LENOVO

LENOVO

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Lenovo is China’s largest computer maker and the third largest computer company in the world behind Dell and Hewlett Packard. It is sells one third of the branded computers sold in China and make computers and computer parts for a number of foreign companies. It was valued at $15 billion in 2007.

Formally known as Legend, Lenovo is based in Beijing and listed on the Hong Kong Stock exchange. Partly owned by the Chinese government, it was founded in Beijing in 1984 by researchers with $25,000 from a science academy and got its start as a distributor for personal computers for IBM, Hewlett Packard and the Taiwanese PC maker AST in China. In 1997 it surpassed IBM to become the largest seller of personal computers in China. It had $3 billion in sales in 2003, selling PC for as little as $360 and having a large share of sales in the government and in schools. That year 89 percent of its revenues came from China.

Lenovo holds about 30 per cent of its home market, which is one of the fastest growing globally and which is expected to become the world’s largest within a year.Lenovo has expanded aggressively outside China since it became a global brand by acquiring IBM’s PC unit in 2005.

Lenovo has headquarters in Beijing and in the U.S. Liu Chuanzhi is the current CEO of Lenovo as well as its founder. Lui Chuanzhi, a former government scientist who spent three years at a labor camp during the Cultural Revolution, founded the business with a $24,000 loan from the government while he was a scientist at the Chinese Academy of Science.

Lenovo was the first company to sign up as a sponsor for the 2008 Olympics in Beijing. It reportedly paid $65 million for a sponsorship deal involving the 2006 Olympics in Turin and the 2008 Olympics in Beijing that includes providing computer equipment and services for both Olympics. .

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Lenovo is well entrenched in China and is regarded as one of China’s most trusted brands. As of 2007, it had 35 percent market share of the Chinese PC market and sold it products at more than 9,000 retail outlets. It has been able to out-compete foreign rivals such as Dell and IBM in China partly because it doesn---t have to pay the tariffs foreign companies pay. Its market share in China shrunk after China joined the WTO as Dell and Hewlett Packard made inroads into the Chinese market.

Lenovo overtook Taiwan's Acer Group in 2011 to become the third-largest PC vendor, according to International Data Corp. It trails Hewlett-Packard and Dell in sales; its 2011 tie-up with NEC helped push it back into third place. Lenovo said its global market share had risen steadily and reached 10.2 percent in 2010, up 1.7 percentage points from a year earlier.

Lenovo has started selling computers on the international market under the Lenovo name. As of 2004, before the IBM deal, it had a 2.6 percent share of the global personal computer market. It had sales of $100 million in Italy, Spain, Germany and Britain, most of it in computer parts.

Lenovo Sales and Profits

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Profits in the year from April 2010 to March 2011 rose to $273 million from $129.4 million a year earlier, the company said. Global sales rose 30 percent to $21.6 billion. China contributed 46.4 percent of sales, or $10 billion, while other emerging markets provided 17.9 percent, or $3.9 billion. The US, Europe and other mature markets contributed 35.7 percent of sales, or $7.7 billion. Profit for the three months ending June 2011 was $108 million, or 1.11 U.S. cents per share, up 98 percent from a year ago, Lenovo said. It said sales rose 15 percent from the same period last year to a quarterly record of $5.9 billion and global market share hit a high of 12.2 percent. [Source: AP, May 28, 2011]

Growth has been driven by strong demand in China and other emerging markets and a revival in purchases by corporate customers that had put off buying new computer equipment following the 2008 global financial crisis, Lenovo said.

Sales in China account for 46 percent of global sales, sales have also been strong in emerging markets such as in Russia, Latin America and India. Lenovo said PC shipments in Africa, Latin America and other emerging markets rose 45.7 percent in the April-June 2011 quarter over a year before. In the same period shipments in China rose 23.4 percent, shipments in North America rose 30.8 percent while those in Japan were up 14 percent.

PC sales face challenges amid an uncertain outlook for the global recovery, Europe’s debt crisis and further tightening of economic controls by China. It’s PC division faces the threat from the growing popularity of tablet computers. Lenovo entered wireless Internet in 2010 and has launched smartphones and Web-linked tablet computers in competition with Apple, South Korea's Samsung Electronics and Taiwan's HTC. It unveiled a low-priced smartphone in August 2011 to target developing markets.

