Chinese Tech Giant Lenovo Extends Its Reach In U.S.
RENEE MONTAGNE, HOST:
Mergers and acquisitions are common in the business world, but when a Chinese firm strikes major deals with two iconic American companies in one week, that raises eyebrows. That happened last month when the Chinese technical giant, Lenovo, extended its reach into the U.S. by acquiring a division of IBM, as well as one of Google.
NPR's Jackie Northam has this profile of Lenovo and its efforts to establish itself as a global player.
JACKIE NORTHAM, BYLINE: For many Americans, Lenovo may not be the name that immediately springs to mind when it comes to personal computers. But in fact, Lenovo is the number one maker of PCs in the world. Not bad considering the company's humble beginnings in Beijing 30 years ago.
Jay Parker, president of Lenovo's North American operations, says it was created by 11 engineers and a kickstart investment from the Chinese Academy of Sciences.
JAY PARKER: It was a little one-room building that looks very much, or looked very much, like a shack. And started out as an entrepreneurial venture. It wasn't given much of a chance, to be honest with you, to ever be a real competitor to the established players.
NORTHAM: But Lenovo built an empire, says Frank Gillett, a vice president and senior analyst at Forrester Research.
FRANK GILLETT: They were going gangbusters in their home market in China, but they were not globally recognized brand and they had global ambitions.
NORTHAM: Gillett says that meant getting a foothold in the U.S. In 2005, Lenovo purchased IBM's PC division for $1.25 billion, absorbing the Think Pad brand for laptop and desktop personal computers. It was widely viewed as a risky acquisition. Lenovo's North American president, Parker.
PARKER: It was a money losing business that was losing share and relatively distant in terms of its market share position. And we've had success in turning that around and ultimately becoming the number one PC player in the world.
NORTHAM: In the meantime, Lenovo has increasingly raised its profile, opening a headquarters in North Carolina, setting up sponsorships with the National Football League, and bringing in pitchmen, such as actor Ashton Kutcher, and basketball great Kobe Bryant.
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UNIDENTIFIED MAN: Lenovo smartphone is like having Kobe right in your pocket.
NORTHAM: But Lenovo president Parker says the company needed extend its reach in the U.S. beyond PCs. In late January, it reached a $2.3 billion deal with IBM for its low-end x86 server business, which distributes data across a system. Within a week, Lenovo also agreed to a $2.9 billion deal with Google to buy its Motorola Mobility handset division.
Lenovo already has a flourishing smartphone business in many parts of Asia. But Linda Sui, a senior analyst in the Bay area with Strategy Analytics, says Lenovo needs to be in America.
LINDA SUI: China is the largest market in terms of volume, but U.S. market is the largest market in terms of value, which means companies can make most of money from here.
NORTHAM: Forrester analyst Gillett says buying the Motorola brand name gives Lenovo a two to three year head start in getting into the U.S. market.
GILLETT: They are getting the existing products and the planned products that have already been sort of designed or are in the process of being designed, and you actually get a management team, a design team in the markets that you want to do well in who already understand that market.
NORTHAM: But Lenovo will be competing against two smartphone powerhouses - Apple and Samsung.
Ted Moran, a professor of international business and finance at Georgetown University, says Lenovo may be overextending itself by taking on two new businesses in the U.S. at the same time. And Moran says the company may have trouble getting the deal past U.S. government regulators, especially the IBM x86 server.
TED MORAN: That problem from an acquisition point of view and a possible national security point of view is that they're ubiquitous, they are used in business, they're used in government, they're used in defense and intelligence and military.
NORTHAM: But Lenovo's Parker thinks the deals will get regulatory approval. He says it could take up to nine months for the deals to actually close.
Jackie Northam, NPR News, Washington.
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