The Treasure Hunter of Tech
Earlier this year, Lenovo went shopping. The Chinese maker of computers and smartphones said in late January that it was buying Motorola, the iconic mobile phone brand, from Google for $2.9 billion, less than a week after announcing the $2.3 billion purchase of IBM’s low-end server business. If the two deals receive US government approval, Lenovo will have more than tripled in revenue, going to almost $50 billion from $15 billion five years ago.
Top PC Seller
Even before those acquisitions, the company’s expansion has been striking. Last year it became the top-selling personal-computer maker in the world. Four years after introducing its first smartphone, the LePhone, it is fourth in that business globally — and with Motorola it will become third, behind Samsung and Apple.
Ten years ago, Lenovo sold only one product, PCs, in one country, China. Now it sells PCs, phones, tablets and servers in over 160 countries. It has 46,000 employees. And yet, in US and Europe — where many of its users are managers and salespeople with corporate-issue Lenovo ThinkPads —the name barely registers.
Partly this is because Lenovo, for much of its history, has focused its efforts on China, but it’s also because under its chief executive officer, Yang Yuanqing, Lenovo has taken an unglamorous approach to empire building. Unlike Apple, Samsung, Hewlett-Packard and most other major manufacturers, Lenovo builds much of its own equipment in its own low-cost factories. And over the past decade the company has grown into a global giant by being a kind of computer industry rollup, cannily scavenging other companies’ castoffs. “Not only can we keep the manufacturing profit, but we can also be more innovative than the other PC companies,” Yang says. “That’s why over the past five years we beat every PC company in the world.”
It Wants Troubled Assets
Google is dumping Motorola, which it purchased for $12.5 billion in 2012 primarily to get its patent portfolio, thus getting itself out of the awkward position of competing against the phonemakers that use its Android operating system.
IBM’s sale of its server unit is part of a decade-old transition from hardware manufacturing to the highermargin businesses of consulting and software services. That shift started when IBM sold its PC division in 2005, also to Lenovo, back when the company was unknown even in corporate America’s purchasing departments. It’s the consumer electronics version of the Moneyball strategy: Instead of ballplayers, Lenovo hunts undervalued businesses in sectors others are desperate to escape. In PCs, the strat- egy has paid off handsomely. “The IBM PC business was seen by IBM as a troubled asset,” says Roger Kay, a technology market analyst, “and Lenovo turned it around and made it the most profitable PC business in the world.” The fact remains, though, that the PC market is shrinking, and economic growth in China, still Lenovo’s biggest market, is slowing. Its latest shopping spree is in part an acknowledgment of those forces. The company is looking to become a force in the still-growing business of mobile: a maker and marketer of smartphones, tablets and whatever as-yetundetermined device consumers of the near future come to believe they need on their person at all times. Motorola gives Lenovo an infusion of talent, access to a bundle of intellectual property — Google is keeping the patents but will license them to Lenovo royalty-free — and a brand that, despite losing more than $1 billion last year, remains one of the bestknown in phones. Jumping into mobile also puts Lenovo in unfamiliar territory: a dynamic market that’s contested by the biggest powers in tech. “For Lenovo, the competition has shifted from HP and Acer and Dell to Samsung and Apple,” says William Grabe, a board member and a former IBM executive. “Lenovo wants to be a hundred-billion-dollar company, and you’re not going to get there just by improving PCs or even servers.”
Yang, 49, is among China’s biggest business celebrities, and biographies describe his modest upbringing, his wealth, his strategic boldness and his personal humility. In 1989, when Yang joined the company as a salesman with a freshly minted master’s degree from the University of Science and Technology in China, the company was called Legend. Legend’s leader, Liu Chuanzhi, asked Yang, Then known as Legend, the company is listed on the Hong Kong on the hong stock Exchange then 29, to head Legend’s PC division. The young executive quickly shocked the company by introducing performance-based bonuses, firing people and insisting that managers be addressed by their given names. He also began carpeting China with franchised Legend retail stores. In 1997 the company, by then publicly traded in Hong Kong, became the top PC maker in China. When Liu retired as CEO in 2001, Yang succeeded him and immediately expanded the company’s reach. “Just focusing on China was not enough,” he says. “We had to become global players.” Because “Legend” was already taken in some foreign markets, Yang changed the name to Lenovo—it hinted at newness, preserved part of the old name, and, being made up, was available. The question was, what did the renamed company have to offer outside China? After all, it had built its business on tailoring products for Chinese consumers or being the first to offer technologies already on shelves elsewhere. Yang’s answer was to buy IBM’s PC business.
He Takes to America
After the $1.25 billion purchase was completed in 2005, the company kept IBM’s research and development lab in Yamato, Japan, and turned the IBM PC office in Morrisville, North Carolina, into a second headquarters. Yang stepped aside as CEO and chose an American to succeed him: Stephen Ward, head of IBM’s Personal Systems Group. Yang became chairman, moved to North Carolina, hired an English tutor, and put himself on a steady diet of cable news to get an ear for the idioms. He also took up the exotic American practice of daily exercise. When Lenovo was hit hard by the global eco- Already the largest PC manufacturer in China, Legend signs a deal with Microsoft to include Windows 95 on all its computers nomic crisis, Yang returned to run the company in 2009. Lenovo has surged since then.
Fishing for Companies
Annual revenue has more than doubled, from $15 billion in 2009 to $34 billion, and a $226 million loss has become an $800 million profit. David Roman, the marketing chief, points out that last year, when Lenovo sold more computers than anyone else in the world, it sold even more phones and tablets than computers. The growth has been helped by a series of smaller deals. In 2011, Lenovo bought Medion, a German consumer electronics company, and entered into a joint venture with Japanese computer maker NEC. Last year it completed the purchase of CCE, Brazil’s leading computer company, and opened a factory in São Paulo state. Yang knows that pushing further down-market in China won’t be enough to counteract the tailing off of the PC business. His ambitions lie in what he calls “the premier space.” Lenovo has introduced a series of high-end PCs, the most successful of which is the Yoga, a laptop with a touchscreen that folds over backward and can be used as a display or folded flat into a large, rather heavy tablet. As it becomes better known, Lenovo may face an image problem: In the West, Chinese tech companies are often hounded by the suspicion that they serve Beijing’s intelligence services. Lenovo executives firmly deny any spying charges.
Still, the bigger danger for Lenovo is likely to be the indifference of consumers, especially in mobile. Technology analyst Horace Dediu says Samsung and Apple account for almost half of all mobile phone shipments worldwide and 100% of the profit. Even with Motorola, Lenovo’s slice of the pie in the smartphone sector will be only 5.7%. Yang knows he’s taking a risk. He says it’s an unavoidable one, and a wager Lenovo is well equipped to win. “We are reliable at turning around businesses,” he says. “We have a good track record. If you are doing a no-risk business, everybody can compete in that, so why are you
doing it?” Bloomberg Businessweek Lenovo buys IBM’s personal computing division for $1.25 b; Yang relinquishes CEO duties to an American Legend introduces its first mobile phone, using Texas Instruments chips Lenovo buys IBM’s server hardware division and Motorola Mobility
Lenovo tries to buy Packard Bell but is foiled when rival Acer buys Packard’s parent company, Gateway Computers Lenovo posts record profits
Added to Hang Seng Index
Legend sells its first
Name changed to
Yang returns as CEO