Just 7 days, Lenovo wraps up two deals totaling $5.2 billion - Economic Times ~ Electronic Gadgets

Michael J. De La Merced, David Gelles and Eric Pfanner

The chief financial officer of Chinese technology giant Lenovo was scheduled to spend last week rubbing elbows with Hollywood celebrities, corporate chieftains and government leaders in Davos, Switzerland.

Instead, the executive, Wong Wai Ming, a 54-year-old former investment banker, was shuttling between law firm offices in frigid Manhattan, putting together two of the most transformative deals in Lenovo's 30-year history.

In just seven days, Lenovo announced a $2.3 billion deal to buy IBM's low-end server business and a $2.9 billion pact to acquire Motorola Mobility from Google. A delicate balancing act was required: Neither the IBM team in midtown nor the Google contingent downtown could know what was happening in negotiations 3 1/2 miles away.

Each acquisition alone would have been enough to occupy the attention and resources of most other technology giants. But Lenovo is a company in a hurry.

Lenovo ascended to the top tier of technology companies two years ago, surpassing Hewlett-Packard to become the world's largest maker of personal computers. But with the PC market in steady decline, Lenovo had already been making drastic moves to ensure its future viability.

"We're already seeing the demise of the PC market," said Shahid Khan, a managing partner at the Meridian Advisory Group. "This is foresight on their part."

In early 2012, Lenovo's chief executive, Yang Yuanqing, began laying out a plan to branch out into smartphones and other devices in what the company began calling its "PC-plus" strategy.

With the IBM server deal, Lenovo is positioned to take on Dell and HP. Even though many companies are transitioning to higher end servers for complex tasks, the x86 servers Lenovo agreed to buy from IBM will remain in demand for years to come, generating steady cash flow.

And with the Motorola acquisition, Lenovo will vault into a clear No. 3 position in smartphones, behind Samsung and Apple. Lenovo's own smartphones are already popular in China, but buying Motorola gives the company a global brand.

"In order to be a global operation, the brand is very, very important," Wong said.

In an interview with Fortune on Thursday, the chief executive, Yang, was blunt: He said he hoped his company would surpass Apple and Samsung.

The voracious acquisition strategy raises questions about whether Lenovo is trying to do too much, too quickly. In the coming months, Lenovo will have to integrate the money-losing Motorola business, as well as its new servers business.

"The biggest risk is whether the executive management has the wherewithal to do a good job in the integration," said Andrew Costello, a principal at IBB Consulting. "If they don't, they'll lose good people as they work to pull it all together."

The Motorola deal has obvious risks. Its recent phones have not sold as well as Google hoped they would. On Thursday, not 24 hours after the Motorola deal was announced, Google reported that Motorola had lost $384 million in the fourth quarter.

But Lenovo executives emphasize the value of the Motorola brand. And analysts agree that the deal includes other assets that could give Lenovo a better chance of eventually challenging the top two smartphone makers.

"Lenovo now has extra scale in smartphones and a seat near the top table," said Neil Mawston, an analyst with Strategy Analytics, a research firm.

If the company can successfully integrate Motorola, it could gain considerable advantages.

For one, there would be geographical benefits. Although the company has been pushing to expand its smartphone business internationally, more than 90 percent of its sales are still in China.

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