This news will cheer investors, who have raised some questions about the firm’s
strategy of late. For a number of years, Western institutional investors have
favoured its shares. This is partly because Lenovo has, unusually among Chinese
companies, strong corporate governance. It was also because Mr Yang has had a
clear growth strategy and his firm has delivered predictable earnings. But at the end
of January there was a heart-stopping moment, when the firm announced two
startling acquisitions in the space of a few days.
The first deal, worth $2.3 billion, involves Lenovo buying the part of IBM that
makes low-end computer servers. These servers should bolster Lenovo’s efforts to
appeal to corporate clients. The other, more controversial, deal is a $2.9 billion
purchase from Google of Motorola Mobility, a pioneer in mobile phones that has
fallen on hard times. If regulators approve—America’s are sure to scrutinise the
IBM deal carefully, since its government agencies buy those servers—both deals
should close by the end of the year.
The size and suddenness of these purchases, and concerns about them turning sour,
upset even loyal investors. Pressed to defend his buying binge, Mr Yang promises
no more big acquisitions for the foreseeable future. But he defends his firm’s ability
to make a go of these two. “We have a good track record turning money-losing
businesses into treasure,” he says.
He points to Lenovo’s first big foray overseas, when it bought IBM’s unprofitable
PC business in 2005. Many doubted that an obscure Chinese firm could save a
Western premium brand in trouble, but that is precisely what Lenovo has done.
Indeed, it is perhaps the only Chinese firm so far to have developed world-class
marketing skills. Big Blue’s former PC division is now a cash cow, Mr Yang declares,
smiling broadly. So too is the Chinese market, where the firm has a vast distribution
network and universal brand awareness: “We have two cash cows.”
The firm’s recent financial performance is impressive, but two big questions still
hang over Lenovo’s future. First, how can it keep making money as demand for PCs
shrinks? Second, how can it keep up with the formidable Samsung and Apple in
smartphones? The answer to both questions springs from the other half of Mr
Yang’s boast: innovation.
Most industry experts think the mobile revolution means that desktops and laptops
are headed for the dustbin of history. Mr Yang disagrees: “This is still a very big
industry, and with innovation there will be further growth.” He reels off a long list
of features his firm is working on: longer battery life, “always on” modes, thinner