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Lenovo sells computers to the U.S. State Department, including branches that deal with classified materials. There is some concern in the United States that the computers could be rigged in a way so they could provide classified materials to the Chinese government.

Lenovo’s aim is to become a global brand. It is introducing new products, building a worldwide distribution system and spending a lot of money, including $50 million to be a top-tier sponsor at the Beijing Olympics, to gets its name and brand recognized. In the United States, it is expanding sales outlets and charging lower prices than its rivals with desktops for as little as $350. In India, it is using Bollywood stars to advertise its products. Company CEO Yang Yuanqing told AP, “We went from a company that operated solely in China to a company with operations around the world. The Lenovo, which was unknown outside of China before, is now known to more and more people around the world.”

Lenovo stock, which is listed on the Hong Kong stock exchange, rose 120 percent between late 2006 and late 2007. Profits rose to $66.8 million in the second quarter of 2007, with the Chinese market account for two thirds of sales. There is some chance Lenovo will be listed on the New York Exchange.

Lenovo recorded its first loss in three years in the final quarter of 2008 and its stock marked its biggest decline since 1998 due to the global economic crisis. Lenovo reported losses of $97 million in the forth quarter of 2008 on the back of a 20 percent drop in sales due to the economic crisis in 2008 . The company cut 11 percent of its work force as a result. CEO William Amelio resigned and was replaced by Yang Yuangqing.

Lenovo has had some success with it new line of small, sleek laptops and cheap netbooks

Lenovo’s Strategy

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Lenovo F1 Car
After spending the past two years focusing on expanding sales, Lenovo is changing strategy to give equal emphasis to profits, CEO Yang Yuanqing said in August 2011. "We will continue to invest in capturing growth in emerging markets while focusing on improving profitability," Yang said. [Source: AP, May 28, 2011]

Lenovo was the only Chinese company that was a major sponsor of the Olympics. It was a co-sponsor of the torch relay and designed the striking scroll-like Olympics torch. It also provided more than 10,000 pieces of computing equipment and 500 engineers to help deliver data and results from more than 300 events to the media and audiences around the world. Lenovo was one of twelve 2008 Summer Olympic Games worldwide partners that has marketing rights to use the Olympics logo globally. It also is a major sponsor in Formula One racing.

In 2011 Lenovo expanded in developed markets with an acquisition this year in Germany and a joint venture in Japan. In June Lenovo announced its acquisition of Germany's Medion AG, a maker of multimedia products and consumer electronics, a move that would make it the second-largest PC vendor in Europe's biggest computer market. Lenovo launched a joint venture with Japan's NEC Corp., expanding its presence in the Japanese market.

The company's tablet shipments in China have lagged behind Apple's popular iPad but Yang said that was due partly to supply constraints. He said the company is aiming to achieve a 20 percent share in that market within by late 2012.

In June 2011, Lenovo announced that Yang, the CEO, bought 797 million shares in Lenovo from its parent company, Legend Holdings Ltd. That made him its second-largest owner after the holding company, with an 8 percent stake. A company spokesman said that reflected Lenovo's desire for its top managers to have an ownership stake in the company, which he said would improve performance. Executives on Thursday's conference call did not respond to a question about whether further share purchases by management were expected.

Lenovo and IBM

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at a souk in the Middle East
In December 2004, Lenovo Group’s bought a majority stake in the personal and laptop computer business of IBM for $1.75 billion, a relatively modest price It was one of the largest Chinese overseas takeover deals ever. The move quadrupled Lenovo’s sales and made it the third largest computer company in the world. Before the deal Lenovo was the 8th largest computer company in the world. Much of the deal was worked out by a woman, Mary Ma, Lenovo’s chef negotiator and chief financial officer. Lenovo is the world’s third largest personal computer maker. Lenovo wasn't the first Chinese company to acquire a big foreign brand, but it's still considered the pioneer.

The move improved Lenovo’s name recognition. Lenovo was able to freely use the IBM and Thinkpad names until 2010. After the acquisition Li said, “This acquisition will allow Chinese industry to make significant inroads on the path of globalization. IBM’s PC business operated factories in Raleigh, North Carolina and employs 10,000 people worldwide, with 40 percent of them already working in China. The entire company has 319,000 employees.

