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‘Lenovo is the very best business on the planet at stabilizing development and efficiency.’ So proclaims Yang Yuanqing, the chairman of the Chinese computer-maker.
The boast is at least half best. The firm has actually certainly shown its callous effectiveness of late, by keeping expenses down and getting market share from its big Western rivals. Lenovo has actually just recently bested HP to end up being the leading peddler of desktop computers worldwide. From a minimal share a couple of years ago, it’s increasing fast in the global smartphone market too.
It’s actually handled this development while remaining in impolite monetary health. On Might 21st Lenovo revealed its full-year outcomes (its financial year runs to completion of March) in Hong Kong, where it’s been listed since 1994.
Its incomes were 14 % greater than in the previous year, at $38.7 billion. For the very first time, pre-tax revenues topped $1 billion, rising by 27 % on a year earlier. The company had a money pile of $3.5 billion at the end of March– and at the end of April it raised another $1.5 billion in its very first bond offering.
This information will cheer investors, who’ve raised some concerns about the firm’s strategy of late. For a variety of years, Western institutional investors have preferred its shares. This is partially since Lenovo has, abnormally among Chinese companies, strong corporate governance.
It was likewise due to the fact that Mr Yang has actually had a clear development technique and his company has actually provided foreseeable profits. But at the end of January there was a heart-stopping moment, when the company revealed 2 surprising acquisitions in the area of a couple of days.
The very first offer, worth $2.3 billion, includes Lenovo purchasing the part of IBM that makes low-end computer servers. These servers need to boost Lenovo’s efforts to appeal to business clients.
The other, more questionable, offer is a $2.9 billion buy from Google of Motorola Mobility, a leader in mobile phones that’s fallen on tough times. If regulators accept– America’s make certain to scrutinise the IBM offer carefully, since its government agencies buy those servers– both offers must nearby completion of the year.
The size and suddenness of these purchases, and concerns about them turning sour, upset even faithful investors. Pushed to safeguard his buying binge, Mr Yang promises say goodbye to huge acquisitions for the foreseeable future. But he defends his firm’s capability to make a go of these 2. ‘We’ve an excellent 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 company in 2005. Numerous questioned that an unknown Chinese firm could save a Western premium brand in problem, however that’s specifically what Lenovo has done.
Indeed, it’s maybe the only Chinese firm up until now to have developed world-class advertising skills. Big Blue’s previous COMPUTER department is now a moneymaker, Mr Yang declares, smiling broadly. So too is the Chinese market, where the firm has a large distribution network and universal brand name awareness: ‘We’ve 2 moneymaker.’
The firm’s current financial performance is impressive, but 2 huge questions still hang over Lenovo’s future. First, exactly how can it keep generating income as demand for Computers shrinks? Second, how can it stay up to date with the formidable Samsung and Apple in smartphones? The response to both questions springs from the other half of Mr Yang’s boast: development.
Most industry experts believe the mobile revolution implies that desktops and laptops are movinged towards the dustbin of history. Mr Yang disagrees: ‘This is still a very big industry, and with development there will be further development.’
He rattle a long list of functions his company is working on: longer battery life, ‘constantly on’ modes, thinner and lighter designs, much better touchscreens and so on. He points to the runaway success of the Yoga, his company’s touch-screen COMPUTER, whose display folds entirely back to transform it into a tablet computer system.
The firm’s difficulty in handsets is even more overwhelming. Chinese rivals providing smartphones for less than $100 are nipping at its heels even as Apple and Samsung surge ahead with ever whizzier offerings. Mr Yang isn’t fretted about the cut-price competitors– not even Xiaomi, a fast-growing Chinese firm providing cheapish however smart handsets.
None of those will pay over the long run, he firmly insists, whereas Lenovo’s handsets are currently rewarding outside China. He explains that it beat back comparable challenges from low-end Chinese PC-makers with unsustainable company models years earlier.
Fine, but how’ll he overtake the ingenious international giants? At the moment, most of Lenovo’s handsets are of middling sophistication and it’s actually not permeated America. It’s actually come up with high-end providings, however when it attempted to sell them in sophisticated markets it was required to pay 25 % of earnings to patent holders.
Such payments are the ‘club charges’ to get in the elite fraternity of worldwide smartphone firms, discusses Alberto Moel of Sanford C. Bernstein, a research firm. This isn’t such a problem in emerging markets, where patent enforcement is spotty: in China, it invests barely 2 % of incomes on licensing.
So, over the previous couple of months, the firm has actually scooped up thousands of smartphone patents from NEC, a Japanese electronics company, and Unwired Planet, a patent-gathering ‘troll’. The Motorola offer provides Lenovo royalty-free access to Motorola patents retained by Google, it also makes Lenovo party to useful licensing offers Motorola had actually struck with others. Now, says Mr Yang, entering America should cost a more convenient 10 % of handset earnings.
That pragmatic method offers a hint regarding how Lenovo really innovates. Last month, at a black-tie occasion gone to by the leading lights of Silicon Valley, Mr Yang won an award for championing innovation at Lenovo. However Mr Moel suggests that the Chinese firm isn’t an imaginative inventor like Apple, whose extreme designs transform whole markets.
Rather, its ability to turn firms around deftly, perform techniques economically and overcome obstacles nimbly recommends that a much better description of its strength would be ‘economical development’, a suitable that’s actually been much touted recently however hardly ever attained.
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