Can Lenovo Regain Past Glory

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IBS Center for Management Research
Can Lenovo Regain Glory with New Strategy?

This case was written by Hadiya Faheem, under the direction of Debapratim Purkayastha, IBS Hyderabad. It was
compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate
titute of Business Management Karachi. Expiry date 28-Oct-2021 Usage permitted only within these parameters otherwise contact [email protected]
either effective or ineffective handling of a management situation.
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Can Lenovo Regain Glory with New Strategy?

“Innovation is not in Lenovo’s DNA. It’s more of a trading company than a[n]
innovator.”1
– Qian Kai, analyst at investment banking firm, China International Capital
Corporation, in August 2017.
“Several years ago, the western market was the indicator of the global PC
market. Now the indicator is China. If a product cannot perform well in China, it
will perform badly internationally.”2
– Fang Dongxing, an entrepreneur and founder of market consultancy,
ChinaLabs, in May 2017, suggesting Lenovo to focus on its business in China.
In August 2017, Beijing-based multinational technology giant, Lenovo Group Limited (Lenovo),
reported a quarterly loss of US$ 72 million for the quarter ended June 30, 2017. It had made a
profit of US$ 173 million for the same quarter of 2016.3 Lenovo also lost its market leadership in
the global personal computers (PCs) market to its arch rival Hewlett-Packard a (HP). HP led the
global PC market with a 22.8% market share for the second quarter of 2017 while Lenovo stood
second with a market share of 21.6%, according to International Data Corporationb (IDC).4
Analysts attributed Lenovo’s troubles to the maturing PC market where demand was falling with
consumers shifting to smartphones and tablets for daily activities including surfing the Internet.
Critics opined that Lenovo’s products, be it PCs or smartphones, lacked innovation while HP had
taken over the PC crown by launching a series of cool products targeted at gamers. In the
smartphone market too, analysts felt that Lenovo had failed to read the market signals, while its
competitors such as Huawei Technologies Co. Ltd. c (Huawei), Xiaomi Inc.d (Xiaomi), Oppo
Electronics Corp.e (Oppo), and Vivo Electronic Corp.f (Vivo) were rolling out stylish and
inexpensive smartphones and gaining market share in China.
After receiving criticism from several quarters, Lenovo owned up to its mistakes and admitted that
it lacked a clear strategy for its smartphone markets in China as well as in the US. Yang Yuanqing
(Yang), CEO of Lenovo, maintained that China was still an important market since it constituted
30% of the world’s smartphone market and the company would respond by selling more phones
through e-commerce channels rather than relying on mobile carriers. Lenovo was betting on the
Motorola brand (which it had acquired from Google, Inc.) and phones with modular designs, to
help revive the mobile unit in China. Lenovo also vowed to take back the crown in the PC segment
from HP. As of 2017, PCs contributed 70% of Lenovo’s sales. Hence, in November 2017, Lenovo
entered into a strategic partnership with Fujitsu in a bid to rejuvenate its PC business. By changing
its strategy, can Yang help Lenovo regain its lost momentum in the global PC market? What about
the smartphone business? Can he help restore Lenovo to its past glory? How will he do it?
a
Founded in 1939, HP is an American multinational information technology corporation.
b
International Data Corporation is a market research and analysis firm.
c
Huawei is a multinational networking and telecommunications equipment and services company in China.
d
Xiaomi is a Beijing-based electronics and software company.
e
Oppo is a Guangdong-based consumer electronics firm.
f
Vivo is a Chinese technology company that provides smartphones and its accessories, and software.
2
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LENOVO (1984–2002)
The history of Lenovo dates back to 1984 when it was started as New Technology Developer Inc.,
the predecessor of the Legend Group Ltd. (Legend), by Founder and Chairman, Liu Chuanzhi
(Liu), along with ten colleagues at the government-owned Computing Institute of the Chinese
Academy of Sciencesg (CAS) with US$ 25,000. The company was started with the aim of
commercializing the research and development (R&D) activities conducted at CAS. In 1985, as its
first business deal, the company took over the responsibility of receiving, checking, and
maintaining IBM computers imported by CAS and of training CAS staff.
The company invested the profits of US$ 146,583 it had received from servicing IBM computers
in the design, production, and marketing of its first product – the Chinese character card –
HanCard. The Chinese character card, which translated English operating software into Chinese
characteristics, was based on the original concept developed by the Institute of Computer
Technology (ICT) of CAS. At that time, foreign vendors were not able to come out with such an
operating system for PCs in China. The successful launch of the Chinese card boosted Lenovo’s
growth in the early 1990s.
In its initial years in the Chinese PC industry, Lenovo sold and distributed computer products of US-
based companies such as Dell Inc., HP, and Compaq (See Exhibit I for early history of the Chinese
PC industry). By distributing foreign PC brands, Lenovo accumulated the necessary capital in
addition to learning how to organize sales channels and market PCs. Its interactions with customers
during this time and its extensive distribution network helped the company gain market insights.
Because Lenovo was known more for distributing computers of foreign companies, it had to
convince government officials that it was capable of making computers. The first products
manufactured by the company included digital watches and Chinese language computer input
devices. In 1988, it began to develop the strategy of manufacturing and marketing its own brand of
PCs. In the same year, it was incorporated in Hong Kong as Legend Holdings Limited.
In 1990, the company launched its first PC in the Chinese market. It also continued to distribute
the computer products of more than twenty vendors, including the US-based Sun Microsystems h
and Cisco Systems, Inc.i. Lenovo offered computer products in China with pre-installed software –
the Happy Family software for consumers and My Office software for commercial users.
In 1992, the Chinese government reduced tariffs on imported PCs and eliminated import quotas.
This gave the foreign PC makers a distinct price advantage over Lenovo and other Chinese PC
makers. The foreign PC makers increased their scale by producing 1 million units a year, thus
reducing input prices and spreading labor costs over a large number of products. To ensure their
survival, Lenovo and other Chinese companies became sales and distribution representatives of
American and Japanese companies in China. But this period turned out to be beneficial for Lenovo
as it acquired both technical and management expertise from its Hong Kong operations and foreign
partners such as HP.
In 1994, Lenovo was registered as the first civilian technology enterprise in China, and within two
years it became the market leader for PCs in China for the first time. In 1997, the company was
reorganized into six groups under Legend Holdings. In 1998, the Chinese government sent 400
researchers from the CAS to conduct R&D at Lenovo. In 2000, the company recorded PC sales of
1.8 million units, a 90% growth from 1999.5
g
The Computing Institute of the Chinese Academy of Sciences was the first academic establishment set up
in China that specialized in comprehensive research on computer science and technology.
h
Sun Microsystems sold computers, computer components, computer software, and IT services. In 2010, it
was acquired by Oracle Corporation.
i
Cisco is a US-based MNC that designs, manufactures, and sells networking equipment.
3
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In 2001, Lenovo spun off Digital China Holdings Ltd.j (Digital China), which included three units of
Lenovo: Legend Technology, Legend Advanced Systems, and Legend Network. The spin off
eliminated any potential conflict of interest for Digital China, which could sell domestic as well as
foreign brands equally. Lenovo no longer distributed foreign brands and concentrated on its own
branded PCs, leaving its managers free to focus on the company’s own product manufacturing and
distribution business. The company increased its focus on the consumer and commercial markets. Its
sales to corporate customers, including state-owned enterprises, accounted for less than 25% in 2001.
In 2001, Yang Yuanqing (Yang) was appointed President and CEO of Lenovo. He was
instrumental in developing an efficient nationwide service network and in pioneering the concept
of the ‘family computer’. The company launched PCs aimed at four different age groups of home
users: the Tianhui for children, the Future Pioneer for high schools students, the Tianlu for adults,
and the Tianle for the middle aged and the elderly.
BECOMING THE PC MARKET LEADER IN CHINA

