PCs: Lenovo Overhauls as Huawei Notebook Launch Nears

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Bottom line: Lenovo’s latest overhaul looks promising by combining its older PC unit with its smartphones under a capable leader, but its longtime CEO could still get forced out if the plan doesn’t show signs of success in the next 6 months.

Lenovo in new corporate overhaul

A series of new stories are highlighting the growing rivalry between fast-rising gadget maker Huawei and the older Lenovo (HKEx: 992), which has just launched a major overhaul as it tries to right its fast-sinking ship. The overhaul looks like a last-ditch effort by longtime CEO Yang Yuanqing to save both his company and his own job, following a series of missteps over the last year in the critical smartphone space.

Meantime, other reports are showing how Lenovo is also trying to maintain its globally-leading position in the PC arena with the recent launch of a new series of models from its core ThinkPad series. That launch comes as Huawei gets set to roll out its first-ever rival notebooks.  Lenovo actually unveiled its new ThinkPad X1 series back in January, though the actual products are just now beginning to find their way into the market.

Let’s begin with the biggest headline, which has Lenovo announcing a major reorganization around its core product areas. (Chinese article) The biggest part of that overhaul will see Lenovo move all of its consumer devices, including PCs, tablets, smartphones and smart appliances, into a single unit led by Gianfranco Lanci, who was named Lenovo president a year ago.

The move also will see Lenovo’s former mobile unit chief Chen Xudong step into a new role where he is primarily responsible for mobile products in China, the company’s most important market that accounts for around half of its total sales. Some might see Chen’s move as a demotion, but the reality is that Lenovo desperately needs to fix its struggling China smartphone operations.

The company should theoretically enjoy huge advantages in China’s smartphone market, since it has years of experience in the similar PC space, as well as a highly-respected brand and vast sales network in its home territory. But it has failed to parlay those advantages into similar dominance of the China smartphone market, the world’s largest.

The company’s smartphone sales in China plunged by two-thirds in last year’s fourth quarter, as it sold only 3.4 million units compared with 10.2 million a year earlier, according to data tracking firm IDC. (previous post) As a result Lenovo only managed to finish 10th in the market, far behind lesser known players Oppo and Vivo. By comparison, Huawei has surged over the same period to become the market’s biggest player, despite a far shorter history as a consumer electronics brand.

Logical Looking

Lenovo’s latest overhaul looks logical and well conceived, since the lines between notebook PCs, tablet computers and smartphones are rapidly blurring. By bringing all these devices under one manager, CEO Yang is probably hoping the smartphone division can benefit from the rich and long expertise of Lenovo’s PC division, which is still considered a leader in that segment.

But Lenovo’s dominance in PCs will soon face a well-funded, up-and-coming new challenger in Huawei, which just last month unveiled its first notebook PC called the MateBook, a name that draws on its popular Mate line of smartphones. (previous post)  Reviews for the first MateBook, which will go on sale in China next month, have been generally positive, though I’ve previously said that Huawei will probably need at least 2 years to become a significant player in the space.

A new report comparing Huawei’s first MateBook and Lenovo’s ThinkPad 1X series points out that the former is aimed at cost-conscious consumers, while the latter is more targeted at business users who are willing to pay more for high performance. The cheapest MateBook will start at just $699, while the cheapest model from the new ThinkPad line will cost nearly twice as much.

But no one is really too worried about Lenovo’s PC prospects, at least not for now, since that part of its business continues to be a well-respected industry leader. What’s more significant is a lack of new smartphone models that have attracted any buzz, even though Lenovo was hoping to make a big splash by resuscitating the faded Motorola brand that it purchased more than a year ago.

All of that brings us back to the latest reorganization, and whether it’s likely to succeed and revive Lenovo and ensure Yang’s position as CEO. I do like the choice of Lanci as head of a combined PC and smartphone unit. The Italian is often credited with engineering the rise about a decade ago of Taiwan’s Acer (Taipei: 2353) in Europe, and seems quite capable of developing and marketing good products. I even suggested earlier that Lanci might make a good new CEO for Lenovo if Yang is ultimately forced out.

As to whether or not the overhaul will work and Yang will survive, it’s probably still too early to say. I would predict that Yang’s current boss, Lenovo founder Liu Chuanzhi, will give this latest plan up to 6 months to show some early signs of success. If such signs fail to materialize, we could easily see the company’s stock continue to sink as its prospects fade, and Yang could ultimately get pushed out by the end of the year.

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