The Trea­sure Hunter of Tech

The Economic Times - - Q - Drake Ben­nett

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’s Rise

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

lap­top

Name changed to

Lenevo

Yang re­turns as CEO

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