In the 1990s, Lenovo was the first company to introduce the home computer concept in China and
it grew into a national company cornering a market share of 27% in the domestic market. Lenovo’s
competency was its deep understanding of the domestic market and its quick response to the
demands of local consumers. The success of Lenovo and other domestic computer makers in
China confounded the predictions made by several market analysts. According to BusinessWeekk,
“It wasn’t supposed to happen this way. A few years ago, most analysts were convinced that the
global players would gobble up the Chinese market, with locals like Lenovo stuck in second tier
status – at best.”6
Association with the Government and Government Regulations
Lenovo benefited from its association with the Chinese government, as approximately 25% of its
sales were to the Chinese government during the mid-1990s. However, the company later grew
more reliant on its sales to household customers and commercial customers and then on expanding
its service to businesses.
In its initial years, Lenovo benefited as it had no trade restrictions imposed by the Chinese
government which included quotas, tariffs, value added taxes on imports, restrictions on ownership
and investment, and restrictions on foreign companies’ access to distribution. Foreign rivals, on the
other hand, faced tariffs and Value Added Taxes when they shipped computer components to
China for assembly and imported computers that they manufactured abroad. They also incurred
transaction and transportation costs when they imported parts or finished products. However, after
China joined the World Trade Organization in 2001, foreign PC makers also became free of trade
restrictions in the country.
Selling to the Local Chinese Customers
While other foreign PC makers were customizing their PCs, Lenovo brought local solutions to the
end users in terms of local software and assistance with Internet connectivity. The company
designed PCs to appeal specifically to Chinese consumers. It designed PCs for different segments
within China from banks and large organizations to small and medium enterprises in the corporate
market.
The multinationals sold new Pentium l 486 PCs in the US and the older Pentium 386 PCs in China.
Besides, these older models were sold at higher prices in China. In contrast, Lenovo introduced
PCs in the China market incorporating 586 Intel chips. This strategy boosted Lenovo’s image as a
fast and technology-intensive PC maker. It also reduced the stigma attached to local Chinese
brands of being laggards in technology.
j
Digital China was ranked as the largest IT product distributor and services company in China.
k
BusinessWeek is a leading weekly business magazine.
l
Pentium is a microprocessor brand developed by US-based semiconductor company, Intel Corporation.
4
The company also assisted Chinese consumers by providing IT services. According to Yang, in
China, most consumers did not know what they needed in terms of IT and software. It was here
that the PC makers could help them. Lenovo also came across either consumers who were looking
for value and a bargain price, or those who were looking for a premium branded product. Thus, the
company launched premium products placed at the higher-end of the spectrum and other products
that were aimed at value buyers or cost-conscious consumers.
Another initiative that made Lenovo a favorite among Chinese consumers was its 1999 launch of a
PC that gave Internet connectivity at the touch of a button. It came out with the product after a
1998 survey that it carried out in China revealed that 80% of the consumers in the country bought
PCs for Internet access. After six months of purchase, it was reported that just 10% of the users
used the PCs for this purpose as the process of connecting to the Internet through an Internet
service provider was difficult and time consuming. Thus, Lenovo came out with a breakthrough
keyboard that had six ‘hot keys’ that automated activities such as Internet access, receiving e-mail,
online purchasing, accessing news, etc. The model sold 900,000 units within a year of its launch.
These innovative products enabled Lenovo to capture a huge market share in China. In 2000, it had
a market share of 25% in the country and this went up to 30% in 2002. According to Liu, “Legend
Group was operating in an era of continuous progress, and participating in an industry
characterized by innovation and transformation.”7
By the end of 2003, Lenovo had garnered a 27% share in the Chinese PC market. To increase its
sales and market share, the company conducted an analysis of the market. According to Lu Yan,
then vice president of marketing and product development at Lenovo China, the analysis revealed
three trends – rapid growth of income among residents in small cities and towns, rising demand for
notebooks in major cities in China, and large enterprises investing more on IT. Subsequently,
Lenovo launched the Yuanmeng line of PCs. By the end of 2005, the Yuanmeng brand of PCs
accounted for 70% of all consumer desktops sold by Lenovo. According to Helen Lau (Lau), an
analyst at Sun Hung Kai Investment Services in Hong Kong, Yuanmeng’s success helped Lenovo
gain market share and let the company enjoy economies of scale.
Analysts felt that China offered tremendous potential to Lenovo due to the rapidly growing
middle-class segment with its huge purchasing power. In addition to endorsing the low-price
factor, the company also marketed its brand to middle-class consumers as they were becoming
increasingly brand conscious. According to a focus group interview by Lenovo, middle-class
consumers in China wanted to buy products – be it a TV, a PC, or a car – that would last for a long
time. Thus, Lenovo emphasized its brand while marketing to middle-class Chinese consumers.
The company also rolled out several initiatives to make the PC more affordable for consumers
living in non-urban areas i.e. Tier-five and Tier-six cities. For instance, in 2006, Lenovo entered
into a partnership with the US-based IT giant, Microsoft Corporation (Microsoft), to offer a ‘pay
as you go’ program that reduced the upfront costs of acquiring a PC and enabled middle-class
consumers in China to pay for their PCs over a period of time. The company also developed credit
systems in these rural areas to create financing mechanisms for buying a PC. The company devised
channels – like storefronts, a very popular concept in China – that made its products accessible to
these consumers.
Aggressive Pricing
Lenovo was known for offering technical efficacy and affordable prices to consumers as well as
invoking a feeling of patriotism in them. This was reflected in the statement of a consumer who
bought educational software produced by Lenovo. The customer said the reasons he chose Lenovo
over foreign brands were “It’s cheap, it works, and it’s Chinese.”8
The company priced its products above the cheap clones manufactured in China but kept the prices
competitively low compared to international imports. In 1996, for instance, Lenovo sold its 75
Mhz Pentium PC for US$ 1,520 while similar models manufactured by IBM or PC maker AST
Research Inc. were priced at US$ 2,000 or above.9 According to Chen Xudong (Chen), president
of Lenovo’s Chinese operations, “The Chinese consumer is one of the most tough. You have this
fast-growing middle class which has the money, but they are very conscious of how they spend it
and they do their research.”10
The company’s efforts at integrating its supply chain and adopting a made-to-order model enabled
its manufacturing process to keep the costs low, undercut prices, and capture market share. While
foreign companies had to bear the costs of expatriate managers in China, Lenovo had lower
management costs. Second, some foreign manufacturers such as Seagate Technology had set up
manufacturing operations in China for hard drives. Their Chinese operations passed on some of
their cost savings to Chinese PC makers such as Lenovo. In the mid-1990s, some Taiwanese firms
entered China, thus giving companies such as Lenovo access to components and peripherals of the
same quality as offered by foreign multinationals. According to IDC analyst, Lisa Cosmas, “They
provide high quality at a low price point. This is a very successful model. As we see it they do have
a price advantage and they’re able to keep dropping their prices.” 11
Distribution Strategy
Over the years, Lenovo had maintained a positive relationship with its distributors, but this was not
the case in the initial days. Liu admitted that in understanding marketing and organization of sales
channels, “HP was our earliest and best teacher.” In the mid-1990s, Lenovo set a rule that its own
regional sub units would not sell PCs but would only provide information and material flow
service to their distributors and resellers. Such practices engendered greater loyalty toward the
company among its distributors compared to its competitors – domestic or foreign.
Yang was instrumental in establishing a strong distribution and retail network across China. In a
bid to enhance Lenovo’s market position, he launched 1+1 Home PC Specialty Shops in Shanghai,
