Lenovo’s IBM deal a new chapter for Chinese legend

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Hong Kong, Dec 8: From its roots in a district of Beijing known as China’s Silicon Valley, Lenovo Group Ltd has long dominated the Chinese computer industry, the world’s second-largest.

Now the 20-year-old company is poised to make its mark on the global stage, becoming the world’s third-biggest computer maker with its pending purchase of IBM’s PC business.

For the 11 founders who set up the firm as a PC distributor, it is a stunning return on an initial 200,000 yuan ($24,000) investment.

The company, which went by the English name Legend until last year, was founded at a time when China was just beginning to open to the outside world and the domestic computer industry was virtually non- existent. Its founders included current chairman Liu Chuanzhi, a radar communications student who had little business experience. After distributing computers for customers including IBM, whose personal computer pioneered an industry, Lenovo began making its own PCs in 1990.

It quickly rose through the ranks to become China’s top seller in 1997, a crown it has never relinquished. Today, its Chinese name, Lianxiang, is virtually synonymous with PCs in China. Lenovo consistently commands more than a quarter of all PC sales in China, more than double the share of its nearest foe.

Sales leaped to about $3 billion in its latest fiscal year from $460 million in 1994, as China overtook Japan as the second-largest PC market with about 13 million units sold last year.

Lenovo’s growth has slowed amid increasing competition in recent years, but its relatively protected status in China and entrenched position as industry leader have kept it from developing the products and sales channels necessary to move overseas.Since its 1994 listing in Hong Kong, Lenovo shares have rocketed from an initial trading price of HK$0.575 to as much as HK$17.50 at the height of the dot-com boom in 2000.

This year, however, the stock has been the third-worst performer of the 33-component Hang Seng Index, down about 20% to HK$2.68 compared with a 12% gain for the index.

Lenovo’s efforts to develop new growth businesses by dabbling in information technology services and mobile phone production have had little success.