lenovo ibm acquisition case study

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How a Chinese Company Became a Global PC Powerhouse

O ne of the great business stories of the last 10 years is how Lenovo, a Chinese company, was able to take IBM’s PC unit and integrate it into its own, becoming a global technology powerhouse in the process. The story is one of the greatest case studies on how to merge massive international enterprises into a winning firm.

As part of my consulting gig for IBM back in 1984, I was asked to be part of the company’s first laptop research program. The IBM PC had been on the market for three years by then, and many of IBM’s customers were clamoring for a more portable version of that PC. During a two-year period I often traveled between Austin, where the laptop was being designed, and Boca Raton, IBM’s PC headquarters, to work with the teams as they tested various models. Eventually, they came up with what was IBM’s first clamshell-style PC that found success on the marketplace.

Over the next five years, IBM’s laptop designs took advantage of newer screens, processors and battery chemistry. Their laptop morphed into what has become the very popular ThinkPad brand. For most of the 1990’s and early 2000’s, IBM had a strong PC business; the ThinkPad was the anchor of their portable line. But by 2004, IBM’s business had changed, and it was looking to get out of the PC hardware business. So on May 1, 2005, IBM sold its PC business to Lenovo — and over the last 10 years, Lenovo has become the #1 PC player in the world.

Since I was close to IBM and had been on their mobile advisory board at the time, myself and about eight other analysts were invited to go to Beijing to meet with Lenovo’s management team, speak with its executives and hear its vision for what had been IBM’s PC products. At first, I was highly pessimistic about the success of this venture. Here was a Chinese company that was going to take over IBM’s famous PC business and try and make itself into a strong global brand. At the very least, I figured the culture clash would be a major issue. Plus, almost all of the IBM employees being sent to Lenovo in the deal were Big Blue lifers, and I suspected the top talent would choose to stick with the company they knew.

It turns out that Lenovo was able to coax most of IBM’s top PC execs to join the new venture. They helped assure IBM’s corporate customers as well as any consumers who bought their products that everything would be business as usual, and that Lenovo would honor all past warranties and service their needs well into the future. An initial hiccup came when some in the U.S. government were reluctant to give a Chinese company access to government data or contracts, but within a year the deal began to smooth out.

Lenovo’s success has to be credited to the hard work of the Chinese and American teams. The merging of these two business cultures alone is quite a feat.

One thing I didn’t expect is that the Chinese leadership took a hands-off approach to the U.S.-run PC company, fully trusting their leadership to keep the business moving forward. That was one of the assurances us analysts got during our trip to Beijing, but I wasn’t sure that would hold true. But Lenovo’s Chinese management put a great deal of trust in Steve Ward, the architect of the deal from IBM’s side.

I recently spoke with Peter Hortensius, who is Lenovo’s Chief Technology Officer and a Senior Vice President who joined Lenovo as part of the executive team that came from IBM. He told me that Lenovo’s dedicated focus on delivering innovative products and being willing to branch out in new areas is key to its growth. Last year, Lenovo bought Motorola and IBM’s server business, adding new breadth to its product offerings. Although relatively new to the smartphone wars, over the last five years they have become the #3 smartphone vendor in China and #4 globally. They are also the #1 PC vendor in the world, with an extremely strong position in China in both business and consumer PC’s. According to Hortensius, “Lenovo is committed to creating great hardware based products, plus a rich ecosystem that will be a driving force for their future.” He pointed out that software plays a major role too, and that Lenovo plans to continue to innovate in hardware and software to help differentiate itself from the competition.

I’ve had a front-row seat for Lenovo’s evolution, letting me see up close how it used the integration of the IBM PC business to become one of the major tech companies in the world. They consistently get high customer ratings, and now with Motorola and the new server business, it seems poised to grow exponentially. When I asked Hortensius what the company would look like in another 10 years, he said Lenovo, under the leadership of Chairman and CEO Yang Yuanqing, the company will grow in all of the categories they compete in now, and did not rule out the idea that over time the company could broaden its product portfolio still further. From my experience, Lenovo is an extremely focused company that is highly disciplined, with a powerful leadership team that seems to all be on the same page. Ten years ago, none of us could foresee how Lenovo acquiring the IBM PC business would turn out. Now we know.

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Lenovo: Building A Global Brand

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​Lenovo bought IBM's PC business 10 years ago: Jury out on broader ambitions

Lenovo on Thursday will celebrate the 10-year anniversary of its acquisition of IBM's PC business. What remains to be seen is whether Lenovo can pull off the sequel---the acquisition of IBM's server business---and become a larger smartphone-to-data center enterprise vendor.