Guangzhou, and Beijing, which targeted Small and Medium Businesses in addition to consumers.
By the end of the 1990s, Lenovo had 50 authorized distributors in each of the seven regions into
which the company had divided its Chinese market, and each distributor had its own reseller
network. Lenovo also sold through traditional dealers and retail outlets. There were more than
2,000 resellers in Lenovo’s distribution network. In addition to this, it had 130 “1+1” PC specialty
shops in major cities. In contrast, IBM had just ten Tier-one distributors in major cities in the
country. By early 2003, Lenovo had set up 1,000 such stores.
David Miller, then Lenovo’s senior vice president and Asia-Pacific president, noted that the
strategy of supporting a reseller was key to the company’s success. “Without channel, we can’t get
there.”12 The company also attributed its success to its distribution network. According to Deepak
Advani, senior vice president and Chief Marketing Officer, Lenovo, “The distribution networks
you have in place can be a very effective way to build your brand. As an example, you sell directly
to many of your relationship-type customers, face-to-face. Yet many of the transaction-type
customers are in the tier-five and tier-six cities, and store fronts are the way to reach these
consumers. We have 4,000 to 5,000 retail store fronts all across China. This enables us to build
our brand in a very direct way, because there are many tactics we can use to convey our brand’s
value proposition. The best way to build your brand is to have people touch and feel your
product.”13
Though online sales were increasing, Yang said that Lenovo planned to follow the retail outlet
model as the customers in China still preferred to try out the products before they bought them. In
addition to this, Lenovo’s customers could rely on its retail sales personnel for advice and
demonstrations. This was essential as the Chinese consumers believed in obtaining a substantial
amount of information before they bought a product.
To make its PCs easily available to its customers, Lenovo set up a PC shop within 30 miles of
nearly every consumer. Though Lenovo increased the depth and breadth of its distribution
network, it did not encounter any big conflicts among its distributors. According to Liu, the ability
to set up and manage its huge distribution network and explore the potential of the network was
part of Lenovo’s core competence.
LENOVO’S INTERNATIONALIZATION STRATEGIES
Lenovo believed that to become a global brand, it was not enough just to be identified as a global
firm. Establishing a presence in more developed and highly globalized markets such as the US and
Europe was essential for its overall strategy. By 2001, though Lenovo’s market share had reached
30% in China, it realized that it would not be able to grow much more given the stiff competition
in the country. In addition to this, the domestic market for home PCs was shifting toward laptops
rather than desktop PCs. This posed a challenge to Lenovo despite its recording profits of US$ 130
million for the FY 2002-2003, as laptops were not just costly to manufacture but also involved
tough competition from rivals such as Dell and HP. In a bid to combat these challenges the
company decided to step into international markets.
It was around this time – in 2002– that the Chinese government announced its ‘go global’ policy.
This policy encouraged Chinese companies that had the capability and expertise to expand abroad.
While Lenovo was quick to respond to this government initiative, it soon realized the kind of
challenges global expansion involved: it did not have a brand name that was recognized
worldwide, a strong presence in the world market, or the human talent to run and manage a global
company. Thus, as a first step toward globalization, it changed its name from Legend to Lenovo in
2003. ‘Le’ was taken from Legend and ‘novo’ meant new in Latin. The name signified the spirit of
innovation, which was central to the company’s mission.
Lenovo felt that there were two ways in which it could globalize. It could take the organic route,
which was, however, a time-taking process, or adopt the inorganic route – grow through mergers
and acquisitions. This, Lenovo felt, was a risky process. However, with the help of external
advisors and consultants, the company finally decided to adopt the second approach.
In 2004, Lenovo signed up to be an Olympic partner, becoming the exclusive provider of
computing equipment and services for Olympics 2006 and Olympics 2008. In the same year, IBM
approached Lenovo to find out if it was interested in acquiring its PC Division. While Lenovo
thought that it was a risky proposition considering the size of IBM, it couldn’t help feeling that this
could be a great opportunity for it in its quest to become global. According to Liu, “As discussions
progressed, we gained confidence that many of the risks we’d feared could be distributed or
controlled. For example, we worried about losing customers. So we worked out an agreement that
would allow us to continue using the IBM brand, to keep the IBM salespeople, and even to keep
the top IBM executive as CEO. It gave us confidence that we could provide the customers the same
level of service and quality after the acquisition.”14
In 2005, Lenovo acquired IBM’s PC division for US$ 1.75 billion. 15 Commenting on the
acquisition, Liu, said, “We have a US$ 3 billion business with 27% market share in China.
There’s not much room to expand. The global PC market is $200 billion, so there’s still a lot of
potential. IBM has all the things we need. The deal brings us market share, management know-
how, technology, and international reach.”16 Liu added, “We are proud of our Chinese roots but
we no longer want to be positioned as a Chinese company. We want to be a truly global
company.”17 The company also had access to the IBM brand name for a period of five years.
According to Lenovo, the major advantage it gained from the acquisition was that it was able to
enter a foreign market in the quickest way possible and to rapidly build its presence in new
national markets. The acquisition also made Lenovo the third largest PC maker in the world by
volume after HP and Dell. Analysts felt that Lenovo, which was good at selling PCs in consumer
markets, would also gain from IBM’s ability to serve corporate customers.
To become a full-fledged global firm, Lenovo had to overcome its lack of managerial expertise.
Thus, it hired several experienced international executives from Dell, IBM, and other global firms.
The company adopted an approach that settled Lenovo as a strong master brand while
strengthening the ThinkPad product brand it had acquired from IBM. The company launched
advertising campaigns that highlighted that the Lenovo master brand stood for innovation while
the company made efforts to improve the ThinkPad brand.
For some of the global markets, the company adopted its Chinese business model. According to
Chen, “Lenovo has two business models, one aims at the big business customer, another aims at
the consumer. And the latter model may be cloned to the Lenovo international most likely.”18
In a bid to gain better brand recognition, Lenovo sponsored the 2006 Winter Olympics in Turin,
Italy. According to Philippe Davey, the then vice president of marketing, Lenovo, “We’ve decided
to see the Olympics programs as a chance for integrating the two parts of Lenovo together as fast
as possible.”19 Through its association with the Olympic Games for three years, Lenovo’s
popularity increased by 15% and its reputation by 19%, according to Chen. 20
In 2007, Lenovo stopped using the IBM logo on all its products and launched the IdeaPad line of
branded consumer PC products. For the year 2007, Lenovo’s market share in the Chinese PC
market stood at 28% with its products selling at 9,000 retail outlets. 21
Lenovo sponsored the 2008 Olympics in Beijing. This was accompanied by a worldwide branding
campaign followed by the global launch of the IdeaPad branded laptops targeting consumers.
Taking its globalization strategy forward, in January 2011, Lenovo entered into a joint-venture
agreement with Japanese electronics conglomerate NEC, then the largest PC provider in Japan.
This ultimately led to NEC’s acquisition by Lenovo for US$ 175 million. The aim of the
acquisition was to strengthen the market position of Lenovo and NEC in Japan, enhance the
product portfolios of both companies, and expand their distribution channels. In addition to this,
the combination brought together Lenovo’s manufacturing, procurement, and supply chain
resources and NECs marketing, sales, and distribution capabilities. The acquisition also made
Lenovo the largest PC firm in Japan – the world’s fourth largest market for PCs.22
In July 2011, Lenovo bought Medion, a European electronics firm, for US$ 738 million, which
doubled its share of the German PC market.23 With the acquisition of Medion, Lenovo doubled its
shipments in Western Europe during the second half of 2011. Lenovo’s decision to use the
Android operating system for consumer and enterprise tablets gave it a better opportunity than HP
to continue garnering market share.