In the deal Lenovo obtained IBM’s desktop PC business, including research, development and manufacturing for $1.25 billion in cash and shares while IBM retains a 18.9 percent stake in the company. Including $500 million in liabilities Lenovo agreed at assume the total value of the deal was $1.75 billion. Lenovo moved its worldwide headquarters to New York. Its chief executive officer is Stephen Ward Jr., an IBM senior vice president. IBM held on to mainframe business and planned to focus on consulting, services and outsourcing.

IBM had want to unload its PC business for some time. It was a drain n the company’s resources. There were some worries the deal might be scuttled by U.S. regulators over national security concerns. There were other worries about the deal. including Lenovo’s lack of experience on the international markets and the weakness of IBM’s PC division, which often posted losses.

Lenovo After the IBM Deal

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The IBM deal boosted Lenovo’s global share to 7.7 percent, compared to 19.1 percent for Dell and 16.1 percent for Hewlett Packard. With IBM, Lenovo is the fifth largest company in China with sales of $12.5 billion, including $9.5 billion from IBM, in 2003. It has a 30 percent share of the computer market in China in 2006 It is 28 percent owned by the Chinese government and 13 percent owned by IBM.

Lenovo’s United States headquarters is in Raleigh, North Carolina. It Asian operations and most its manufacturing is in China. The company also has hubs in Singapore, Paris, Japan and India but no official headquarters. Executive meetings are held 10 to 12 times a years in cities around the globe.

A short time after the IBM deal it hired four of Dell’s top executives. Lenovo’s CEO (2007) is former Dell executive William Amelio. He is based in Singapore. The chairman is Yang Yuanqing who is based in Raleigh. Many top executive are based in Purchase, New York and Raleigh. Much of the research and development is done in China.

Lenovo relied more heavily on the higher-margin corporate market than its main rivals and was hit hard when companies slashed spending following the 2008 global finacial crisis. Lenovo responded to the crisis by following the lead of an increasing number of Chinese firms: returning to its roots. Yuan Yuanqing was reappointed its chief executive and refocused Lenovo on the company's one bright spot: the China market. Sales skyrocketed, despite lackluster performance overseas. Lenovo, according to Bob O'Donnell, a longtime expert on personal computers at IDC, "became a Chinese company again."

Analysis of Lenovo's Purchase of IBM


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John Pomfret wrote in the Washington Post,”Lenovo wasn't the first Chinese company to acquire a big foreign brand, but it's still considered the pioneer. That's probably because China's other forays into buying foreign brands have ended in disaster. An attempt by the Chinese electronics firm TCL to become the world's biggest TV manufacturer in 2003 fizzled when its French subsidiary lost $250 million. A move by a private Chinese company to take over a once-dominant U.S. lawn mower company, Murray Outdoor Power Equipment, ended in bankruptcy because, among other mistakes, the Chinese firm didn't realize that Americans tend to buy mowers mostly in the spring. [Source: John Pomfret, Washington Post, Tuesday, May 25, 2010]

Lenovo purchased IBM's laptop division for $1.25 billion---a gutsy move considering that IBM's renowned ThinkPad brand lost $1 billion from 2000-2004, twice Lenovo's total profit during that time. Although Lenovo's move was portrayed by many in the West as a sign of China's rise, Lenovo acted out of desperation, said Yang Yuanqing, who has been a senior executive at Lenovo since it was founded in the 1980s with government funds.

Lenovo was losing market share in China. Its technology was middling. It had no access to foreign markets. With one swoop, Lenovo internationalized, purchased a famous brand and got a warehouse of technology as well.

Analysts say Lenovo's rocky foreign adventure saved the company. Lenovo might not have much of a brand overseas, but its association with a foreign firm has helped it in China. Lenovo's computers routinely command twice the price in China that they do in the United States. Lenovo offers its top-of-the-line ThinkPad W700 to the Chinese government at $12,500; in the United States, it runs for $2,500.

Chinese officials pushing the going-out strategy have looked at Lenovo as a model for Chinese firms seeking to become known multinational brands. But for China's companies, going out might be the secret to staying alive at home.