The IBM-Lenovo deal in 2005 will go down as a win-win scenario. Lenovo bought IBM's PC business and an iconic ThinkPad brand and leveraged it to be the No. 1 PC maker. By shedding the PC business, IBM transformed into a hardware, software and services outfit. Big Blue is also looking for a sequel of its own as it sheds commodity servers to focus on analytics, mobile, security and cloud.

Lenovo, armed with IBM's PC unit, eventually pursued a strategy that revolved around defending mature markets---U.S. and Europe---and expanding share in emerging countries.

Now Lenovo is digesting the acquisitions of IBM's server business as well as the purchase of Motorola.

If successful, Lenovo can offer everything from servers to smartphones with all the devices in between.

Lenovo's master plan, however, will largely depend on those latter purchases. In other words, Lenovo can't go too crazy with its PC victory lap after a decade.

The company said that it will launch its first global tech conference where it'll outline its device strategy. More importantly, Lenovo will have to convince enterprises that they can bet on the company's roadmap, which will include wearables and connected devices too. On the consumer front, Lenovo will need to inspire Apple-like gadget lust.

Lenovo completes $2.91bn acquisition of Google's Motorola Mobility unit | Lenovo after IBM server deal: We will fight back vs. HP FUD | Lenovo finalises acquisition of IBM's x86 server business |

However, Lenovo's enterprise businesses will ultimately pay the bills.

For now, Lenovo gets a short birthday party. The acquisition of IBM's PC business kicked off a string of eight acquisitions over the last decade that paid off in the end.

Here are a few milestones of note:

• Lenovo bought IBM's PC division in 2005.
• In 2006, Lenovo rolled out its own branded PCs.
• In 2011, Lenovo formed a joint venture with NEC and Compal and later acquired Medion.
• In 2012, Lenovo formed a storage joint venture with EMC.
• The Yoga convertible launched in 2012.
• Lenovo became No. 1 in 2014 and began pushing smartphones outside of China.
• In 2014, Lenovo acquired Motorola Mobility and IBM's x86 server division.

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Lenovo Marks Decade of Success Since Acquisition of IBM’s PC Business

World’s #1 pc maker, sees continuous innovation, as it expands into smartphones and servers.

BEIJING, China and  RESEARCH TRIANGLE PARK, North Carolina – April 30, 2015:  Lenovo (HKSE: 992) (ADR: LNVGY) today marked the 10-year anniversary of its acquisition of IBM’s PC business a major milestone in its evolution from China-only PC maker, to global PC challenger, to where it is today: one of the world’s most innovative technology companies. Over the past decade, Lenovo has achieved tremendous growth in its business to become the world’s #1 PC maker, and #3 in smartphones, #3 in tablets, and #3 in x86 servers.

Lenovo marks this milestone in advance of  Lenovo Tech World  on May 28 in Beijing, the company’s first strategic global technology conference, where it will outline its vision of future devices, including smartphones, wearables and smart connected devices and demonstrate R&D concept projects.

“The acquisition of IBM’s PC business transformed Lenovo overnight into a truly global company, changing not only Lenovo but our industry,” said Yang Yuanqing, Chairman and CEO, Lenovo. “Since then, we have overcome many challenges – and many doubters – to become the world’s leading PC company and one of the world’s most innovative personal technology companies.  Even more, this acquisition built the foundation for our expansion to new products like smartphones, tablets, servers and now our ecosystem, growth engines fueled by the success of our first big deal.”

A Decade of Success Prior to its acquisition of IBM’s PC business in 2005, Lenovo ranked #9 in the worldwide PC industry with 2.3 percent market share and annual revenue of just $3 billion. Fast forward to 2015 and Lenovo has risen to become #1 in worldwide PCs with market share at 20% and revenue growing roughly thirteen-fold over the past ten years to $39 billion.Notably, the IBM PC acquisition and its growth gave Lenovo the fuel to accelerate its expansion which today encompasses three growth engines with global scale:  PC, mobile and enterprise. No other company can match this diversity. Following the successful IBM PC acquisition, Lenovo has made eight successful acquisitions, priming the company for future advances in high-growth and high-revenue markets.

