King of PCs, Lenovo sets smartphone ambitions for 2014

Written by New York Times | Updated: Dec 28 2013, 08:54am hrs
In the US, Lenovo is still best known as the Chinese company that bought IBMs PC business in 2005.

In China, it is better known as the worlds new No. 1 PC maker, a force to be reckoned with in smartphones and a bellwether for the nations economic and technological might.

The laptop maker is already the second-largest smartphone brand in China, after Samsung Electronics. Lenovo, which has never had modest plans, wants to build on that success and begin pushing into the US and other wealthy markets in 2014.

Ill be very clear: Our aspiration is someday to be No. 1 in the mobile space, said JD Howard, a Lenovo vice-president who is in charge of developing the companys smartphone business outside China. I know it sounds crazy, but even five years ago, if I had said wed be No. 1 in PCs, people would have said we were crazy.

The company must balance some would say blend American and Chinese cultures. It has dual headquarters, in Beijing and Morrisville, North Carolina. Eighteen nationalities are represented among the top 100 managers. While it has had success worldwide in PCs and with its new smartphones in China, its good fortune in developed markets, dominated by entrenched Apple and Samsung, is anything but assured.

But the company constantly surprises. Lenovo was founded in 1984 by Liu Chuanzhi, a computer scientist, and a group of other engineers with financing from the Chinese Academy of Sciences, a government-linked research institute that still holds an indirect stake in Lenovo.

Liu, who had been sent to a rice farm to work as a labourer during the Cultural Revolution, startled the world when it bought IBMs PC business. The IBM deal gave the upstart instant credibility and cachet because he secured the right to use the ThinkPad name, a popular brand among companies around the world. Lenovo then made other deals that gave it a presence in major markets like Germany, Brazil and Japan.

The companys strength has always been in building very durable laptops, but recently it has expanded into tablets. In January 2012 it introduced a new device under the Yoga brand that blends the features of a laptop and a tablet, including a flippable touch screen. It sells for less than $300 in the US.

Moreover, the tablet runs on Android, the Google-made operating system that has been so important to the success of Samsungs smartphones and tablets. It showed the kind of flexibility that most PC makers, wedded to Microsofts operating system software, lack.

IDC forecasts that sales of PCs will decline almost 14% to 314 million units this year from 364 million two years ago. Some analysts say there is pent-up demand among corporate customers who have held off buying new desktops because of a weak economy. But the longer-term trend seems clear: PCs are a mature business.

Lenovo is feeling the pressure, but it may be better prepared to weather the storm, said Jeff Orr, an analyst at ABI Research.

One reason is smartphones. In 2008, its chief executive at the time, William Amelio, sold the companys fledgling mobile business to an investor group for about $100 million. He was seeking to focus the companys efforts on PCs as it wrestled with the effects of the global financial crisis. The decision proved to be shortsighted. A year earlier, Apple had introduced the iPhone, setting the stage for the mobile internet revolution.

In 2009, Lenovo corrected the error by ousting Amelio. The new chief executive, Yang Yuanqing, bought back the mobile unit at twice the price and went to work regaining ground.

By the third quarter of this year, the company secured 13% of the Chinese smartphone market. Samsung Electronics, which had been at it longer, is doing better with 21%, according to Canalys, a research firm. But it is enough that worldwide, Lenovo is in third place after Samsung and Apple. By this summer, Lenovo was selling more smartphones and tablets, combined, than its PCs, even though PCs still account for 85% of its revenue.

While more than 90% of the companys mobile phone sales are still in China, there are signs of promise elsewhere. In Indonesia, another enormous market, Lenovos market share is already in double digits. Last year, Lenovo began its smartphone export push by moving into India, Vietnam, the Philippines and Russia.

Some of Lenovos early smartphones were quirky, with unusual clamshell designs that recalled earlier generations of mobile technology. While many of the smartphones sold in China and other developing countries are budget models, Lenovo has been adding higher-end handsets to its range as it prepares for an expansion into wealthier markets.

Lenovo is not the only Chinese smartphone maker itching to expand internationally. Others, like Huawei, Xiaomi and ZTE, have also begun pushing outside the domestic market. Lenovo executives say they are in a better position than Chinese rivals because of the companys strength in PCs. By adding tablets and smartphones, they say, Lenovo will be able to integrate devices and cloud computing services into the devices.

They say consumers are looking for alternatives to Apple or Samsung. Ive talked to a lot of people in the industry, and there is a hunger for alternatives to the big two, Lenovos Howard said. Its just the nature of things that power corrupts.