In 2012, the company bought CCE, a Brazilian electronics firm, for US$ 148 million. 24 For the FY
ended March 2012, the company spent US$ 248 million on promotion, branding, and marketing
the Lenovo brand of PCs. For FY 2013, Lenovo stood as the leader in the global PC market with
sales of US$ 34 billion.25
In January 2017, Lenovo emerged number one in the Brandz list of top 30 Chinese Global Brand
Builders for 2017 (See Exhibit II for Brandz Top 10 Chinese Global Brand Builders 2017). The
ranking listed Chinese companies that had successfully established a presence in global markets.
For the FY ended 2017, Lenovo recorded revenues of US$ 43 billion (See Exhibit III for Lenovo’s
financials).
PROTECT AND ATTACK STRATEGY

The global economic slowdown m in mid-2008 led to Lenovo posting a loss of US$ 226 million. 26
During this time, the company’s CEO William Amelio stepped down in favor of Yang, while Liu
returned to assume the role of Chairman.
In a bid to combat the losses incurred due to the global economic slowdown and return to
profitability, Yang came up with the ‘Protect and Attack’ strategy in 2009. He did not make any
radical changes, preferring to concentrate instead on areas where Lenovo had been successful or
had made significant investments (See Exhibit IV for Lenovo’s ambitions under the Protect and
Attack strategy and to Exhibit V for Lenovo’s Protect and Attack strategy).
m
The world economy faced a severe financial meltdown characterized by record losses reported by a number
of financial institutions due to the sub-prime mortgage crisis in the US and crashing stock markets globally,
beginning 2008. The crisis spread to other economies worldwide in 2008 and early 2009.
Protect and Attack was about attacking areas with the greatest potential and protecting areas where
Lenovo had a strong lead. As per the strategy, Lenovo maintained its strong foothold in the
Chinese and Asian markets while attacking new geographies.
Lenovo’s ‘Attack businesses’ referred to its policy of penetrating emerging markets and new
segments such as smartphones, tablets, and smart TVs, at a time when there was sluggish demand in
the traditional PC industry. Moreover, consumers were spending more money on mobile devices and
the weak economy was pushing corporate clients to hold off on PC purchases. According to Yang,
being a public company, Lenovo should consider growing though its core PC business was strong.27
The company as part of its ‘Attack’ strategy increased its focus on high-growth emerging markets,
such as India and Russia, and invested heavily in product, brand channel, service, and
infrastructure. Before entering India, the company felt that it could take its experiences from China
into the Indian market. According to Amarnath Babu (Babu), Lenovo India Managing Director,
“It was never forced by the management. They only said that when China was at the stage where
India is now, we did the following things, and hence, we had certain results. But, the China PC
market is a different animal altogether. Hence, we tweaked some of the approaches for India.”28
For the Indian market, the company followed one-way exclusivity unlike in China, where it
followed two-way exclusivity. In one-way exclusivity, Lenovo sold its products to a retailer in a
region but the retailer could also sell its rivals’ products. For the Indian market, the company
decided to invest in growing its reach in the small and medium enterprise segment and consumer
segment.
To interface with its customers in India, Lenovo forged partnerships with multi-brand format
stores, large-format retail outlets, and regional distributors. In addition to this, it invested in
exclusive stores. In China, the company had 12,000 Lenovo exclusive stores but the company felt
that this format might not work in India. Thus, Babu devised the Lenovo exclusive store for India.
“By creating this segment, we were going against the grain. We also had to make sure that our
relationship with the multi-format vendor was also in good shape,”29 said Babu. By 2010, the
company had 150 exclusive stores in India, which went up to 950 by 2016.30,31
PC Plus Strategy
Though Lenovo’s ‘Attack’ strategy focused on attacking new product areas, the company
positioned its tablets and smartphones as part of its PC Plus strategy. Yang said, “PCs aren’t
disappearing anytime soon. We don’t live in a post-PC world. We are entering the PC plus era.” 32
Through this strategy, the company aggressively tried to carve a niche for itself beyond computers
and laptops, and become a PC Plus leader.
The company’s implementation of the PC Plus strategy started with its entry into the Chinese
smartphone market in 2010. Its smartphone device was manufactured under the group’s mobile
phone division which had been sold for US$ 100 million in 2008 and bought back for US$ 200
million in 2009.
During the first quarter of 2010, the company launched its first smartphone in China to tap the
potential in the growing market for mobile Internet devices. Lenovo set up its first manufacturing
facility in Wuhan with a capacity to make 40 million smartphones. In May 2010, it launched its
smartphone – the LePhone – as a challenger to Apple’s iPhone in the Chinese smartphone market.
The company also wanted to cash in on the growing number of mobile Internet users in China.
This segment had grown from 120 million in 2008 to 233 million at the end of 2009, accounting
for 60.8% of the total number of Internet users in China, according to China Internet Network
Information Centern.33
n
The China Internet Network Information Center (CNNIC) is the state network information center of
China.
In 2012, Lenovo’s smartphone market share in China stood at 11%, up from 4.1% in 2011,
according to IDC, whereas Samsung held a 17.4% share.34 Lenovo aimed to become a dominant
player in the Chinese smartphone market by innovating and utilizing its distribution operations to
replace Samsung. Yang added, “Lenovo does not want to be the second player ... we want to be the
best. Lenovo has the confidence to outperform Samsung and Apple, at least in the Chinese market.”35
Lenovo’s smartphone business accounted for 20% of its revenues in China for FY 2013.36 According
to Kirk Yang, managing director for technology research at Barclays Plc in Hong Kong, “Every PC
company has to expand its portfolio to smartphones and tablets and, ideally, even smart TVs,
because that is the future of devices. Besides Apple and Samsung, Lenovo is probably the most
successful in broadening their product portfolio. Lenovo is getting close to their level.”37
Some others, however, were skeptical about Lenovo’s chances of success in smartphones.
According to Alberto Moel, an analyst at Sanford C Bernstein & Co. in Hong Kong, “Some
people believe Lenovo can take their PC brand and extend it into smartphones, but that’s not their
business. Lenovo is an incumbent in the PC business, but it’s not even close in handsets. They are
going to have to pay for that, spending a long time to get to scale in a business it perhaps
shouldn’t be in.”38
The sluggish PC demand also prompted Lenovo to launch tablets. For instance, in December 2012,
Lenovo launched Yoga, a laptop that could be converted into a tablet PC by flipping the screen
backward, and Twist, another laptop that had a screen connected with a hinge. The two laptops
saw brisk sales in the US with Lenovo capturing 40% of the consumer market share in the US$
900 and above category during calendar Q4 of 2012. The company also launched a tablet PC
called the Horizon, which evolved from a traditional all-in-one PC to a multiple person machine
that could be laid flat like a table, wherein the company focused not just on the hardware but also
on the software and applications.
Focus on Other areas
Lenovo was not a newcomer in the server sector. The company released its first server in 1995, but
later partnerships with technology providers such as Oracle Corporation failed to boost Lenovo’s
enterprise business.