“In the ten years since Lenovo acquired IBM’s PC business, Lenovo has grown from a $3 billion company whose interests were mostly in China, to the $39 billion global technology leader that Lenovo is today,” said William O. Grabe, Lenovo board member and advisory director, General Atlantic, an original investor in Lenovo’s acquisition of IBM’s PC business.  “Lenovo‘s decade of success was achieved through a continued focus on profitable growth, strong execution by the Lenovo leadership team led by Yang Yuanqing, and the hard work of the tens of thousands of Lenovo employees around-the-world. I look forward to Lenovo’s next decade of growth.”

Here’s a snapshot of some of the defining moments in Lenovo’s history over the past ten years:

• 100 million ThinkPad laptops sold (2015)
• Completed the acquisition of Motorola Mobility and IBM X86 businesses and launched multimode YOGA Tablet 2 Pro with built-in projector (2014)
• Became #1 PC-maker worldwide; started selling smartphones outside of China; and introduced interpersonal computing with Horizon table PC (2013)
• Launched YOGA multimode PC (2012)
• Entered into JV with EMC and acquired Stoneware and CCE (2012)
• Created JV with NEC and Compal and acquired Medion (2011)
• Sponsored Beijing Olympics delivering 20,000 pieces of infrastructure and hardware; entered global consumer laptop and desktop markets; built ThinkPad X300, which BusinessWeek called “the best laptop ever” (2008)
• Launched first Lenovo-branded PCs worldwide (2006)
• Acquired IBM’s PC business, including ThinkPad (2005)

Since completing its acquisition of IBM’s PC business, Lenovo has invested heavily in research and development, leading to the expansion of the Think brand into new product categories such as workstations and servers as well as new commercial designs and innovations including tablets and convertibles. Also during this time period, Think-branded products have won more than 2,600 design and product awards.

Follow the conversation on Twitter  @lenovo  #DecadeofInnovation.

About Lenovo Lenovo (HKSE: 992) (ADR: LNVGY) is a $39 billion global Fortune 500 company and a leader in providing innovative consumer, commercial, and enterprise technology. Our portfolio of high-quality, secure products and services covers PCs (including the legendary Think and multimode YOGA brands), workstations, servers, storage, smart TVs and a family of mobile products like smartphones (including the Motorola brand), tablets and apps. Join us on LinkedIn, follow us on Facebook or Twitter (@Lenovo) or visit us at  www.lenovo.com .

Lenovo: A Case Study on Strengthening the Position in the European Market Through Innovation

• First Online: 30 January 2016

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Lenovo is a Chinese company operating in the computer and ICT area with great success in its domestic market. The product range is spread over computers (laptops) as well as smartphones for private and for professional users. Lenovo’s strengths are the high quality of electronic devices, ease of use, and selling the devices for an acceptable and fair price. The supply chain of Lenovo is very strong and effective as well as efficient. Lenovo and its specific product segments can become a world brand. The increase in sales and market shares was achieved by mergers and acquisitions which are limited by nature. So, it might be a challenge for Lenovo, when the time is ripe, to further develop its business with its own resources.

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Ahrens, N., & Zhou, Y. (2013). Chinas Competitiveness. Myths, Reality and Lessons for the United States and Japan . Case Study: Lenovo, CSIS, Center for Strategic & International studies; Washington.

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Gellert, F.J. (2016). Lenovo: A Case Study on Strengthening the Position in the European Market Through Innovation. In: Segers, R. (eds) Multinational Management. Springer, Cham. https://doi.org/10.1007/978-3-319-23012-2_6

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Please note you do not have access to teaching notes, lenovo: human resources management innovation in tune with corporate change.

Publication date: 30 January 2024

Teaching notes

Against the backdrop of IBM Personal Computer Business's acquisition by Lenovo Group, this case introduces the remodeling process of Lenovo's HR organization and development team, during which the company's 5P principle, namely “Plan (think clearly before making promise), Perform (promise is to be fulfilled), Prioritize (company's interest is top priority), Practice (make progress every day in every year), Pioneering (venture any experiment to be a trailblazer), takes shape. After learning about Lenovo's recruitment of internationalized talents, cross-cultural coaches for senior leaders, cultural development in internationalization and risk aversion in international operations, we can understand what Lenovo's HR team does to avoid conflicts in corporate culture and ethnic culture in cross-border mergers and acquisitions and integration, and how to adjust and change the HR management system.

Xu, X. (2024), "Lenovo: Human Resources Management Innovation in Tune With Corporate Change ", . https://doi.org/10.12156/FUDAN.CASE202216002

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CHINA’S INVESTMENT IN THE UNITED STATES AND THE PUBLIC RELATIONS IMPLICATIONS: A CASE STUDY OF THE LENOVO-IBM ACQUISITION

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