As a world-renowned Chinese PC manufacturer, Lenovo was put into the spotlight when its fellow Chinese company Huawei ventured into the PC sector by launching its 2-in-1 tablet PC right before MWC 2016.
Yang Yuanqing, the Chairman and Chief Executive Officer, responded in a group interview on MWC2016 on Tuesday that “every new competitor needs time to learn.”
“Lenovo entered the smartphone market and ultimately realised that it’s different from the PC market. Smartphone makers getting into the PC market too hastily will encounter the same problem. This is our sincere advice.”
This piece of advice may come from lessons Lenovo learned from its struggle in the smartphone market. Lenovo gained fourth place in the global smartphone market by buying Motorola from Google in 2014. However, the price it paid is huge: the deal created a USD 590 million loss in revenue for Lenovo in 2015, which is probably the biggest loss in its history.
In fact, Lenovo has already been at the centre of debate for weeks. An article titled “Is Yang Yuanqing a qualified CEO for Lenovo?” triggered widespread discussion on Lenovo’s achievement in recent years.
The story was published on a WeChat public account named Biz Leaders and written by Chi Yuzhou, the former deputy editor-in-chief of Chinese newspaper The Beijing News. In the story, he questioned Yang’s performance as Lenovo’s CEO from four primary aspects: controversial investments, the failure of the company’s strategic transformation, high salaries, and the frequent resignation of executives.
According to Chi’s analysis, Lenovo suffered massive losses in revenue in two major deals: the acquisition of IBM’s personal computer business in 2005 and the acquisition of Motorola in 2014. The USD 590 million loss caused by the Motorola deal pushed Lenovo’s loss in 2015 to USD 790 million.
Though Lenovo successfully rose up as an international brand because of its acquisition of IBM’s PC business, its recent acquisition of Motorola doesn’t seem to be having the same impact at the moment. According to Lenovo’s financial reports, Lenovo’s global smartphone market share dropped 1.5% to 5.1% in the third quarter of FY15, which implies Lenovo’s struggle to consolidate the new businesses.
Chi also questioned Yang’s notably high salary. Yang received an annual salary of USD 19.44 million in 2015, making him one of the highest-paid CEOs in China, which stands in contrast to Lenovo’s declining performance. In the August of the same year, Lenovo laid off 3,200 employees worldwide in reaction to its huge loss in the first quarter. The article also indicated that Yang was believed to have sold 195.5 million shares of Lenovo’s stock from March 2013 to September 2015, which could be interpreted as a negative signal to the stock market, since even the leader of the company is pitching short.
The last issue addressed in the article is that Lenovo seems to have been losing important staff members in the past few years. In each of the past five years, Lenovo saw the departure of high executives at the vice-president level and above. The most significant resignation happened last September when Liu Jun, the head of Lenovo’s smartphone business, and a 22-year Lenovo veteran, chose to resign. Liu’s resignation provoked questions about Yang’s management abilities.
The debate over Yang’s performance
Chi’s article was read over 100,000 times on Biz Leaders’ public account. Many critics followed to discuss Yang’s qualification as Lenovo’s leader. Some quoted the case of Hewlett-Packard CEO Meg Whitman’s one-dollar salary to attack Yang’s income, while others showed empathy for Yang. A commentary piece published in the Chinese business daily 21st Century Business Herald defended Yang by saying that he borrowed huge amounts of money to acquire Lenovo’s shares and had to sell shares to pay the debt from time to time.
Lenovo published a response on its official WeChat account on Feb 16th, criticizing Chi’s article for being inaccurate and “conspiratorial”. Yang also made an official response at a conference on Feb 20th. Instead of directly addressing the criticism, Yang only responded that he would learn from Jack Ma (who was also at the conference) to improve communication with the public.
“We will explain our strategy, mission, and the risks and setbacks we encounter on our way to achieving our vision to the public more clearly. Helping the public to understand us will have a good impact on our performance,” Yang said.
A promising future for Lenovo?
“The debate at least means that Lenovo hasn’t been marginalised by BAT,” Yang’s comment on this incident may be the best description of Lenovo’s awkward position in the market.
It’s debatable whether the critiques against Yang’s performance as Lenovo’s CEO are fair. But it’s true that Lenovo is facing great challenges in the market. The PC manufacturer has yet to prove to investors whether its USD 2.9 billion acquisition of Motorola is a good deal for the company. At the same time, Huawei is becoming an aggressive competitor in the PC sector.
At MWC 2016, Lenovo launched two budget smartphones, the Vibe K5 and Vibe K5 Plus. The two new models are set at the price of USD 129 and USD 149 respectively, which indicates that Lenovo is still targeting a relatively low-end market for this product line.
The high-end market will be saved for Moto. According to the Wall Street Journal, Moto will launch a “more innovative and attractive” smartphone in the U.S. in the first half of 2016.
Will this be a new chapter for Lenovo’s smartphone business?
Whatever performance it achieves, the new Moto phone will most likely settle the debate.
(Featured image from Leikeji.com)