SMARTPHONES: Lenovo Eyeing CEO Change?

Bottom line: Yang Yuanqing is likely to cede his CEO title at Lenovo to recently returned executive Liu Jun soon, which could be followed by more risk taking and big changes to the company’s lackluster smartphone unit.

I used to make fun of mobile carrier China Unicom (HKEx: 763; NYSE: CHU) for its never-ending management reshuffles, but now the more respectable Lenovo (HKEx: 992) is quickly taking that title with its own series of nonstop personnel moves in a bid to right its sputtering ship. What’s interesting to note is that the series of moves are gradually creeping their way to the top of the company, meaning they could eventually unseat chief Yang Yuanqing, which is what I’ve been calling for all along.

This latest move would certainly be the highest yet, and follows Lenovo’s announcement last month of the reorganization of its China region that accounts for more than a quarter of its business. (English article) One part of that overhaul saw the return of former executive Liu Jun to the company to take a top position, and if the latest reports are true Liu could soon take over Yang’s title as company CEO.

Here we need to point out that Yang Yuanqing is both the executive chairman and CEO of Lenovo, so he would probably retain his chairman’s title even if Liu takes over as CEO. But it’s quite possible the “executive” part of Yang’s chairman’s title could drop out with this new shift, meaning he would become a more elder-statesman type while Liu would take over running the company.

We’ll do a little more armchair analysis shortly, but first let’s delve into the latest headlines that quote unnamed insiders saying the company is being quite careful about senior management changes at the moment. (Chinese article) But it adds that everyone is quite happy to see Liu’s return, making it seem like he is quite a popular character that has strong support within the company.

By comparison, Yang Yuanqing has become a bit of a lame duck in the last two years, as his repeated attempts at rectifying Lenovo’s sinking smartphone business come up short. His main supporter through all this has been Liu Chuanzhi, a founder of the original Lenovo and now an elder statesman at Lenovo’s controlling stakeholder Legend Holdings (HKEx: 3396).

Historians will know that Liu Chuanzhi led Lenovo for quite a while before handing over the reins of his company to Yang, then his protege, about a decade ago while retaining the title as non-executive chairman. That arrangement largely continued as Lenovo jumped onto the world stage with its purchase of IBM’s (NYSE: IBM) PC business in 2005, until Liu finally bowed from the chairman’s position in 2011 and gave it to Yang.

Changing Times

The Lenovo that Yang took over as both CEO and chairman in 2011 is a far different creature from the one we see now. That company was riding high at a time when PCs were still the primary device used by most people for their computing and web surfing. Fast forward to today, when smartphones and tablets have taken over many of those functions, and Lenovo has failed to gain traction in either area.

Adding to Lenovo’s woes, the company recently lost its long-held crown as the world’s largest PC maker to HP Inc (Nasdaq: HPQ), which had previously held the title. Liu Chuanzhi had made some confused noises in late 2015 reflecting his frustration with Yang (previous post), and many of the management shifts we’ve seen came after that. But Yang remained secure in his position at the top, at least until now.

All that brings us back to the present, and whether Yang is finally likely to lose his CEO’s title and what that might mean. In answer to the first question, I would say the answer is probably “yes”, and perhaps we could see an announcement in the next few weeks. I also expect that Yang will retain the “executive” part of his chairman’s title as a face-saving measure, even though Liu Jun will effectively start to run the show.

It’s still far from clear that Liu Jun will finally be able to do what Yang couldn’t. Liu actually left Lenovo in 2015, and was serving as head of the company’s smartphone unit at the time. No reasons were given, but perhaps he was having some philosophical differences with Yang, especially regarding the company’s recently purchased Motorola Mobility unit. If all that’s true, perhaps we’ll see Liu named to the CEO’s title, and then start to take some interesting steps to juice up the company’s lackluster smartphone division.