Lenovo Believes PCs Will Still Be Necessary

Chinese computer company Lenovo has become the world's biggest seller of personal computers. Steve Inskeep talks to Vijay Vaitheeswaran, a correspondent for The Economist, about his recent article in the magazine on the rise of Lenovo.

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STEVE INSKEEP, HOST:

One of the world's biggest personal computer makers said its profits for the most recent quarter rose 34 percent. Lenovo is a Chinese technology company, which contends with HP, now, for the title of the world's number one PC seller. Here is the strange thing about that company, it is doubling down on personal computer sales - you know, desktops, laptops - at a time when the PC market is declining. Tablets and phones are taking over. The trend has crushed sales at another PC maker, Dell.

To find out more about how Lenovo hopes to stay on top, we called Vijay Vaitheeswaran of The Economist.

VIJAY VAITHEESWARAN: The company's chairman has a very contrarian philosophy. It's almost considered orthodoxy, now, among analysts and a lot of the other computer companies, that the rise of the tablet computer and the shift to smartphones means that the personal computer is on its way out. But in fact, the company says no, we don't believe that. We think there is a lot of room left for personal computers. Part of their answer is going to emerging markets where the penetration of PCs was never as strong. Also, they think that, particularly in the enterprise market - that is the business market - people will continue to buy quality think pads, whether they're desktop stations or the kind that are laptops you can take with you when you go out.

INSKEEP: Just by the numbers at the moment, their strategy seems to be paying off.

VAITHEESWARAN: If you look at volume, absolutely. If you look at profit margins, the margins are very small and this is an increasingly commoditized business, so they do have a problem when it comes to judging them on financial metrics.

INSKEEP: How did this company get started?

VAITHEESWARAN: It started when about a dozen engineers and scientists from the Chinese Academy of Sciences, that's sort of like our National Academy of Sciences, an official government body, they got together in the early '80s and said, let's create a computer company. Now you have to bear in mind, this is early days of Chinese capitalism and these are pretty visionary guys. They had $25,000 in seed money given to them by the Chinese Academy of Sciences, and they met in a guard shack on the grounds of this academy in Beijing. So literally, they huddled together in a little tiny policeman's shack, and they plotted what would ultimately become the world's biggest computer company.

INSKEEP: And how did they expand?

VAITHEESWARAN: Initially, they actually started to make Chinese versions for foreign computers - including, for example, adapting Western computers so that they could more easily take Chinese character inputs. So they started humbly with partnerships and low-level innovation, but over time, they got much more ambitious. The real breakthrough came when they bid for IBM's ThinkPad business. And that was an extraordinary bid because IBM's company was twice the size. And they succeeded. They got IBM's laptop business.

INSKEEP: So it was a buyout but Lenovo was smaller than the company they were buying here, at least the assets they were buying.

VAITHEESWARAN: That's right. And it was huge for a Chinese company to do a, in effect, a reverse takeover of a much bigger company. But they had had a relationship with IBM for years and IBM trusted them, the management knew them. And there's something else that explains this, the people who are at the top of what was called Legend Holdings back then - Legend was the name of the company - that ultimately spawned Lenovo, they were quite visionary. They were very much private-sector oriented. They wanted to create a company on par with IBM and the great Western companies that they had read about and idolized. They wanted Western management practices. They studied Harvard Business Review articles. You know, they really wanted to modernize Chinese business, and that was part of their aspiration with creating Lenovo and creating a partnership, and ultimately, acquisition of IBM's personal computer business.

INSKEEP: All of that points to another challenge because they wanted to be a Western sell company, but it's a Chinese company that has to operate in the presence of the Chinese government. How has it managed that part of it?

VAITHEESWARAN: You're right to put the finger on the big 800 pound gorilla in the room. It is very difficult to operate in the private sector in China. They had, early on, been able to secure some permissions that were unusual. They were given permission to make their own hire and fire decisions. And they also had the right to expand and raise capital, which is also not something that the government gives away freely. So they took advantage of the little bit of room that was given to them because they were not a state owned enterprise, not like China Mobile or the big oil companies that are explicitly controlled by the state. This was an oddball offshoot of the Academy of Sciences and there was a small opening and they took it and they made it into a big opening.

INSKEEP: Vijay Vaitheeswaran of The Economist, thanks very much.

VAITHEESWARAN: Great to be with you.

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