Monday, December 30, 2013

King of PCs, Lenovo Sets Smartphone Ambitions

In China, it is better known as the world’s new No. 1 PC maker, a force to be reckoned with in smartphones and a bellwether for the nation’s 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 United States and other wealthy markets in 2014.

“I’ll be very clear: Our aspiration is someday to be No. 1 in the mobile space,” said J. D. Howard, a Lenovo vice president who is in charge of developing the company’s smartphone business outside China. “I know it sounds crazy, but even five years ago, if I had said we’d 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, N.C. 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.

Mr. Liu, who had been sent to a rice farm to work as a laborer during the Cultural Revolution, startled the world when it bought IBM’s 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.

By September of this year, Lenovo had cemented its position atop the PC industry. It sold more PCs than two major American companies, Hewlett-Packard and Dell, as well as the fading Taiwan-based rivals Acer and Asus. Lenovo had secured a 16.7 percent share of global PC shipments, according to the two market research firms that track them, Gartner and IDC.

The company’s 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 United States.

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

“The PC is not going to go away tomorrow,” Peter Hortensius, president of the company’s Think Business Group, which serves corporate customers. “Two hundred billion dollars is a big pie, and we think we can get a bigger piece of it,” he said, referring to the approximate annual sales in the global PC market.

IDC forecasts that sales of PCs will decline almost 14 percent 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 J. Amelio, sold the company’s fledgling mobile business to an investor group for about $100 million. He was seeking to focus the company’s 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 Mr. Amelio. The new chief executive, Yang Yuanqing, bought back the mobile unit — at twice the price — and went to work regaining ground.

Shanshan Wang contributed reporting from Beijing.

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