Mon, Feb 03, 2014 - Page 5 News List

ANALYSIS: Lenovo signals global ambitions with Motorola deal

AFP, BEIJING

A man and a child walk past a Lenovo billboard in Hong Kong on Thursday. Shares in Chinese technology giant Lenovo slumped more than 8 percent in Hong Kong after it agreed to buy struggling handset maker Motorola from Google for US$2.91 billion.

Photo: AFP

In 1984, with only US$25,000 in Chinese government funding and a dusty 20m2 bungalow as their headquarters, a small group of scientists in Beijing founded a firm called New Technology Developer Inc (新科技研發).

Thirty years later, the tech company — which went on to become Legend and later Lenovo Group Ltd (聯想) — is the world’s biggest PC maker, and has just completed two major deals with IBM Corp and Google Inc that analysts say will help it to diversify away from the sagging PC market and boost its expansion overseas.

Lenovo’s US$2.3 billion purchase of IBM’s low-end server business and its US$2.91 billion acquisition of Motorola Mobility from Google are evidence of the Chinese tech giant’s “global ambitions,” Jean-Francois Dufour at DCA Chine-Analyse said.

“Just as iPhones and iPads have overtaken Macs in commercial importance for Apple, smartphones and tablets are expected to replace PCs in part for Lenovo,” said Dufour, who called the firm “the pioneer of Chinese companies’ global offensive.”

The back-to-back deals are all the more significant because of their timing, coming just as US President Barack Obama said in his annual State of the Union address on Tuesday that “for the first time in over a decade, business leaders around the world have declared that China is no longer the world’s number one place to invest; America is.”

With Chinese investment in the US doubling to US$14 billion last year, a larger and larger share of that capital is coming from the US’ rival across the Pacific — a fact unmentioned by Obama in his speech. From its humble beginnings, Lenovo has charted an impressive course in the PC market.

Under its earlier name, Legend, it secured the biggest share in China’s domestic market in 1996 and in the Asia-Pacific region three years later. Its 2003 decision to change the name of its PC brand from Legend to Lenovo in a bid to boost its sales abroad marked the beginning of its ascent to global preeminence. That move was followed by a successful 2004 bid to serve as the exclusive computing technology provider for the 2006 Turin Winter Olympics and the 2008 Beijing Games, making it the first Chinese firm to become a major Olympic sponsor.

However, it was Lenovo’s 2005 acquisition of IBM’s PC division for US$1.75 billion that cemented its rise, setting it on track to unseat Hewlett-Packard Co as the world’s top PC vendor last year. Lenovo now has PC products in more than 160 countries.

With Motorola, Lenovo hopes to replicate its PC market success in the smartphone universe.

The deal “will immediately make Lenovo a strong global competitor in smartphones,” Lenovo chairman and chief executive officer Yang Yuanqing (楊元慶) said.

As it did after the 2005 IBM deal, however, it faces tough odds. Lenovo is the No. 2 smartphone maker in China with a 12.5 percent market share in the third quarter of last year, behind South Korea-based Samsung Electronics Co’s 18.4 percent. Globally, Lenovo ranked fifth in the same quarter, with only 4.5 percent market share. Its acquisition of Motorola is likely to bump it up to the No. 3 spot, Yang said, but it will remain well behind leaders Samsung and US tech giant Apple Inc, with 31.3 percent and 15.3 percent respectively.

Varun Goel, head of portfolio management services at Karvy Stock Broking, said that while Lenovo has succeeded in the world of PCs, the smartphone market is “a very different ball game, with entrenched players like Apple and Samsung leading the fray.”

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