Lenovo CEO Is Out; Chinese Execs Return

Amid falling sales and PC industry turmoil, Amelio exits as CEO. Lenovo vets Liu and Yang, back in the top jobs, will focus more on China

New CEO of Lenovo Group Yang Yuanqing and former CEO William J. Amelio. MIKE CLARKE/AFP/Getty Images

By Frederik Balfour and Bruce Einhorn

They were the Dream Team of China's drive to build its first truly global brand: Yang Yuanqing, the computer scientist from the Chinese countryside who at age 40 became chairman of Lenovo, and William Amelio, the American chief executive lured from Dell (DELL) to become CEO. The two joined forces in 2005 after Lenovo, the country's largest PC company, acquired the PC division of IBM (IBM). With Yang focusing on strategy and Amelio zeroing in on production, the pair had an ambitious goal of building on Lenovo's success in China to take on heavyweights Hewlett-Packard (HPQ) and Dell in markets worldwide.

On Feb. 5, the dream ended. With the PC industry in turmoil and Lenovo losing ground to rivals, the company announced a $97 million loss for the quarter ended December, compared with a $172 million profit for the same period in 2007. Sales for the quarter dropped 20%, to $3.6 billion from $4.5 billion. And, the company announced, Yang is replacing Amelio as CEO, with the American staying on "in an advisory capacity" until September. Despite the setbacks Lenovo has faced, "I'm pleased with what we have accomplished as a team," said Amelio in a statement.

Lenovo announced another big management change. Liu Chuanzhi, the company founder who stepped aside after the IBM deal, will return as chairman. The move to reinstate Liu and Yang, who held the CEO job from 2001 to 2004, is a clear signal that Lenovo sees China as its biggest hope. "Lenovo has grown successfully on the international stage," Liu said in a press release. "But at this important time we want to pay particular attention to our China business as it represents the foundation of our global business and growth strategy."

Losing Market Share

Back when Lenovo announced the IBM deal, the idea was to leverage Big Blue's worldwide distribution and senior executives to help the Chinese brand go global. But that strategy has met with limited success: Lenovo, which was the world's third-largest PC maker after the acquisition, has slipped to No. 4 globally, behind HP, Dell, and Acer, the Taiwanese rival that had been neck and neck with Lenovo. While Acer, with 11.8% market share in the fourth quarter according to rankings from IDC, is closing in on Dell for the No. 2 spot, Lenovo is a distant fourth at 7.3%. "They are not on a good trajectory," says Charles Guo, an analyst with JPMorgan (JPM) in Hong Kong.

The global recession has hurt PC companies, but Lenovo has been especially vulnerable outside its home market because of its reliance on sales to corporate customers. With companies cutting back on IT spending, Lenovo on Feb. 5 announced that total shipments to the Americas fell 6% in the quarter, twice the industry average. Lenovo was also nearly one year behind rivals when it came out last fall with its netbooks, the mini-laptops that have helped drive sales for Acer. "Netbooks are about consumers, and consumers were not the key focus," says Patrick Yau, an analyst in Singapore with Macquarie.