But in 2012, in a bid to aggressively invest in its enterprise product business – storage, sever,
software and services, networking, – globally, the company entered into a JV with EMC Corp., a
US-based data storage company, to develop server and storage equipment. Lenovo felt that the JV
could enhance its position in industry standard servers and networked storage solutions, while
significantly expanding EMC’s reach in China and other key, high-growth markets. While Lenovo
had over 20,000 partners, EMC had “several thousand” distribution channel partners in China. The
companies under the JV planned to develop more high-end servers since they had released servers
only for the middle and low-end entry-level products.
In association with EMC, Lenovo formed a server technology development program for
accelerating and extending Lenovo’s capabilities in the x86 industry-standard server segment. The
companies also forged an Original Equipment Manufacturer and reseller relationship in which
Lenovo would provide EMC’s industry-leading networked storage solutions to its customers in
China and then expand into other global markets in step with the ongoing development of its
server business.
OTHER INTRENATIONAL ACQUISITIONS
Motorola Mobility
Lenovo’s Protect and Attack strategy helped the company taste success in China as well as in other
global markets. For the FY ended 2013, the company also emerged as the number one PC
company in global emerging markets, as well as three of the seven largest PC markets in the world
– China, Japan, and Germany. For the quarter ended June 30, 2013, Lenovo’s smartphone business
in China accounted for 80% of its smartphone sales. This led to the company becoming the fourth
largest player in the global smartphone market with a market share of 4.7% for the same quarter of
2013, according to IDC.
Cashing in on its success in the Chinese smartphone market, Lenovo aimed to become one of the
leading players in the global smartphone market. Thus, in 2014, Lenovo acquired Motorola
Mobility from Google, Inc. for US$ 2.91 billion, gaining access to the Motorola brand name, its
17,000 patents, and 7,500 pending patents. Commenting on Lenovo’s acquisition of Motorola,
Yang, said, “This will be a good start to challenge the big players in smartphones. We want to
become a global player.”39 Analysts stated that Motorola’s close ties with carriers and distributors
could help Lenovo increase its global presence in the smartphone market.
By the second quarter of 2014, Lenovo cracked the formula to become the leader in the
smartphone market in China by overtaking Samsung in the entry tier smartphone market.
According to Canalyso, Lenovo beat Samsung by 0.2%.40
In 2015, Lenovo announced that in its efforts to integrate Motorola with the company, the
company would restructure its mobile division. As part of the restructuring, Lenovo Mobile
employees would join Motorola staff and the latter would lead the Lenovo Mobile team. Lenovo
Mobile’s workshop was incorporated into Motorola Mobility. In May 2015, Lenovo launched
ZUK Mobile as a spinoff of the company’s smartphone business. Through ZUK, Lenovo focused
on the smartphone market in China while Motorola continued selling high-end devices in
international markets, especially the US smartphone market where Lenovo did not have much of a
presence due to the dominance of Samsung and Apple.
IBM’s x86 server business
In October 2014, Lenovo acquired IBM’s server business for US$ 2.1 billion to “attack
aggressively” in the enterprise space. According to Yang, the IBM deal opened a new “growth
engine” for Lenovo. Yang added, “In the large and medium enterprise space we can now fully
leverage IBM technology to compete with brands like HP and Dell. We can combine this good
technology with Lenovo’s efficient operations.” 41
LOSING MOMENTUM?
With the acquisition of Motorola, Lenovo had ambitious plans to capture a portion of the pie in the
global smartphone market. However, the company’s fortunes declined when its smartphone
shipments decreased by 53% in China with Lenovo maintaining a meager 3% market share for the
Q4 of 2015, according to Canalys. In the global market for smartphones, the company stood at
fifth position with a market share of 5.7%.
Analysts opined that Lenovo’s shrinking market share in the smartphone market was attributable to
its poor integration of Motorola’s assets. They pointed out how well Lenovo had integrated IBM’s
assets after the latter’s acquisition. For example, Yang had made efforts to integrate Asian and
American corporate cultures. He encouraged employees to greet him using his first name in an effort
to break down the business hierarchy. The company followed a similar strategy in its partnership
with Japan’s NEC that began in 2011. Once again, local demand influenced the core business
strategy and Lenovo relied on Japanese workers instead of sending people from headquarters in
China. Lenovo’s strategy proved successful as it became the largest PC maker in Japan in 2013.
But Lenovo’s takeover of Motorola was a different story altogether. Instead of keeping the
company’s management team, Lenovo soon appointed a former executive from its PC business to
manage Motorola despite having little experience in the smartphone business. This led to an
inconsistent corporate strategy, according to analysts. The change in management led to a strategic
o Canalys is a UK-based leading consultancy and market research firm for technology companies.
shift. The new executive leadership wanted to focus on the introduction of Motorola products in
the Chinese market, which required changes in both hardware and software, while ignoring other
key international markets. Motorola also witnessed long-time managers leaving the company, and
of others being transferred to new posts.
According to Ben Stanton (Stanton), an analyst at Canalys, Lenovo failed to integrate Motorola
quickly and also missed out on two trends. “The first is the shift away from carrier-led
smartphone sales to direct and open market sales. Its competitors have successfully leveraged
alternate sales channels to beat Lenovo.”42 According to Stanton, Huawei, for instance, used only
its online sales channel for selling its Honor brand.
Lenovo’s poor performance was also attributed to its reliance on subsidies from phone operators.
State-run carriers such as China Mobile gave out subsidies of around RMB 34 billion a year in a
bid to attract consumers. But in 2015, after the Chinese government ordered state-run carriers to
reduce spending, subsidies were cut by a third. Lenovo was hit very hard with consumers paying
double of what they had been paying earlier. According to James Yan (Yan), Lenovo was “overtly
reliant on operators and operators’ subsidies” which translated to around 50% to 60% of its sales
through operators though the market had switched to no-contract models. Yan added,
“Traditionally, Lenovo has been very strong in sales channels, but in 2015, it did not have a good
strategy at all in working out how to best utilize sales channel.” 43 According to Xiaohan Tay,
analyst at IDC, “Due to its reliance of selling through operators, Lenovo never paid that much
attention to its branding.”44 This put the company at a great disadvantage vis-à-vis Huawei and
Xiaomi, given their strong branding efforts.
According to Stanton, the other major trend that Lenovo had missed in addition to weak branding
was lack of innovation. He added, “Lenovo’s competitors innovated faster to differentiate their
products.”45 Stanton cited examples of Samsung’s curved glass displays and Apple’s large-
screened smartphones as innovative products from both Samsung and Apple. Sharing similar
views on Lenovo, Gartner Inc. p (Gartner) in 2016 reported that the company was perceived as a
“mass-market brand” without any innovative products or cutting-edge designs. The research
agency pointed out that Oppo’s R9 series was a successful example of innovation which recorded
7 million sales in less than three months in 2016.
