Lenovo Financial Investment: Company Information

This report presents various aspects of Lenovo Group Limited. It shows the company’s history, operation information, and management team. It also presents the form of the organization, economic stability, which includes Lenovo’s strengths, weakness, opportunities, and threats. The report also looks at the market position of Lenovo against its main competitors.

This report concludes that Lenovo is a good company for investment based on its growth history and results of its annual performance for the year 2011/12.

Company History

Lenovo is a public company that trades as SEHK: 0992 at Hong Kong Stock Exchange. The company has its registered office in Hong Kong, China, but its operational headquarter is in the US, Morrisville, North Carolina. Lenovo is worth US$30 billion today.

Liu Chuanzhi and fellow associates founded Lenovo in 1984 as New Technology Developer Inc. This later changed to the Legend Group. Founders of Lenovo claimed that they used 200,000 Yuan as an initial investment to start the company. The company developed Han-card that enabled IBM to process Chinese characters on a PC. This cooperation led to the eventual merger and acquisition of IBM’s PC (Ling, 2006).

Lenovo acquired the IBM computer division in 2005 at a cost of US$1.25 billion. However, it retained US$500 million in the form of a debt. As a result, Lenovo is currently the second largest computer company in the world in terms of volumes.

The company also has a joint venture with Japanese IT Company, NEC since 2011. Lenovo shall pay NEC US$175 million through share issuance. NEC shall control 49 percent of the shares while Lenovo controls the rest. The aim of this joint venture is to enhance worldwide sales.

Lenovo also has pending acquisitions of Medion of Germany, CCE of Brazil, Stoneware of the US, and a possible acquisition in Israel.

The company has many products: mobile phones, personal computers, ThinkPad and ThinkCentre, IdeaPad, IdeaCentre, Cloud services, tablet computers, servers, smart televisions, storage devices, IT management software, and workstations among other products. Today, Lenovo is the second PC vendor after HP and Acer.

Operation Information

Lenovo operates in more than 60 countries globally. It also sells its products to nearly 160 countries worldwide. The company does not operate using the usual industry standards of outsourcing. Instead, Lenovo has kept its operation in-house in order to reduce costs and avoid excessive dependence on outsourcing companies, which are the original owners of various parts of products.

Therefore, the company uses vertical integration. Vertical integration enables Lenovo to enhance the speed of innovation, keep up with the industry pace, match supply and demand, and control inventory (Zeng and Williamson, 2007). The vertical integration benefited the company in 2011 as it made significant volumes of sales in Thailand. Lenovo oversees its operation from its main offices in North Carolina, Beijing, and Singapore. These locations also have research centers. The company also has offices in Japan and other parts of China. In 2011, Lenovo planned to open a plant in Argentina.

Management Team

Lenovo has a competent management team (Lenovo, 2013). Yang Yuanqing is the current Chairman and CEO of the company. Yang became the Chairman and CEO after the retirement of Liu Chuanzhi, a founder of Lenovo. Yang joined Lenovo in 1989 as a sales representative. Yang is a Master’s degree graduate from the University of Science and Technology of China and Shanghai Jiaotong University.

He Zhiqiang is the company’s Senior Vice President and Chief Technology Officer. He joined the company in 1986. Zhiqiang is responsible for the company’s “research and development (R&D) systems and production throughout the company’s production centers” (Lenovo, 2013).

Peter Hortensius joined Lenovo in 2005 at the position of a Senior Vice President Worldwide Product Development. Today, he is the Senior Vice President and President of Product Group Officer. Peter is a doctorate graduate in Electric Engineering from Manitoba University, Canada. He joined IBM in 1998 and worked at its research centre in Yorktown Heights, New York.

Gianfranco Lanci is the current Senior Vice President and President of EMEA. Lanci joined the company in 2012 in the same position. He oversees the company’s business operation in 121 countries. Lanci was the former president of Acer Inc. and the CEO and President of the company in 2008. He made Acer the second largest PC company in the world with record profitability.

Liu Jun holds the position of a Senior Vice President and President of Mobile Internet and Digital Home Business Group. Jun is responsible for product development and portfolio management for the company’s product line. Jun was the former president of the Consumer Business Group of the company.

Qiao Jian holds the position of a Senior Vice President, Human Resources. She is responsible for global talent acquisition, compensation, benefits, company development, and developing Lenovo culture. Jian implemented Lenovo’s strategic initiative throughout the globe. She joined the company in 1990 and held different posts. Jian has a Bachelor’s degree in Management Science and EMBA from institutions in China.

Gerry Smith worked with Dell Inc. before joining Lenovo in 2006 as a Senior Vice President, Global Supply Chain. He oversees supply chain management with regard to order, supply, demand, procurement, logistics, and manufacturing management. He previously worked with Definicon in the department of sales, marketing, procurement, and operation. Smith is a graduate from Pacific Lutheran University with a degree in Financial and Marketing.

Milko van Duijl is the Senior Vice President and President of APLA. He was the former head of the company’s Mature Markets Group in Japan, Western Europe, North America, New Zealand, and Australia. Milko worked for “IBM for 16 years in various roles in both software and hardware markets” (Lenovo, 2013). Milko has MBA from Rotterdam University and BBA from Nijenrode. He is a multilingual speaker.

Wong Wai Ming is the current Senior Vice President and Chief Financial Officer. Wong has been an independent non-executive director of Lenovo since 1999. Wong has more than a decade of experience from investment banking. He is also a member of Hong Kong Stock Exchange. Wong studied at the Victoria University of Manchester in the UK where he attained a degree in Bachelor of Science in Management Sciences. Wong is a member of certified public accountants in Wales, England, and Hong Kong.

