Lenovo continues strategy of acquiring loss-making firms

March 1, 2014 Leave a comment

Lenovo continues strategy of acquiring loss-making firms

Staff Reporter

2014-02-25

Chinese PC giant Lenovo Group announced two major acquisitions before the Chinese New Year holiday at the end of January, almost a decade after it bought IBM’s PC business, the move which paved the way for its global expansion, China Entrepreneur magazine reports.

Lenovo will acquire IBM’s lower-end server business and Google’s Motorola Mobility, which will make the Chinese company the world’s third-largest server provider and smartphone vendor.

Investors expressed their pessimism for Lenovo’s purchase of two loss-making businesses by selling the company’s shares for two days after the Motorola deal was announced, which led to a 23% plunge in share price. Lenovo chairman and CEO Yang Yuanqing said however that he is confident about the investment.

Lenovo’s confidence is based on its past experience, the magazine said, citing the company’s acquisition of IBM’s PC unit in 2005, which had posted losses of US$171 million in 2002, US$258 million in 2003 and US$139 million between January and June 2004.

The magazine said that the decline of the PC business at the time has helped Lenovo build its success in the global market, as it was now the world’s No. 1 PC vendor, owing to the company’s strength in cost and supply chain management.

Similarly, Lenovo made the recent purchases when the server and smartphone businesses are seeing intense competition and lower profit margins, the magazine said.

However, since Lenovo is unlikely to have another nine years to integrate these new businesses the way it did with IBM’s PC unit, the magazine said the Chinese company has announced restructuring along with the deals, establishing four business groups.

The server business acquired from IBM will be integrated into Lenovo’s Enterprises operations run by executive vice president Gerry Smith, while Motorola Mobility will become part of the mobile business group led by Liu Jun.

Liu and Smith have both proven themselves in their respective fields during the past two years, the magazine said. Smith, who heads Lenovo’s American operations, has built the brand as one of the top three PC vendors in the United States, while Liu has cemented the company’s No. 2 position in China’s smartphone market.

 

 

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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