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‘Lenovo is the best business on the planet at balancing development and efficiency.’ So declares Yang Yuanqing, the chairman of the Chinese computer-maker.
The boast is at least half ideal. The company has certainly shown its ruthless effectiveness of late, by keeping costs down and getting hold of market share from its huge Western competitors. Lenovo has just recently bested HP to end up being the top peddler of home computer worldwide. From a minimal share a few years back, it’s increasing quickly in the worldwide smartphone market too.
It’s actually handled this development while continuing to be in disrespectful monetary hygiene. On May 21st Lenovo announced its full-year outcomes (its financial year runs to completion of March) in Hong Kong, where it’s been listed because 1994.
Its profits were 14 % higher than in the previous year, at $38.7 billion. For the first time, pre-tax profits topped $1 billion, rising by 27 % on a year earlier. The firm had a cash pile of $3.5 billion at the end of March– and at the end of April it raised another $1.5 billion in its first bond providing.
This information will cheer investors, who’ve actually raised some concerns about the company’s strategy of late. For a variety of years, Western institutional investors have favored its shares. This is partly since Lenovo has, unusually among Chinese business, strong corporate governance.
It was likewise since Mr Yang has had a clear development strategy and his firm has provided predictable profits. However at the end of January there was a heart-stopping moment, when the company revealed 2 surprising acquisitions in the area of a few days.
The very first deal, worth $2.3 billion, involves Lenovo getting the part of IBM that makes low-end computer system servers. These servers must strengthen Lenovo’s efforts to appeal to business customers.
The other, more controversial, offer is a $2.9 billion buy from Google of Motorola Movement, a pioneer in smart phones that’s fallen on difficult times. If regulators authorize– America’s make certain to scrutinise the IBM deal thoroughly, considering that its government agencies purchase those servers– both deals need to close by the end of the year.
The size and suddenness of these purchases, and concerns about them turning sour, upset even devoted investors. Pressed to protect his purchasing binge, Mr Yang assures say goodbye to big acquisitions for the foreseeable future. But he safeguards his firm’s ability to make a go of these 2. ‘We’ve an excellent track record turning money-losing companies into treasure,’ he states.
He points to Lenovo’s first huge venture overseas, when it bought IBM’s unprofitable PC company in 2005. Lots of doubted that an obscure Chinese firm could save a Western premium brand in problem, but that’s specifically exactly what Lenovo has actually done.
Indeed, it’s possibly the only Chinese company so far to have actually developed world-class marketing abilities. Huge Blue’s former COMPUTER department is now a cash cow, Mr Yang states, smiling broadly. So too is the Chinese market, where the firm has a large distribution network and universal brand awareness: ‘We’ve 2 cash cows.’
The firm’s recent monetary efficiency is excellent, but 2 huge concerns still hang over Lenovo’s future. Initially, exactly how can it keep earning money as demand for Computers shrinks? Second, exactly how can it stay up to date with the powerful Samsung and Apple in smartphones? The response to both questions springs from the other half of Mr Yang’s boast: development.
Most market experts think the mobile transformation means that desktops and laptop computers are movinged towards the dustbin of history. Mr Yang disagrees: ‘This is still a very big market, and with innovation there will be more development.’
He rattle a long list of features his firm is dealing with: longer battery life, ‘always on’ modes, thinner and lighter designs, better touchscreens and so on. He indicates the runaway success of the Yoga, his company’s touch-screen COMPUTER, whose display folds completely back to transform it into a tablet computer system.
The company’s challenge in handsets ares more complicated. 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 company offering cheapish however brilliant handsets.
None of those will be profitable over the long term, he firmly insists, whereas Lenovo’s handsets are currently lucrative outside China. He mentions that it repelled similar challenges from low-end Chinese PC-makers with unsustainable business designs years ago.
Fine, however exactly how’ll he catch up with the innovative international giants? At the moment, most of Lenovo’s handsets are of middling elegance and it’s actually not penetrated America. It’s come up with high-end providings, but when it attempted to sell them in innovative markets it was required to pay 25 % of incomes to patent holders.
Such payments are the ‘club costs’ to enter the elite fraternity of international smartphone firms, describes Alberto Moel of Sanford C. Bernstein, a study firm. This isn’t such a trouble in arising markets, where patent enforcement is spotty: in China, it spends hardly 2 % of earnings on licensing.
So, over the past few months, the firm has scooped up thousands of smartphone patents from NEC, a Japanese electronics firm, and Unwired World, a patent-gathering ‘troll’. The Motorola offer offers Lenovo royalty-free access to Motorola patents retained by Google, it likewise makes Lenovo party to useful licensing deals Motorola had actually struck with others. Now, states Mr Yang, entering America must cost a more convenient 10 % of handset revenues.
That pragmatic method provides a hint regarding exactly how Lenovo actually innovates. Last month, at a black-tie event gone to by the leading lights of Silicon Valley, Mr Yang won an award for championing development at Lenovo. However Mr Moel says that the Chinese company isn’t an imaginative inventor like Apple, whose radical designs transform entire markets.
Rather, its ability to turn companies around deftly, execute methods financially and conquer barriers nimbly suggests that a much better description of its strength would be ‘economical development’, a perfect that’s been much promoted in the last few years but hardly ever accomplished.
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