To add to Lenovo’s troubles, the economic slowdown in China affected the growth of smartphone
sales, which came down by 20% in 2015. Thus, Yang planned to focus on emerging markets
smartphone buyers, and enterprise-server clients. The bet paid off and Q4 2015 sales went up 70%
YoY in India and 160% in Russia. He also planned to focus on Lenovo’s strength in traditional
smartphone sales channel instead of battling Xiaomi in the intensely competitive low-cost online
selling space. According to Jessie Ding, a research analyst at Canalys, “In the lower-end segment
and online space, competition is too fierce and profit margins are too small.”46
Some analysts pointed out that Lenovo’s strategy of re-introducing the Motorola brand in China
had also backfired. Motorola was re-launched in China with a festival event modeled on Xiaomi
events. Fans of Motorola were flown in from different parts of the country to appear on the center
stage, with interactive social media feeds on the big screen. With sales failing to take off, Lenovo
in a surprise move in May 2015, launched yet another mobile-phone brand, called Zuk. Lenovo
executives thought creating the new brand, using college students to consult on design and
features, was a good answer to the challenge posed by Xiaomi. However, these strategies did not
work out in favor of Motorola as the brand collapsed under the pressure of disruptive technologies
and changing consumer behavior.
The company pushed sales of the Motorola brand of smartphones in China where Lenovo had its
own brand of phones which dominated the smartphone market in China. This provided an opening
to new players such as Xiaomi, Oppo, and Vivo to capture the lower-end of the smartphone market
p
Gartner Inc. is a leading provider of research and analysis on the global IT & technology industries.
in China. The local Chinese smartphone makers were disrupting the market by selling millions of
smartphones directly to the customers through their websites. Since these companies did not have
a retail outlet format, they could sell stylish and innovative smartphones at razor thin margins. In
addition to this, the companies communicated with their customers through online channels, taking
their feedback so that they could incorporate the changes suggested by their customers in their
upcoming smartphone models. Lenovo, on the other hand, did not have an online sales format and
its sluggishness in coming out with stylish and inexpensive phones led to the customers leaving
Lenovo in favor of local Chinese brands.
While Lenovo was losing its foothold in China, the company also lacked a clear global strategy for
tapping the US smartphone market, which was Motorola’s home market. In January 2015, Lenovo
entered the US smartphone market with its Motorola brand of smartphones. The company did not
spend heavily on advertising. Taking a cue from Xiaomi, it set up an online sales format to sell its
Motorola brand of smartphones in the US. Some of the young web shoppers showed some affinity
for the Motorola brand. However, they were turned off by the prices. Lenovo’s Moto Z cost US$
600 to US$ 700, which was almost the price of an iPhone. The customers stated in this price range,
they could buy an iPhone which had more brand cachet than the Moto X. This led to Motorola
suffering a decline in sales in the US smartphone market. Some of the employees blamed Lenovo
for not spending much on advertising Motorola’s launch in the country. According to ad tracker
Kantar Media, while Motorola spent US$ 21.6 million on advertising in the US in the first six
months of 2015, Samsung spent US$ 187.8 million. 47
By 2016, Lenovo’s performance in the smartphones had deteriorated and the company reported
that its global smartphone market share was only 3.5% and that it had slipped to eighth place
among the world’s smartphone makers. For the full year ending in March 2016, the company’s
mobile business posted a US$ 469 million loss. The troubled mobile sector was weighing on
Lenovo’s overall business performance.
Even as Lenovo was losing its momentum in the smartphone market in China and in other global
markets, troubles started cropping up in its PC business too. In mid-2017, it lost its PC crown to
HP, with the latter cornering a market share of 22.8% for the Q32017 compared to Lenovo’s
21.6% (See Exhibit VI for market share of vendors in the global PC market). Yang attributed the
decline to Lenovo’s increasing costs due to shortage of components such as memory chips.
According to Yang, “Looking forward, the supply constraint of key components in the industry
and cost increases will continue to bring short-term challenges to the group’s business
environment. Market conditions remain challenging in the short term, notably the component
supply shortage and cost hike are expected to continue pressuring business operations.”48
TACKLING CHALLENGES
In a bid to arrest the decline in sales in its smartphone market, Lenovo planned to focus on its
Moto brand. According to Yang, “Singular branding will benefit the business.”49 Stating that the
new strategy might not bring in much success to Lenovo, Steven Tseng, an analyst at Daiwa
Capital Markets, said, “Customers are also really confused by the company’s strategy.”50
In May 2017, Yang announced a plan to restructure its business in China, as the company’s home
market had great growth potential. He planned to reorganize the business in China into two
divisions — a consumer-focused division of PC and smart devices (PCSD) and a data center
group. Liu Jun, who had led the Motorola acquisition, would head PCSD, according to Yang.
Analysts believed that Lenovo’s restructuring in China and Liu’s return was evidence that China
was an important market for Lenovo. According to Yang, “China is our incubator for new
products. In order to take advantage of the new opportunities brought by changes in our industry,
we are restructuring.”51 Though the Chinese smartphone market had become saturated with
several low-priced devices, Lenovo planned to sell its smartphones through e-commerce channels
rather than rely on mobile carriers.
To improve profits, Lenovo made cuts in the Motorola workforce and discontinued production of
most of its cheaper smartphones. Analysts were skeptical about Lenovo’s ambitious plans of
turning around its loss-making operations in China. According to a Beijing-based analyst,
“Reshuffling the management team is not going to make it easier for Lenovo to survive in the fast-
changing smartphone market. They are better off turning back to focus on the PC business, like
completing the purchase of [Japan's] Fujitsu’s PC unit.” 52 However, Yang maintained that “We
would never give up our China mobile business, because it is 30% of the world market.” 53
Some analysts also felt that Lenovo should focus on its core PC business as it had strong
connections in schools and government institutions in China. Others suggested that Lenovo should
concentrate on increasing its market share in emerging markets such as India, where it had a huge
presence. For the Q1 FY 2017, Lenovo stood third in the Indian PC market garnering a 17.7%
market share after HP’s 29.5% and Dell’s 22.5%, according to IDC. 54
Lenovo felt that the new government policies in India had increased the potential of the PC market
in the country, and it expected further growth. Rahul Agarwal (Agarwal), CEO and Managing
Director of Lenovo India, said, “While recent government reformative efforts, such as the
implementation of GST [Goods and Service Tax], presented a short-term setback, the market has
bounced back. Moreover, these initiatives have spurred demand as there is an added focus on
technology as an enabler. As PC penetration in the country pegged at 10 per cent, there is
significant headroom in terms of growth potential for PCs, and initiatives like Digital India are
boosting the adoption of PCs.”55
The company’s smartphone business was also doing well in India. According to Neil Mawston,