Tough Going for Lenovo's After Its Purchase of IBM

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John Pomfret wrote in the Washington Post, “But from the start, things were tough. Lenovo's American competitors fanned anti-Chinese flames in Congress, insinuating that Lenovo could insert spyware into the computers it was selling to the U.S. government. The firm also faced enormous challenges bridging cultural divides among U.S. workers at its Raleigh, N.C., headquarters, the Japanese who made ThinkPads and the Chinese who made Lenovos.

William Amelio, the firm's second chief executive who had been lured from a top job at Dell, remembers his first trip to Beijing as the new Lenovo boss in late 2005. "I was greeted with rose petals and the red carpet treatment and company songs. In Raleigh, everyone's armed were crossed. It was like, 'Who died and left you the boss?' " he said. "You had the respect for power in the East and the disdain for authority in the West."

Meanwhile, Lenovo's competitors were moving. In 2007, Acer, the computer powerhouse from Taiwan, snapped up the European computer maker Gateway, effectively cutting Lenovo off from European customers. Lenovo slipped to fourth place worldwide behind HP, Dell and Acer.

Lenovo: Apple Is Losing out in China

Apple is missing a huge opportunity in the Chinese market, according to Liu Chuanzhi, the head of Lenovo. maker. Speaking of Apple’s chief executive, Liu told the Financial Times: “We are lucky that Steve Jobs has such a bad temper and doesn’t care about China. If Apple were to spend the same effort on the Chinese consumer as we do, we would be in trouble.” [Source: Kathrin Hille, Financial Times, July 4 2010]

Mr Liu told the Financial Times the LePhone, Lenovo’s first signature product in its push into mobile devices, was well placed to compete with the iPhone in China because the device, launched earlier this year, was customised for Chinese users. “This is a very practical thing. The iPhone has more than 100,000 content providers, and we have no more than 1,000,” he said. “But our Chinese customers feel our applications are very convenient to use.”

Lenovo Profit Nearly Double in the First Half of 2012

In November 2011, AP reported: The Lenovo Group, one of the world's leading personal computer manufacturers, reported that its profit in the first half of the year nearly doubled on strong emerging market sales. Net profit for the half-year period was $252 million, or 2.52 U.S. cents per share, up 92 percent from $131 million a year earlier. The results built on Lenovo's expansion into mobile Internet, competing with Apple Inc. and other foreign rivals, and in developed markets with an acquisition this year in Germany and a joint venture in Japan.[Source: Elaine Kurtenbach, AP, November 2, 2011]

Lenovo overtook Taiwan's Acer Group this year to become the third-largest PC vendor, according to International Data Corp. The company said improving commercial demand helped make up for weakness in consumer purchases. After spending the past two years focusing on expanding sales, Lenovo has adjusted its strategy to give equal emphasis to profits. A "protect and attack" strategy of sustaining its leading market position in China while expanding into other regions with diverse products helped fuel "balanced, strong growth in all geographic segments and products and customer segments," it said.

Lenovo said it held a worldwide PC market share of 13.5 percent in its second fiscal quarter, July-September, a trend that helped it regain a ranking among the Fortune Global 500 companies for the first time since 2008. Lenovo entered wireless Internet last year and has launched smartphones and Web-linked tablet computers in competition with Apple, South Korea's Samsung Electronics Corp. and Taiwan's HTC Corp.

Lenovo also announced a management reshuffle, as company chairman and founder Liu Chuanzhi stepped down and CEO Yang Yuanqing took on the chairmanship. Liu, who founded Lenovo in 1984, will remain chairman of Lenovo's parent company, Legend Holdings. He also was named "honorary chairman and senior advisor" of Lenovo, "In order to commend Mr. Liu's valuable contribution to the company ... and to benefit from Mr. Liu's tremendous experience," the company said in its notice to the Hong Kong stock exchange. Yang held the chairmanship of Lenovo from 2005 to February 2009, when Liu returned to help guide the company through the global crisis.

Image Sources: Wiki commons

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Yomiuri Shimbun, The Guardian, National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

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© 2008 Jeffrey Hays

Last updated April 2012

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