The historic acquisition of IBM Corp.'s PC operations by China's largest PC maker grabbed headlines in December 2004. Since then, the merger has gone forward smoothly and quietly, though the future of Lenovo Group remains unclear.
The merger came at a watershed moment. Last year, China overtook the U.S. as the world's biggest supplier of information technology goods, says a study by the Organisation for Economic Co-operation and Development. In 2004, China's shipments of computers, phones and consumer electronics grew 46 percent, to $180 billion, surpassing the U.S. ($149 billion). That figure for China was up 12 percent from 2003, the study says.
But it remains to be seen whether Lenovo will become the poster child of that historic shift or a footnote to it.
In a six-month interim report published in October, the company gave a first and somewhat oblique look at results for the deal, which closed in May 2005. It showed that the combined company had four times the revenue, but only twice the profit and six times the staff costs of the China group alone in the same period a year earlier.
The merged company has a fairly even mix of desktop and notebook sales, with China its largest market region. Almost three-quarters of the company's staff is based in China.
Lenovo was initially organized into separate China and international operations to keep its product line and sales force intact. "Our first goal was to deliver on our promise that there would be no customer-visible changes," said Peter Hortensius, a 17-year IBM veteran, now the senior vice president in charge of Lenovo's notebook business.
Both customers and employees have stayed loyal, with employee attrition rates at an all-time low this year, thanks partly to a generous benefits package, Hortensius said. And, despite initial shock waves from the merger, morale remains high, he said.
"To be part of the PC business in IBM, you had to love the PC business because it was not seen as the place to be. Now it is the business," he said.
Going for growth
Despite a smooth start, in mid-October the new group had its first reorganization, prompted by the desire for greater cost savings and revenue growth. Lenovo created global sales and supply chain groups to maximize cost savings. The rest of the company was split into desktop, notebook, options and services product divisions.
The focus will be on the "consumer with a small 'c' " market, said Hortensius. For Lenovo, that means continuing its focus on business users outside China, but hitting new small-office segments and individual business users who want systems with top-notch media features. New products are expected to hit starting in February.
"If you look at the marketplace, there are huge growth opportunities there," Hortensius said.
For the foreseeable future, however, Lenovo does not plan to export to international markets the many consumer products it makes for China, including the cube-like TianJiao home PC and the ET960 Windows-based smart phone with a 1.3-Mpixel camera.
The merger "essentially doubled the engineering team [to 1,400 people], and that allows us to do more things," said Hortensius.
One of the technology challenges the group faces is with the shift to integrated cellular data capabilities in its notebooks. In September, Lenovo shipped its first notebooks with optional cellular data, a system verified for use on Verizon's EV-DO-based code-division multiple-access network.
Ultimately, all of Lenovo's new products will support cellular data and third-generation networking. That is driving changes in the design and testing of the systems to a process less like that for traditional PC modems and more like that for cell phones, said Mark Cohen, a distinguished engineer in the notebook group.
The Lenovo engineering team in Beijing and Shanghai brings strengths in media and Linux programming, said Cohen. For example, Lenovo engineers have developed a lightweight communications protocol now used over 802.11 in its conference room projectors for linking to presentations on notebook computers. The protocol, useful for streaming media as well as ad hoc file sharing, can be used with Bluetooth and infrared links as well, and ultimately will appear across a range of Lenovo products, he said.