executive director, Strategy Analytics, Lenovo held only a 1% market share in China’s smartphone
business whereas in India its market share stood at 9% in 2017. Mawston said, “For Lenovo at the
moment, China is a dark cloud, the U.S. is a gray cloud, while India is a sunny day.” 56 Analysts
believed that if Lenovo could cut costs further and continue to expand in India, its smartphone
business could return to profitability by 2018.
THE ROAD AHEAD
Despite the challenging outlook in the global smartphone market, Yang remained optimistic about
turning around Lenovo’s struggling mobile business. He stated that there was a US$ 110 million
sequential improvement in operational pretax income, attributable to improvements in the mobile
and data center businesses in the quarter ended June 30, 2017. Yang added, “Not only did this
gave me more confidence we will turn around our mobile business in the second half of FY2018, I
think the entire Lenovo is entering a new phase of growth.”57
Going forward, Lenovo planned to focus on India by boosting its offline presence in a bid to gain
market share. According to Aymar de Lencquesaing, executive vice president at Lenovo and
chairman & president at Motorola, “That is a battle we need to win. Online is just 27% of the total
market. We have a robust position there, but have growth left in offline which is why you will see
us attack it more.”58 The company was keen on having physical stores because in 2017 it was
reported that around 73% phones were sold through brick and mortar stores in the country.
Lenovo’s Chinese competitors such as Xiaomi and Oppo had already established physical outlets
in the country.
In November 2017, the company announced that it would partner with 500 multi-brand stores in
India as it planned to be among the top three smartphone companies in the country. The stores
tagged ‘Motorola preferred partners’ would mirror Xiaomi’s offline retail strategy that helped the
latter rapidly gain market share in India and close the gap with Samsung, the market leader in the
Indian smartphone market. Lenovo would focus on boosting its offline presence in India to regain
market share.
In November 2017, Lenovo bought a 51% stake in Japanese technology company, Fujitsu, for US$
224 million. The Development Bank of Japan also bought a 5% stake in Fujitsu for US$ 2.2
million.59 The new entity would be called Fujitsu Client Computing Ltd. and the PCs would be
sold under the Fujitsu brand name. Through its JV, Lenovo and Fujitsu aimed to drive growth in
their PC businesses in Japan as well as in other international markets. Analysts opined that Lenovo
was keen on the Fujitsu deal as it believed that it would help it regain its PC crown from HP. Yang
stated that Lenovo would also focus more on fast-growing premium products such as PCs tailored
for gaming and millennials and regain its momentum in the global PC market.
318-0186-1
Exhibit I
Early History of the Chinese PC Industry
The history of the Chinese computer industry dates back to the 1950s. In 1956, a group of scientists and
researchers were organized by the central government to work on a computer research and development
project. In 1958, after two years of effort and hard work, the first ‘made in China’ computer was launched
at the Harbin Institute of Military Engineering, a science and technology university located in Harbin, the
capital city of Heilongjiang province in northeast China.
Since the launch of the first computer, the computer industry in China went through three major periods –
‘self-reliant’ development from the late 1950s to the late 1970s, a period of gradual opening up in the
1980s, and an outward-oriented rapid growth period in the first half of the 1990s.
Self-reliant development
Until the 1970s, China was a very closed economy. In the 1950s and early 1960s, China received foreign
aid from the Soviet Union in the form of industrial equipment and technical assistance on several
construction projects to help in scientific research. Having severed ties with the Soviet Union, both the
international environment and China’s internal policies made it very difficult for China to introduce
advanced technology from industrialized countries. National security was the top priority for the Chinese
government during the two decades and hence it became the major motivating factor that gave a fillip to
the computer industry. Under these circumstances, in the 1960s and 1970s, China’s computer industry,
along with China’s other major industries, followed the pattern from self-reliance to nationalization to a
defense-oriented research and development policy.
A period of gradual opening up
In the 1980s, China’s computer industry was lagging others in the world in terms of technology. Thus, it
was essential for China’s computing industry to catch up with the world’s leading-edge technology. This
could not be achieved through closed doors. On the other hand, due to competing demands from other
sectors and resource constraints, only a limited amount of information could be allocated to the computer
industry.
Hence, from the early 1980s, China gradually shifted its focus from research and development (R&D) of
large-scale mainframe computers to the development of PCs. The R&D of super computers remained
constant and at times became intensive during the period. In the meantime, China increased its import of
large and mid-range computers from the US and Japanese PC manufacturers.
The period was also marked by large-scale importation of foreign-made computers, ranging from personal
computers to mini-computers and mainframes.
A period of rapid growth and competition
In 1991, the Chinese computer and IT industry entered the phase of rapid growth and severe competition.
The phase was characterized by rapid growth in domestic production as well as intensive cooperation with
foreign PC makers.
Despite the fact that China’s PC market had been maintaining rapid growth, the homogeneity of the PC
products in China’s market had become more and more obvious. So competition between the PC
manufacturers grew more and more drastic and price reduction gradually became the important tool for
PC manufacturers to compete to gain market share. This greatly influenced the profit space of the PC
manufacturers. For example, the price competition launched by Lenovo and Dell in China’s market in
1991 greatly lowered PC prices and reduced the profits of most of the PC manufacturers. In order to keep
the growth of profits, the PC manufacturers began to concentrate on controlling the costs of internal
operations. And the reduction of the profit space for PC manufacturers had a negative effect on their
relationships with channel partners. Therefore, the innovation and development of the channel played a
significant role in China's PC market for the PC manufacturers.
In 2004, the Chinese PC market accounted for 40% of the profits of the global PC market. In 2006, China
accounted for 49% of the market share in the Asia Pacific region. From 2008-2010, the China PC market
grew by 34.3%. The global economic slowdown of 2008 led to decreased shipments of PCs in China. The
increased competition and changing industry dynamics prompted players in China’s PC industry to launch
notebooks, tablets, smartphones, and smart TVs.
Compiled from various sources.
16
318-0186-1
Exhibit II
Brand Top 10 Chinese Global Brand Builders 2017
Ranking Brand Category Total Score in Brand Power
1 Lenovo Consumer Electronics 1,682
2 Huawei Consumer Electronics 1,256
3 Alibaba Ecommerce 1,047
4 Elex Tech Mobile Gaming 923
5 Xiaomi Consumer Electronics 716
6 Air China Airlines 709
7 Haier Home Appliances 572
8 Anker Consumer Electronics 501
9 Cheetah Mobile Mobile Gaming/Internet Services 498
10 Hisense Home Appliances 482
Source: “BrandZ™ Launches Top 30 Chinese Global Brand Builders 2017 Ranking,
www.millwardbrown.com, January 17, 2017.
Exhibit III
Lenovo’s Key Financials
2017 2016 YoY
Group Results
(US$ million) (US$ million) (change)
Revenue 43,035 44,912 (4)%
Gross profit 6,106 6,624 (8)%