Form of Organization

Lenovo is a public company with share distributions as follow:

  • The public owns 58 percent
  • Legend Holdings has 34 percent
  • Other entities have eight percent

The Chinese Academy of Science has 36 percent stakes in Legend Holdings. The Chinese Academy of Sciences is a state company, which has the largest share in the Lenovo. This has led to claims that Lenovo is a state company with state control systems. However, the CEO clarified that Lenovo is not a state-owned company. Instead, it is a market-oriented company. The stake of the Chinese Academy of Sciences in Lenovo is a form of commercializing research findings of the institution. However, the Chinese Academy of Sciences is a government company. Management team and founders are “responsible for running the company” (Lenovo, 2013). The company CEO and management groups are also responsible for strategic decision-making. In 2011, Yang increased his stake in the company to eight percent by acquiring 797 million shares because he believed in the bright future of Lenovo.

The company has corporate governance practices in place to protect interests of shareholders (Wheelen and Hunger, 2012). Therefore, the company strives to achieve best practices in the industry in order to strengthen investors’ relations and relations with other external partners. The company also strives to abide with various regulations in different geographical locations where it operates. The aim of corporate governance is to ensure that Lenovo is “in line with both local and international best practices” (Lenovo, 2012).

Economic Stability

The company has grown in the mainland China and has made inroads in the globe market. However, investors must note that some products like PCs have plummeted in sales volumes. The company global investments and acquisitions have increased its revenues and financial stability. The CEO has also increased his stakes in the company because he believed in its future.

Over the years, the company sales and revenues have increased. Lenovo is now the biggest PC seller in mainland China where most of its revenues originate. This shows that Lenovo is an emerging global company with increasing sales revenues. During 2011/12 financial year, the company doubled its net cash reserves in banks.

Source: Lenovo Group Ltd Annual Report 2011/12
Source: Lenovo Group Ltd Annual Report 2011/12

Comparison with Competitors

According to Lance Whitney, HP is the top PC vendor in the global market (Whitney, 2013). However, PC sales are on the decline around the globe. IDC’s research showed that the PC sales declined by 6.4 percent in the fourth quarter of 2012. The drop for the year of 2012 was 3.2 percent. PC makers have realized that market demands have shifted to smartphones and tablets. However, Lenovo registered a growth of 8.2 percent.

Top 5 Vendors

SWOT Analysis for Lenovo

Strengths
  • Strong sales record in the mainland China
  • Increased revenues from the mainland, China
  • Exploitation of emerging economies
  • Use of vertical integration to reduce operation costs and manage operation
  • A well-executed global strategy and distribution channels
  • Association with the Olympics 2006 and National Football League
  • Strategic alliance with suppliers
  • Mass production
  • Strong R&D department
  • Local market expertise
  • Launching various range of products
  • Growth in cash reserves
Weakness
  • Poor global product perception (most consumers believe that China is the main source of counterfeit product)
  • Weak brands
  • Controversial government ownership
  • Poor after-sale services
  • Increasing operation costs
  • Low customer retention
Opportunity
  • Increasing demands for smart devices and tablets
  • Growths in emerging economies of Africa, Asia, and South America
  • Strategic merger and acquisition, and alliances
  • Active participation in corporate social responsibility (CSR)
  • Exploit close association with the government of China
  • Great diversity in different products
Threats
  • Plummeting global PC sales
  • Fierce competition from HP, Dell and Acer among others
  • Price wars
  • Competition from clone PC makers and refurbished PC products
  • Software piracy (China has weak anti-counterfeit and piracy laws)
  • Inferior position in the global market
  • Various regulations in different countries

Current Financial Statement

Group Results for the year ended March 31, 2012

2012 US$ million 2011US$ million Year-on-yearChange
Revenue 29,574 21,594 37%
Gross profit margin (%) 3,446 2,364 46%
Operating expenses (2,862) (1,982) 44%
Profit attributable to equity holders of the Company 473 273 73%
Final dividend per share (HK cents)2 10.0 5.0 5.0
Total dividend per share (HK cents) 13.8 7.6 6.2
Expense-to-revenue ratio (%) 9.7 9.2 0.5 pt
Net cash reserves 4,108 2,725 51%

Source: Lenovo Financial Group Results, 2011/12

The group results show that the company has an increment in profits. The final dividend per share also increased in 2012 by five cents. There was also an increment in operating expenses (Lenovo, 2012).

Conclusion

Despite declining fortunes of PC makers, Lenovo has continued to record growths in revenues. The history of the company shows that Lenovo has grown with an initial investment of 200,000 Yuan to a global company, which is worth US$30 billion today.

The company has competent founders and management team with diverse and extensive experiences in their areas of expertise. There is also effective corporate governance to protect interests of shareholders and other stakeholders of the company.

The wide ranges of products and technology services ensure that Lenovo has incomes from various products and services. This has enabled the company to make several acquisitions in various locations around the world. Therefore, financial results and business aspirations are good indicators, which show that Lenovo has good investment opportunities. However, shareholders and potential investors must study various market conditions, which influence revenue growths of the company.

References

Lenovo. (2012). 2011/12 Annual Report Lenovo Group Limited. Hong Kong: Lenovo.

Lenovo. (2013). Management. Web.

Ling, Z. (2006). The Lenovo Affair. Singapore: John Wiley & Sons.

Wheelen, T., and Hunger, D. (2012). Strategic management and business policy : toward global sustainability (13th ed.). New York: Pearson Education.

Whitney, L. (2013). HP tops Lenovo in lackluster PC market. Web.

Zeng, M., and Williamson, P. (2007). Dragons at Your Door: How Chinese Cost Innovation Is Disrupting Global Competition. Cambridge: Harvard Business School Press.

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