The Lenovo Juggernaut Rolls on Unabated

Dr Pikay Richardson

Chinese personal-computer maker Lenovo Group is looking to acquisition to fuel further growth. The company has great ambitions, and cash to fund its plans. Will it be able to balance innovation and efficiency?

Lenovo recently concluded two deals worth collectively about $5bn. The company has acquired IBM’s low-end server business for $2.3bn and from Google, Motorola Mobility handset operations for $2.9bn. Both were seen as Lenovo’s efforts to diversify beyond PCs into other faster growing areas of the computer industry.

Growing through acquisitions

Lenovo’s foray into other business segments was not entirely surprising. Having beaten HP to become the world’s largest PC maker by shipments, it has been looking for new sources of growth, mainly in smart phones and servers and storage systems. “We will continue to use acquisitions as a means to grow”, Lenovo Chief Executive Yang Yuanqing said after a shareholders meeting in Hong Kong. “Wherever there is a good opportunity, we will grasp it”.

The company has great ambitions, and an extra cash store to match. After paying $4.7bn, it still has $2bn on hand, according to Wang Wai Ming, Lenovo’s chief financial officer. What is more, the current low-interest environment provides opportunity to raise further funds, which Lenovo is considering, according to Mr Wang.

Lenovo’s strong corporate governance regime

Investor confidence is high. On 21st May, Lenovo announced its full-year results in Hong Kong where it has been listed since 1994. Its revenues were 14% higher than the year before, at $38.7bn, while pre-tax profits topped over $1bn for the first time in its history, up 27% on the year before. But this is only part of what is causing the investor euphoria. The other is that, Lenovo unusually for a Chinese Company, claims a strong corporate governance regime, as well as consistently delivering predictable returns.

Lenovo’s ability to turn around the controversial $2.9bn purchase of Motorola Mobility has been questioned. The pioneer mobile phone has fallen on hard times, but Mr Yang has responded to skepticism by saying that he was confident his company will be able to turn around the unprofitable business in four to six quarters, based on a strategy of increasing economies of scale rather than trimming staff.

From losers to treasures

“We have a good track record of turning around money-losing businesses into treasure”, he said, pointing to Lenovo’s first foray into foreign markets when it bought IBM’s loss-making PC business in 2005. Few believed then that an obscure Chinese company could save a Western premium brand, but this is precisely what Lenovo has done. Yang went on “Lenovo is the best company in the world when it comes to balancing innovation and efficiency.”

Whether or not this claim is sustainable is more a matter of “wait and see”.

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3 Responses to The Lenovo Juggernaut Rolls on Unabated

  1. Paul Hinks says:

    Hi Pikay – I remember reading about Yang Yuanquing donating his $3m bonus to junior staff (going back a couple of years now) – at the time I was a little cynical about his motives … was this a ‘cheap publicity’ stunt to gain quick kudos? Perhaps, but Lenovo have continued to prosper under Yuanquing leadership. Perhaps I should now recognise the gesture as a genuine effort to help ‘take others with him’ … to share success.

    Yang Yuanquing doesn’t share a high profile like some other CEOs – but he is building a track record of success. The challenge of research and innovation versus improving efficiencies is an interesting dilemma, but one not unique to Lenovo or even the technology sector.

    I see Apple, Amazon and Google as examples of firms that have introduced innovations that created new markets; Lenovo appears to innovate within mature markets.

  2. Thanks Paul,

    As you are one of the most successful contributors to LWD, your views are really appreciated. I’m pleased you picked up on the dilemma in the case!

  3. […] The Lenovo Juggernaut Rolls On Unabated June 10th, 2014 — “Dr Pikay Richardson Chinese personal-computer maker Lenovo Group is looking to acquisition to fuel further growth. The company has great ambitions, and cash to fund its plans. Will it be able to balance innovation and efficiency? Lenovo recently concluded two deals worth collectively about $5bn. The company has acquired IBMs low-end server business for $2.3bn […]” 2 Comments […]

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