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Monday, 20 August 2012 06:24

Lenovo is a new Legend


Chinese PC maker Lenovo last week announced a 30 percent increase in net profit, and most market analysts have it level with HP as the world’s biggest PC maker.

This is remarkable progress in the seven years since IBM sold its PC division to Lenovo. At the time of that deal nobody much in the West had even heard of Lenovo. But they have now.

Under the terms of the agreement, Lenovo paid IBM $US655 million in cash and $US600 million in shares. It also acquired the rights to IBM’s PC-related trademarks, like ThinkPad and NetVista.

Lenovo entered into a relationship under which it would continue to supply IBM with PCs indefinitely, and IBM retained 15 percent of Lenovo.

The deal astonished many people. It didn’t seem like a vast amount of money (billion dollar deals are commonplace in the industry) and IBM was the industry’s oldest and largest company. Lenovo was an upstart from a country which hardly knew how to make computers. Most thought it would fail.

We will probably never be able to tell for certain whether Big Blue would have been better off retaining a PC division. The rationale at the time was that hardware was becoming a commodity, and that the future was in services.

What is certain is that Lenovo has become a real success story. It has ensured that the ThinkPad range of PCs retained their well-deserved reputation for innovation and quality, two areas which many assumed would suffer after the deal.

Lenovo has become a major world IT player, a fact which it is constantly at pains to emphasise. Its corporate website says it is a “global Fortune 500 company, with headquarters in Beijing and North Carolina, and major research centres in Yokohama, Beijing, Shanghai, Shenzhen, China; and North Carolina.”

 It is a bone of some contention that Lenovo is part-owned by the Chinese Government. That is less of an issue than it was, with about 60% of the stock traded publicly. IBM now owns less than 5 percent).

One third (down from half a few years ago) is owned Legend Holdings Limited, which is itself majority owned by the Chinese Academy of Sciences, an arm of the Chinese Government. The company is at pains to point out it is a “100 percent market oriented company”.

That market has gt a lot bigger in the last year, in which time it has established a joint venture with NEC to sell computers in Japan, one market it had failed to crack. It also acquired Medion, one of the largest German PC makers, making catapulting it overnight to number three in the largest national market in Europe.

.Lenovo itself traces its origins back to 1984, when a dozen engineers formed a small company called New Technology Developer in Beijing to build the first Chinese PCs. That company changed its name to Legend in 1989, and started trading on the Hong Kong stock market in 1994. In 2003 it changed its name again, to Lenovo (“Le” from “Legend” and “novo” from the Latin word for “new”).

Lenovo’s success is the most tangible indication yet of the growing importance of China as a force in the IT industry. People don’t look down on companies like Lenovo, or Huawei, like they did just a few years ago. The Chinese aren’t coming, they’re here.

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Graeme Philipson

Graeme Philipson sadly passed away in Jan 2021 and a much valued senior associate editor at iTWire. He was one of Australia’s longest serving and most experienced IT journalists. He is the author of the only definitive history of the Australian IT industry, ‘A Vision Splendid: The History of Australian Computing.’He was in the high tech industry for more than 30 years, most of that time as a market researcher, analyst and journalist. He was founding editor of MIS magazine, and is a former editor of Computerworld Australia. He was a research director for Gartner Asia Pacific and research manager for the Yankee Group Australia. He was a long time weekly IT columnist in The Age and The Sydney Morning Herald, and is a recipient of the Kester Award for lifetime achievement in IT journalism. Graeme will be sadly missed by the iTWire Family, Readers, Customers and PR firms.

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