Lenovo chief continues risk-taking with Motorola and IBM deals

January 31, 2014 12:46 pm

Lenovo chief continues risk-taking with Motorola and IBM deals

By Charles Clover in Beijing

Yang Yuanqing sees through two dramatic deals

Yang Yuanqing’s colleagues at Lenovosimply call him YY. The chief executive of the world’s biggest PC maker has a self effacing and cautious manner that, however, combines unevenly with his dramatic and risk-taking approach to business.

This can be equal parts inspirational, equal parts maddening for his colleagues, but the results speak for themselves.

Under Mr Yang’s leadership, Lenovo’s PC sales continued to expand even as the rest of the industry was severely eroded by the rise of smartphones and tablets.

Two stunning acquisitions in the past week could vaultLenovo to the ranks of a global leader in smartphones and cloud computing – unless the cost of the deals and the clash of corporate cultures pulls them apart first.

On Thursday, Lenovo agreed to acquire the Motorola handset business from Google for $2.9bn, a week after its $2.3bn deal to buy part of IBM’s server business. The Motorola purchase alone will push Lenovo from number four to number three smartphone maker globally. Mr Yang calls the deal a “shortcut” into the US market, saying he believes Lenovo can double its handset sales to 100m units in a year.

Anshul Gupta, who analyses the smartphone market for Gartner, said “Lenovo depends on one market for smartphones – China. If they want to grow globally they have to move out of China. And US market is not just important in volume terms, it shapes the smartphone market worldwide.”

Mr Yang’s hard charging attitude to business was underlined by the decision to announce the purchase of Google’s Motorola Mobility business the day before the lunar new year celebrations – a week of visiting, feasting and holiday that is considered by most Chinese to be an inviolable and sacrosanct right.

“Now a lot of Lenovo’s Chinese staff are going to spend new year’s in the US. I’m sure they’re not thrilled about that,” said one analyst.

Making hard choices – and ramming home an American-style performance culture in the business – has been Mr Yuanqing’s personal mission since he returned as chief executive in 2009. At the time, Lenovo was in trouble, following its acquisition for $1.25bn in 2005 of IBM’s personal computer business.

Mr Yang, who had engineered the 2005 deal as chairman, saw Lenovo try to gobble up an entity double its size. It was never going to be easy, and the company made huge losses. On his return, Mr Yang oversaw the cutback of a tenth of the workforce in an effort to recover.

The acquisition of IBM’s Thinkpad business now seems Einsteinian, but Lenovo executives say candidly that it almost did not work out. “It was like transplanting an organ, and the organ almost failed,” says one.

Today, the same risks remain. The deals are expensive, and depend on integrating two very different corporate cultures. Success in the hyper-competitive smartphone market will be harder than in computing. “This time Lenovo may have jumped the shark,” says Alberto Moel, an analyst at Sanford C Bernstein, in Hong Kong.

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Lenovo shares were down 8 per cent on Thursday, amid the perception that the company had paid too much, and might be forced to dilute shares with a new issue.

However, under Mr Yang’s leadership Lenovo has “gone a long way to working out how to deal with different cultures,” according to Roger Kay of Endpoint Technologies Associates.

“When things were steering badly he stepped back in and became more involved,” said Mr Kay.