Düsseldorf For a few weeks now, visitors have been able to see what the future of Lenovo should look like in a “Future Center” in Shanghai. The Chinese group has set up several scenarios to show the possible uses of its technology – for example in the management of cities or increasing harvests: “Smart City” and “Smart Agriculture” are the key words. Probably the most striking eye-catcher: an industrial robot that waves to visitors.
The exhibition is a signal, both externally and internally. Lenovo is the largest PC manufacturer in the world, and business has been going well since the outbreak of the pandemic – but CEO Yang Yuanqing is swearing the Chinese company on a new strategy. It is to go from a device manufacturer to a technology group that also offers software and services.
With technologies such as cloud computing, artificial intelligence and the Internet of Things, IT architecture is fundamentally changing, Yang told Handelsblatt. The accelerated digital transformation offers great opportunities worldwide – the company must react to this. In the spring, the management set up the Solutions and Services Group, which is supposed to develop solutions for certain industries, as can be seen in Shanghai.
It’s an opportunity for Lenovo to enter new markets. But it is also an insurance against the risk that after the pandemic, PCs will one day again be regarded as boring and interchangeable products that are used until they break – as they were a good year and a half ago.
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Lenovo’s presence has only to do with the scenarios in the “Future Center” to a limited extent. The Chinese group is primarily a PC manufacturer. In the past fiscal year to the end of March, the division contributed 80 percent to sales with notebooks, desktops and tablets, which grew strongly to 60.7 billion dollars – more than ever before.
In the current situation, this is not a disadvantage: since the outbreak of the pandemic, many consumers have equipped themselves with computers and accessories so that they can work, study and play at home. Last year, according to the market researcher Gartner, global sales rose by around five percent to 275 million units, despite intermittent delivery problems. Demand continues to rise, albeit at a slower pace.
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“The pandemic has changed work and life. The PC has experienced a comeback in the center of life, ”says Lenovo boss Yang with conviction. It will stay that way – for example through new work models. A study by the group shows that the daily usage time is twice as high as it used to be. He therefore considers the studies by market researchers who are now expecting weaker growth to be too pessimistic.
The manager hopes for a new cycle: If users buy their own equipment for the home office, they will need an upgrade at some point. And because they spend a lot of time in front of the screen, they acquire high-quality equipment, which applies to both the computer and the accessories.
So far, Lenovo has been able to avoid disruptions from geopolitical conflicts. The company has had one of the headquarters in the US state of North Carolina since it took over the PC business from IBM and – unlike the Chinese electronics manufacturers Huawei and ZTE – has been spared sanctions.
The computer manufacturer wants to expand the business.
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However, the global shortage of chips makes business difficult. The delivery times for components are increasing, as are the prices. Lenovo is also feeling this, with PCs as well as smartphones and data center accessories, reports Yang, who internally calls himself “Why-Why” with his English initials. The situation will continue “at least until the middle of next year”.
The manager sees this as an opportunity: “Lenovo has the best supply chain in the world.” The relationship with the suppliers is very close. “I am confident that we can grow faster than the competition,” he is therefore convinced. The order backlog is growing from quarter to quarter.
However, users have to be prepared for further increases in prices. On the one hand, the manufacturers pass on the costs for the components; on the other hand, they focus on production categories that generate more profit, such as high-quality notebooks. Lenovo has also recently been able to increase average prices.
New structure for new business areas
The current boom comes unexpectedly for PC manufacturers, given the spread of smartphones, notebooks and desktop computers were previously considered obsolete models. That is why Lenovo – like Dell – has been trying to develop additional business areas for several years. With mixed success.
The management had great ambitions in the smartphone business: After the takeover of Motorola in 2014, the goal was to become number one, ahead of Samsung and Apple. To this day, however, market researchers only list the group under “Other”. Last year at least it managed to increase sales to $ 5.7 billion and at the same time contain losses – YY is now promising profitable growth.
The server business, which the group strengthened in 2014 by purchasing the IBM division, is also difficult. While it grew to $ 6.2 billion last year, it’s not profitable given the high level of competitive pressure. Analysts believe that management is at least able to contain the losses.
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With a new structure, Lenovo now wants to prepare for the megatrends of the technology world. Since April there have been three groups under the corporate umbrella:
• The Intelligent Devices Group for hardware that Lenovo is known for, ie PCs, tablets and smartphones, as well as smart home products and virtual reality glasses.
• The Infrastructure Solutions Group for infrastructure solutions such as servers, storage and network technology, whether for your own data center or the cloud.
• And the Solutions and Services Group for complete solutions and services, which includes classic IT outsourcing as well as the turnkey installation of complex systems.
Lenovo wants to make a name for itself particularly with special solutions such as those on display in the “Future Center” in Shanghai, for example with systems that can control cities and improve yields in agriculture. The expenditures for research and development, which amounted to around 1.5 billion dollars in the past fiscal year, are therefore to be doubled in the next three years.
First successes of the new strategy
In order for the plan to work, however, cooperation across the boundaries of the three groups is required. Yang Yuanqing has issued the motto “One Lenovo” internally: The organizations should jointly develop solutions that are sold in 180 countries by a uniform distributor. “With our new organization, we can leverage the synergies between the various groups,” he is convinced.
The first successes can already be seen. In the past fiscal year, software and services sales rose by almost 40 percent to $ 4.9 billion, almost twice as high as Lenovo’s total.
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Analysts are keeping a close eye on this development: the new group could lead to a “long-term transformation” of the group, including a better margin profile, says the Swiss bank Credit Suisse – with intelligent services, it is assumed, one earns more money than with PCs.
For developments on the stock exchange, however, the PC business is still the measure of all things. This is how the major Swiss bank UBS sees it, which has just raised Lenovo’s rating to “neutral”. She expects the PC manufacturer to benefit massively from companies investing in new computers. The share price, which has fallen by 30 percent since March, does not reflect that.
More: Michael Dell: “The chip shortage will probably last a few years”
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