Lenovo’s Move to Industry Leadership

on November 12, 2014

Many descriptions of the smartphone business focus on the competition between Apple and Samsung, with some attention paid to the assault of Xaiomi in Asia. The computer business is concerned with Macs and occasionally Windows. Hardly anyone pays attention to the sale of low end Intel-based servers.

That may be why there is a tendency to overlook the activities of Lenovo, a Chinese-and-semi-American manufacturer that has been making a considerable impact on the industry. While attention has been mostly distracted, Lenovo has become the global leader in the PC business, is moving into third in the phone business, and becoming an important leader in the x86 server business.

I have been following Lenovo for a long time. I was a member of the rather grandiosely named IBM Mobile Computing Industrial Advisory Council and traveled to Beijing (along with a group that included Tim Bajarin) for the official close of the sale of the IBM PC business to Lenovo in 2005. I stayed on for nearly five years with the Lenovo version. We knew little or nothing about Lenovo at first except that it had changed from being the domestic Chinese PC company called Legend into a business with far greater international ambitions.

PC salesIn PCs, Lenovo has had somewhat slow but steady growth in the computer market, having taken the number one spot over Hewlett-Packard this year. It’s my bias, but I find ThinkPads the only serious contenders to MacBooks. Lenovo also does well with ThinkCentre desktops, a corporate market to which most industry analysts don’t give a lot of attention. Consumers and small business markets are offered Lenovo-branded laptops and desktops. And the redone Lenovo Yoga may be the best Windows table available.

 

The phone business requires more effort. In recent years, Lenovo has been in the phone market producing Android phones for China, gradually expanding into the larger Asian market. Its dramatic effort in the rest of the world’s market was buying the phone business from Google, a plan still pending an approval that appears all but certain. (Google made clear its intent in the Motorola purchase by selling the phones and holding on to the patents part of the package.) Combing its own phones with Motorola should make Lenovo third in the market this year, though lagging at a considerable distance behind Apple and Samsung. Still, if you doubt Lenovo’s long term plans, consider the statement in its second quarter presentation: “We will attack the top 2 to become the leader–just like in PCs.”

Lenovo’s other recent measure was the acquisition of IBM’s Intel-based servers. Lenovo had started its own line of x86 servers, but had been a relatively small players, at least outside of China. The IBM acquisition, which has just been closed, gives Lenovo a complete line of x86 servers and makes it competitive with HP and Dell.

Lenovo is well equipped to compete in the PC, phone, and server market because it is prepared for a business of high volume and low margins. In its most recent revenue quarter, its sales increased to $20.8 billion, 12% over the same period last year (and before the addition of servers). But it could claim only $483 million in net profit, 26% more than last year but only 2.3% of revenue.

A somewhat curious split beast, Lenovo is based in both Beijing and Morrisville, N.C. The senior IBM official surviving at Lenovo is chief technical officer, once a top executive in the ThinkPad business. The leadership is mostly Chinese, including CEO Yang Yuanqing but other westerners include COO Gianfranco Lanci, former CEO of Acer; America’s head Jerry Smith, formerly from Dell; and CMO David Roman, an Apple and HP veteran.