U.S. deals reveal Lenovo’s aims to be a global player
The chief executive officer of Lenovo hopes deals crafted in less than a week will propel the company onto the global stage.
Yang Yuanqing is showing his global ambition.
In the span of a week, the chief executive officer of China’s Lenovo Group cut the two biggest deals in his company’s history. He’s spending a combined $5 billion to buy Google’s Motorola mobile-phone business and IBM’s low-end server business.
It’s a risky bid to use acquisitions to move beyond the shrinking personal-computer business and become a broader technology player. Yang is betting that moving aggressively into North America will help give him the scale to better compete against Apple and Samsung in smartphones and against Dell and Hewlett-Packard in servers.
“We dream to become a global player,” Yang said in an interview. “You must be a global player to have global presence. Only being in China and emerging markets is not enough.”
Investors panned the Motorola purchase Wednesday, driving down Lenovo’s shares the most in 19 months. Alberto Moel, an analyst at Sanford C. Bernstein & Co. in Hong Kong, said the company may be overpaying for a company struggling to compete against Apple and Samsung.
Lenovo essentially negotiated a layaway plan for acquiring Motorola, with the sale including $1.41 billion in cash and Lenovo stock paid at the close of the deal, and $1.5 billion to be paid in a three-year promissory note, Mountain View, Calif.-based Google said Jan. 29.
On Jan. 23, Lenovo agreed to buy IBM’s low-end server business for $2.3 billion, including about $2 billion of cash and the rest coming in shares of Beijing-based Lenovo, the companies said.
Yang has a history of proving his critics wrong. When he bought IBM’s PC unit for $1.25 billion in 2005, skeptics said North America was too risky for a Chinese company and that Lenovo’s purchase would undermine IBM’s ThinkPad brand. Instead, Yang used the deal to transform his company into the world’s biggest PC maker, leaving once-powerful competitors like Dell behind.
“There are a lot of parallels here,” said Frank Gillett, an analyst at Forrester Research. “Lenovo was strong in its home country in PCs, but the IBM buy gave them a global brand and a lot of access. In buying Motorola, they are buying a major brand, and a company that has established relationships with carriers.”
The Motorola deal, which creates the world’s No. 3 smartphone vendor, is Yang’s latest attempt to take an iconic business and restore it to glory.
When Lenovo paid $1.25 billion, excluding debt, for the IBM PC unit in 2005, the business hadn’t made a profit for 3½ years.
Yang used the deal to vault Lenovo five places to No. 3 in the world before expanding his range with faster, lighter and more durable machines. Lenovo reached No. 1 last year and the company is expected to post record profit in 2014.
Lenovo had 4.7 percent of the global smartphone market in the third quarter, IDC said in October. Motorola accounted for just 1.7 percent of shipments in that period, according to Strategy Analytics.
“We expect Yang can turn this into a profitable company in two years’ time,” said Ricky Lai, a Hong Kong-based analyst at Guotai Junan Securities. “Yang has a very good track record of acquiring nonprofitable businesses and turning them to profit.”