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AH Primetime: Lenovo Grows Itself Through Acquisitions

March 20, 2014 - Written By Cory McNutt

Companies can grow into giants in a number of ways – some get in on the ground floor and then slowly but surely, through wise management, superior products, and great marketing, find themselves slowly starting to rise above their competition until they are in the top five.  Other companies, not content or with no desire to grow slowly in a new product line, will seek to buy an existing company with firm roots already established in the product field they want and they simply buy the existing company – and bazinga, they are in the field and competing.  Lenovo would fall into the latter category and believes in their company’s motto – ‘For Those Who Do.’ According to our source, Lenovo CEO Yang Yuanqing told reporters after their stockholder meeting in Hong Kong:

“We will continue to use acquisitions as a means to grow.  Whenever there is a good opportunity, we will grasp it.”

And “grasping” up companies is just what they have been doing, especially lately – $2.3 billion for International Business Machines Corp (IBM) low-end server business and $2.91 billion for Google’s Motorola Mobility operations.  Lenovo is one of the smarter companies, and has actually been ‘reading the writing’ on the wall for some time now – they know that the home PC market is losing ground and that in order to grow they were going to have to jump into the mobile market.  Last year Lenovo became the world’s largest PC maker by shipments – long ago passing up the Gateways, Dells and most recently, HPs – but now have their sights focused squarely on Business Enterprise servers, tablets, and smartphones as future new sources of revenue.

Lenovo has shown that they can take their acquisitions and grow them beyond the original manufacturer through careful branding, using quality materials, and superb marketing.  They did this back in 2005, by purchasing IBM’s PC business for $1.25 billion – they took the venerable IBM ThinkPad and made it their own – and are now number one in the shrinking PC world.  Now, with their sights on the smartphone market and Motorola’s name recognition, it will be very interesting to watch Lenovo’s progress in the mobile arena.

Before Lenovo purchased Motorola, Google had already paired down Motorola’s work force from 30,000 to around 3,500 and Mr. Yang believes they can continue to grow the business without cutting any further employees.  Mr. Yang said:

“The remaining employees are all talented and most of them are engineers that can help improve Lenovo’s product development in mature markets.”

He believes that by increasing the economies of scale rather than trimming the staff is the key and by integrating Motorola’s operations into Lenovo’s own sizeable smartphone operations in Asia, they can significantly reduce material procurement costs and other expenses.

When Lenovo does something, they do not do it halfway – in order to get their smartphone business going they built a new $800 million hub in China for the sole purpose of researching, developing, and the production of smartphones in what has become the largest mobile phone market in the world.  Lenovo is second only to Samsung in sales within China and once firmly established on their home turf, branched out in 2012 to other emerging markets such as Indonesia and Russia and will soon be landing on the shores of the U.S.

Some analyst are afraid with their two latest acquisitions, that Lenovo may be spreading its cash and management too thin and this will hurt their profitability – it is true their profitability could take a short-term hit, but if Lenovo can grow these latest purchases, in the long-term their profitability could soar.  Mr. Yang said that he was confident that Lenovo would be able to turn Motorola into profitability again within four to six quarters after the deal is completed – and if anybody can, Lenovo’s, ‘For Those Who Do’ attitude may serve them well.

Please join our Google+ Page and let us know what you think of Lenovo’s leap into the smartphone industry and their recent purchase of Motorola – do you think it was a good move on Google’s part to get out of the hardware business and are you happy with Motorola’s new owners.

Lenovo for those that do