Gross profit margin (%) 14.2 14.8 (0.6) pts
Operating expenses (5,434) (6,686) (19)%
Expense-to-revenue ratio (%) 12.6 14.9 (2.3) pts
EBITDA1 1,581 838 89%
Pre-tax income/ (loss) 490 (277) N/A
Pre-tax income/ (loss) margin (%) 1.1 (0.6) N/A
Profit/ (loss) attributable to equity holders of the Company 535 (128) N/A
EPS – basic (US cents) 4.86 (1.16) N/A
EPS – diluted (US cents) 4.86 (1.16) N/A
Interim dividend per share (HK cents) 6.0 6.0 Nil
Final dividend per share (HK cents) 20.5 20.5 Nil
Total dividend per share (HK cents) 26.5 26.5 Nil
Cash and Working Capital
Bank deposits and cash and cash equivalents 2,951 2,079 42%
Total bank borrowings (3,037) (3,251) (7)%
Net cash reserves (86) (1,172) (93)%
Cash conversion cycle (day) (10) 1 N/A
Source: “Lenovo Annual Report 2016/2017,” 2017.
17
318-0186-1
Exhibit IV
Lenovo’s Ambitions under Protect and Attack Strategy
 Continue to expand its lead in China and grow its share in the commercial sector with servers and
workstations, continue with the launch of consumer and commercial tablet computer lines.
 Expand share gains in mature markets through Small and Medium Businesses (SMBs) and retail
channels.
 Grow mobile Internet presence globally.
 Drive convergence with cloud devices, attractive apps.
 Reach 10% share in emerging markets with a focus on SMB/consumers.
Compiled from various sources.
18
Educational material supplied by The Case
Centre Copyright encoded A76HM-JUJ9K-
PJMN9I
Exhibit V
Protect and Attack Strategy (FY 13/14)
31
Source: Adapted from “Lenovo Annual Report 2012/2013,” www.lenovo.com, 2013. 8-
01
86
-1
19
Authorised for educator review use only by Salah Uddin, Institute of Business Management Karachi. Expiry date 28-Oct-2021
Usage permitted only within these parameters otherwise contact [email protected]
318-0186-1
Exhibit VI
Market Share of Vendors in the Global PC Market
3Q17 3Q16 3Q16 3Q17/
3Q17 Market
Shipments Shipments Market 3Q16
Company Share
(in thousands (in thousands Share Growth
(in %)
of units) of units) (in %) (in %)
1. HP Inc 15,295 22.8 14,427 21.4 6.0
2. Lenovo 14,506 21.6 14,497 21.5 0.1
3. Dell Inc 10,836 16.1 10,751 15.9 0.8
4. Apple 4,901 7.3 4,887 7.2 0.3
5. ASUS 4,189 6.2 4,907 7.3 -14.6
Others 17,457 26.0 18,029 26.7 -3.2
Total 67,185 100.0 67,498 100.0 -0.5
Source: “Traditional PC Market Further Stabilizes As Top Companies Consolidate Share, According to IDC,” October 10, 2017.
20
End Notes:
1
“Lenovo Shares Could Fall Another 27%: Top-Ranked Analyst,” www.bloomberg.com, August 22,
2017.
2
Yuan Yang, “Lenovo Announces overhaul and Renewed Focus on China,” www.ft.com, May 16, 2017.
3
“Lenovo Swings to 1Q Net Loss of US$72 Million,” https://eresearch.fidelity.com, August 17, 2017.
4
“Traditional PC Market Further Stabilizes as Top Companies Consolidate Share, According to IDC,”
www.idc.com, October 10, 2017.
5
Daniel F Spulber, “Global Competitive Strategy,” Cambridge University Press, 2007.
6
7
“About Legends Ltd,” www.indeed.com.
8
9
Anne S Tsui, YanjieBian, and Leonard Cheng, “China’s Domestic Private Firms,” ME Sharpe Inc., 2006.
10
“Chinese Tech Giant Lenovo Eyes Apple’s Top Spot,” www.telegraph.co.uk, March 30, 2013,
11
“A Successful IT Company Growth in China,” April 14, 2005.
12
Lynn Tan, “Lenovo: Channel Strategy Important to Success,” www.zdnet.com, May 29, 2007.
13
“Selling to the Local Chinese Market: An Interview with Lenovo’s Deepak Advani and BCG’s Hal
Sirkin,” http://knowledge.wharton.upenn.edu, October 16, 2006.
14
Liu Chuanzhi, “The Man who Bought IBM,” http://money.cnn.com, December 27, 2004.
15
TuoYannan, “Changing of the Guard for PC Leader Lenovo,” www.chinadaily.com.cn, November 3,
2011.
16
“Lenovo a Success Story,” www.slideshare.net, 2013.
17
Anil K Gupta, Toshiro Wakayama, and U Srinivasa Ranga, “Global Strategies for Emerging Asia,” John
Wiley & Sons, 2012.
18
“Lenovo: Chinese Market is our Camp,” www.cnetnews.com.cn, May 10, 2007.
19
David Greising, “China’s Lenovo Vows to be World PC Leader by ‘09,”
http://articles.chicagotribune.com, September 14, 2005.
20
“Lenovo: Chinese Market is our Camp,” www.cnetnews.com.cn, May 10, 2007.
21
“Facts and Details,” http://factsanddetails.com, April 2012.
22
TuoYannan, “Lenovo Takes over No 2 Spot in Global PC Market Share,”
http://english.peopledaily.com.cn, October 14, 2011.
23
Zhang Yuwei, “Global Go-getter,” http://usa.chinadaily.com.cn, February 1, 2013.
24
Harsimran Julka, “Lenovo ‘Looking for Buyouts’ in India; buys Brazil’s CCE for $148 mn,”
http://articles.economictimes.indiatimes.com, September 6, 2012.
25
Rob Wright, “Lenovo Bucks PC Slump with Strong Q4, Full-Year Results,” www.crn.com, May 23, 2013.
26
Chuck Salter, “Protect and Attack: Lenovo’s New Strategy,” www.fastcompany.com, January 2012.
27
Juro Osawa, “Lenovo Aims at U.S. Smartphone Market,” http://online.wsj.com, May 24, 2013.
28
Shivani Shinde, “Protect & Attack: Lenovo’s Path to PC Dominance,” www.afaqs.com, September 12,
2012.
29
Shivani Shinde, “Protect & Attack: Lenovo’s Path to PC Dominance,” www.afaqs.com, September 12,
2012.
30
“Lenovo Follows Protect and Attack Strategy,”www.ciol.com, August 30, 2010.
31
Varun Jain, “Lenovo Says Exploring Single-Brand Retail Licence in India,”
economictimes.indiatimes.com, May 12, 2016.
32
“Lenovo Entering ‘PC Plus’ Era, CEO Says,” http://in.reuters.com, January 10, 2013.
33
Chen Limin, “Internet Users Hit 384 Million,” www.chinadaily.com.cn, January 16, 2010.
34
Juro Osawa, “Lenovo Aims at U.S. Smartphone Market,” http://online.wsj.com, May 24, 2013.
35
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318-0186-1

IBS Center for Management Research

Can Lenovo Regain Glory with New Strategy?

 2018, IBS Center for Management Research

IBS Center for Management Research (ICMR) IFHE

case Distributed by The Case Centre

Can Lenovo Regain Glory with New Strategy?

BECOMING THE PC MARKET LEADER IN CHINA

to continue garnering market share.

PROTECT AND ATTACK STRATEGY

OTHER INTRENATIONAL ACQUISITIONS

business could return to profitability by 2018.

THE ROAD AHEAD

Gross profit 6,106 6,624 (8)%

Motorola,” www.wsj.com, January 16, 2017.

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