Intel out, Lenovo in

Hit by a sharp decline in sales and heavy financial losses, Lenovo Group’s new management team is turning the company’s focus back to China.

China is Lenovo’s most important market, accounting for 45 per cent of the company’s sales during the most recent quarter.

Even as this developed, another tech firm signaled that it is leaving China for roughly the same reasons that Lenovo is moving in.

Intel plans to restructure its China operations due to weak global economic conditions, including shutting a factory in Shanghai. The chip maker’s plan to build an advanced 12-inch (300-millimeter) chip factory in Dalian, located in China’s northeast, remains unchanged, Intel said in a statement.

“With the changes in the macroeconomic environment, our business in EMEA (Europe, the Middle East and Africa) and the Americas has been impacted greatly, so our company is increasing its focus on China, as well as emerging markets,” Liu Chuanzhi, the company’s newly reinstated chairman, told reporters during a conference call.

Lenovo recently acquired a secretive startup called Switchbox Labs that was co-founded by a former Microsoft Windows executive. The computer maker has had to layoff 11 per cent of its global workforce and cut managers salary by as much as 50 per cent.

Lenovo took observers by surprise on Thursday with the announcement that President and CEO William Amelio had resigned at the end of his three-year contract, which ended in December. Amelio, formerly the president of Dell’s Asian operations, led Lenovo through an ongoing restructuring program designed to improve the company’s competitiveness.

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Amelio was replaced by Yang Yuanqing, who will step down from his current position as chairman of Lenovo to take on the CEO role. Liu, the company’s founder and former chairman, returned to his former position and Rory Read, Lenovo’s senior vice president of global operations, will take on the role of president and chief operating officer.

At the same time that Lenovo announced Amelio’s departure, the company reported a quarterly loss of $97 million on sales of $3.6 billion, which represented a decline of 20 per cent compared to the same period during the previous year. Whether a renewed focus on China will help Lenovo reverse its fortunes in the short term remains to be seen: the company singled out a drop in Chinese demand for PCs as a primary reason for the lower sales and financial losses.

“It’s going to be tough in any of these markets, including China,” said Bryan Ma, director of personal systems research at IDC Asia-Pacific. “Given their strength in China, I can understand why they want to focus on this area.”

In terms of emerging markets outside China, Lenovo needs to focus its efforts on key markets, Ma said, noting that Lenovo’s business in India suffered badly during the last quarter of 2008.

Lenovo’s management also needs to realize that low prices alone will not be a guarantee of success in emerging markets. “It’s more about value. It’s critical they don’t go into these markets looking only at price,” Ma said.

Bringing Yang and Liu back to their previous positions echoes the earlier returns of Michael Dell to Dell and Steve Jobs to Apple during periods when these companies struggled to compete. But Yang and Liu, who ran the company at a time when its sales were largely confined to China, return to a dramatically different company, thanks to the 2004 acquisition of IBM’s former PC division. For the past four years, two Americans have held the CEO position at Lenovo, Amelio

and predecessor, Stephen Ward, who became CEO immediately following the acquisition. Ward resigned in late 2005.

To be successful in their bid to revive Lenovo’s fortunes, Yang and Liu will still have to improve the company’s position in the worldwide PC market, not just in China. When Yang and Liu announced plans to acquire IBM’s PC division, they said the deal would turn Lenovo into an international company and allow it to better compete against multinational vendors Hewlett-Packard and Dell.

That is still the company’s goal, Liu said.

“We are enhancing our foundation in China so that we can have further development in the future in those mature markets. We will try our best to protect our market position in the U.S. and Europe,” he said.

Meanwhile, Intel’s restructuring plans will mainly focus on closing a chip testing and assembly plant in Shanghai and moving operations from there to a facility in Chengdu, in western China, over the next 12 months.

The plant closure could affect up to 2,000 people, but Intel said it will offer employees the chance to move to Chengdu or Dalian.

Intel will keep its China headquarters in Shanghai as well as maintain its research and development (R&D) operations there. The company will also increase by US$110 million its registered capital in its investment holding company in Shanghai, Intel China Ltd.

Operations at the Intel China Research Center in Beijing and the Intel Capital China Fund II will remain unchanged, the company said.

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