that this rumor might be true.  Although hardware acquisitions in the PC industry are rare, they are more common within the gaming segment (Dell and Alienware, HP and Voodoo).  Lenovo, who has a long history of making acquisitions, surely sees a huge potential in the PC gaming industry and realizes that it is currently not well equipped to cash in on the growth.  MSI not only brings its gaming technology to Lenovo, but also brings with it, a well-established user base of brand loyal gamers.  If Lenovo does end up acquiring MSI or partnering with MSI for gaming PCs, although it will be one of the many acquisitions, it will definitely be impactful as it will allow Lenovo to tap into a new niche and help further solidify its leading position.