Lenovo chief credits good management for success in merging IBM computer division

PUBLISHED : Tuesday, 06 November, 2007, 12:00am
UPDATED : Tuesday, 06 November, 2007, 12:00am


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Yang Yuanqing, whose Lenovo Group almost quadrupled its first-half profit two years after taking over IBM Corp's personal computer business, said the success in integrating the operations was 70 per cent due to good management and 30 per cent down to luck.

Shares of Lenovo, the nation's largest computer maker, hit seven-year highs in Hong Kong last week after the company said first-half profit rose 299 per cent to US$172 million. Notebook computers led overall growth, with sales rising 23 per cent in the period to US$4.57 billion.

'I think the results show that our decision to bid for the IBM business was correct,' Mr Yang said.

Lenovo initially benefited from the branding impact of IBM and its Thinkpad products.

'They are a premium brand and we could immediately establish a large group of corporate customers,' the company chairman said.

Even so, 'we couldn't make the deal a success with just luck. Our capability contributed much to this. I think 70 per cent was capability and 30 per cent was luck.'

Lenovo's purchase of IBM's personal computer division in 2005 was seen by many as a 'coming out' acquisition by a mainland company keen to gain greater exposure overseas and facing huge risks in business integration and cultural conflicts to make the deal work.

After two years of restructuring, Lenovo has emerged as a global player and its further exposure next year as a sponsor of the Beijing Olympics will be met by a worldwide public already familiar with the brand.

Demonstrating the confidence that comes with success, the company is dropping the IBM name on its new Thinkpad laptop, replacing it with the Lenovo Thinkpad brand. The company's latest results included a one-off US$28 million charge for using the IBM brand.

Lenovo will be reinforced as the group's master brand next year as it enters the consumer market in US and Europe.

The company had prepared well for the acquisition of IBM, 'in which our management skill, the integration capability and the framework of the deal were all well-planned', Mr Yang said.

Lenovo's operations in the mainland in the past 10 years had contributed to the success of the acquisition.

'The business model in China did work well during the merger of the two businesses and made it a relatively easy task.'

Lenovo's decision to drop the IBM brand earlier than it had to shows its strength in negotiating with customers and could also help repair the negative image of Chinese products in the west.

'It is best for us to drop the name as soon as possible,' Mr Yang said. 'When we concluded the deal two years ago, we asked for a licensing period on the IBM brand up to 2010, a conservative arrangement.

'But the core product brand Thinkpad is owned by Lenovo and we should establish our image to link Thinkpad products to our brand.'

Mr Yang said the Lenovo name could not replace the IBM brand overnight. The company had spent extra efforts to communicate with clients to make them know that the move of Thinkpad to the Lenovo brand would not alter the quality of the products.

'Lenovo should assume IBM's strength in technology innovation and the best quality of service. We needed to show them confidence that their service level would not fall after Lenovo took over the helm.'

Lenovo invited corporate customers to visit its headquarters to strengthen the message that the firm was not a low-level technology firm.

'Such arrangements successfully established our brand image with our customers and paved the way for dropping IBM's brand.'

Lenovo shares, which have gained 161.39 per cent this year, closed 5.49 per cent lower yesterday at HK$8.26 in line with a 5.01 per cent tumble in the benchmark Hang Seng Index.