Could Lenovo and Acer Team Up?

Posted by: Bruce Einhorn on May 21, 2009

More bad news for Lenovo. China’s top PC company today announced it lost $264 million in the quarter ended March 31. The loss was no surprise, given the awful state of the computer industry, although it was worse than many had expected. Eric Savitz, blogging at Barron’s Online, says analysts were looking at a Lenovo loss of $186 million. According to Bloomberg, the median estimate expected by five analysts was a loss of $211 million.

So what’s Lenovo supposed to do next? It already has laid off thousands of workers in a big restructuring effort. After announcing a quarterly loss for the last three months of 2008, the company also pushed through a management shakeup, with Bill Amelio, the Dell exec brought in a few years ago to help the Chinese company go global, leaving. (We wrote about Amelio’s departure in this BW story.) Now the old team is in charge, with founder Liu Chuanzhi back at the helm and trying to boost Lenovo’s fortunes by focusing on the Chinese market. Problem is, that strategy might make sense from a business point of view, but politically it’s a bit of a disaster. One of the most important points of government-backed Lenovo buying the old PC division of IBM back in 2005 was to help promote Beijing’s goal of turning Chinese companies into global champions that could uphold the honor of the motherland against the Americans and the Japanese. “You carry the hopes of China on your shoulders,” Premier Wen Jiabao said once to Yang, as my colleague Steve Hamm wrote in this BW story from 2006. With declining sales in the Americas (minus 24.6%), declining sales in Europe, Middle East and Africa (minus 13%) and declining sales in ex-China Asia (minus 32%), those hopes seem to be fading.

If Liu and Yang want to find a way to get back in the good graces of China’s Communists rulers, they should consider something bold. A few weeks ago, Bernstein Research analyst Toni Sacconaghi Jr. came out with a report suggesting Dell solve some of its problems by merging with Acer. The idea, according to Sacconaghi, makes sense because the industry needs consolidation and Dell and Acer’s businesses are complementary. The same holds true for Lenovo and Acer: The two have been bitter rivals for years, but there’s some logic to the two teaming up. Lenovo is strong in China and weak most everywhere else; Acer is weak in China and strong most everywhere else. While HP and Dell have made some headway in the Chinese market, Acer is still very much an also-ran despite years of effort. In other markets, Lenovo is strong in business sectors where Acer is relatively weak. The Chinese company, thanks to the IBM legacy, is strong in sales to enterprises but is weak with consumers; Acer is weak in enterprise and strong with consumers.

And of course there’s the political symbolism of a Lenovo-Acer partnership. When Chen Shui-bian, an advocate of Taiwan formally declaring itself independent of China, was president of Taiwan, relations between Beijing and Taipei were in the deep freeze and such a deal would have been impossible. Now, though, Taiwan’s president is Ma Ying-jeou, whom Beijing likes much better and whose government is working to improve ties between the two sides. Taiwanese and mainlanders can now fly back and forth across the Taiwan Strait without having to go via Hong Kong, for instance, and the Taiwanese stock market has been soaring amid optimism about Chinese investment in local companies. In this climate, why not consider a Lenovo-Acer deal? If Lenovo were in the driver’s seat, Beijing would probably be thrilled. On the other hand, that’s a big if. The way the two companies are heading now, Acer is the stronger company. A mainland company getting swallowed by a Taiwanese company might be too much for China’s leaders to handle.

Reader Comments

China-Taiwan merger

May 22, 2009 12:31 AM

"A mainland company getting swallowed by a Taiwanese company might be too much for China’s leaders to handle." -- the Chinese leaders are stupid if they can not even handle Acer swallowing Lenovo. I say to the CCP leaders, welcome the Nationalist Party back to China.

Wu Chang

May 22, 2009 1:04 AM

The problem with Lenovo is that its products are too expensive and sophisticated for home users like me.

Bbuster

May 22, 2009 5:42 AM

In his past life, Einhorn was an unfulfilled match maker. Today, he has taken liberty at BW to realize his dream career. However, to concoct such a marriage between Acer and Lenovo is shear nonsense. Just because one is a ying and the other a yang does not a good match make. As a side note, who is the Mr. Yang to whom Premier Wen Jiaboa had spoken, since Einhorn seems to have gone off on a tangent. To have a successful corporate merger, the two companies must share more than increasing market share and efficiency.
The two companies must share the same core values in governance, vision, and business strategy. As to the potential merger of Acer and Lenovo, Einhorn is naive at best because he failed to see the many company marriages that superficially look good on paper but turn out to be disaster after the wedding. BW readers recommend Einhorn writes about palm reading, astrology, or deciphering tea leaves. At least there, he will sound more intelligent.

richard

May 22, 2009 12:12 PM

it is stupid for a company like acer to acquire complicated and bureactic company like lenovo... You never know what you buy end of the day

and even more stupide to color the political background!

Phobo

May 22, 2009 12:45 PM

Quality of IBM PC series is high, but Lenovo has to focus more on advertising toward young people, and developing cheaper, fashionable PCs, like Apple. 5 years ago everyone knew "Apple's white vs. IBM's black", but now it seems that the black is fading out. Anyway, I think IBM series are of high quality, perfect suitable for business and research purposes, and they have the capability to develop PCs for young people, and it will be too sad if they quit PC market and let Apple rule over.

R

May 23, 2009 1:29 PM

I was a big fan of IBM's thinkpad division back in the day; warranty service typically took 1 business day (for mail in), and the machines came back fixed.

My Lenovo broke. Two weeks later, it came back unrepaired. There's a connector that keeps popping loose due to a broken screen mount. Their solution? Pop the connector back in, and ignore the screen mount. It re-broke in I was a big fan of IBM's thinkpad division back in the day; warranty service typically took 1 business day (for mail in), and the machines came back fixed.

My Lenovo broke. Two weeks later, it came back unrepaired. There's a connector that keeps popping loose due to a broken screen mount. Their solution? Pop the connector back in, and ignore the screen mount. It re-broke in

Many of my co-workers have thinkpads, and most of them have had similar experiences.

Also, actually purchasing a laptop from Lenovo's web site is nearly impossible; prices swing 20% (up and down) on a regular basis. My next laptop will be a netbook (and cost about as much as my worthless Lenovo warranty...) It's too bad they're running the business into the ground, even as their engineers and manufacturing team continue to put out top-notch products.

phoebe.tao

May 23, 2009 11:50 PM

Lenovo needs put attention on service and B2B not just PC manufacturer, its national card was failed in its domestic market

mike

May 25, 2009 12:11 AM

Sometimes, I see Lenovo computers in the store, at other times I don't. In fact, most times I don't. But Acer is always there and second in presence is HP. Lenovo must improve on its consumer distribution network and make itself as ubiquitous as Acer.

Another Jazz Fans in Asia

May 25, 2009 2:41 AM

M&A deal is unlikely. The recent intention of China Mobile to march into Taiwan's telecommunication already raised some serious discussions. And Acer is quite a symbolic brand for Taiwanese.

But constructing a strategic partnership deal between Lenovo and Acer would be a Win-Win situation for both companies.

Another Jazz Fans in Asia
http://jazzfansinasia.blogspot.com

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