China’s foremost computer company has always liked to cloak itself in myth and symbolism. It called itself Legend when it was founded in 1984 and became Lenovo (‘new legend’) in 2002 when it started to expand internationally.
So it was not very surprising when founder, Liu Chuanzhi and his loyal sidekick Yang Yuanqing (the current Lenovo CEO), supposedly asked their chief acolyte, Liu Jun, to rejoin the company while they were climbing Mount Emei in Sichuan province last September. In Chinese folklore Emei is one of the four sacred Buddhist mountains: a place of enlightenment.
However, it may well signify the mountain the company has yet to climb. Lenovo’s share price fell off a cliff shortly after Liu Jun last left the firm in May 2015 and it has still not recovered. Since then, Lenovo’s market value has fallen from a peak of HK$150 billion ($19 billion) in May that year to HK$56 billion as of Thursday’s close.
Many believe Lenovo has lost its way with its core PC business (HP retook its global crown in the first quarter of the year topping Lenovo’s sales). And it is still getting to grips with its disastrous foray into smartphones, which was initially very successful, but has been steadily imploding for the past four years.
Liu Jun announced his return to the firm – which he first joined in the early Nineties – using characteristically martial terms. “One stormy night I dreamt of fighting like the old days,” he posted on his micro-blogging site late on the evening of May 15. One hour later, his boss Yang had replied: “One should fight until the world’s end.”
Chinese website p5w.net has taken an in-depth look at Liu Jun’s career and the challenges he faces on his return. In particular, it highlights the personal strengths and weaknesses which have led to some jagged peaks and troughs. Liu Jun has left Lenovo twice. The first time came after Lenovo purchased IBM’s PC business in 2005 and a new CEO, Bill Amelio, took over to spearhead the internationalisation drive.
At that point, Liu Jun was head of Lenovo’s supply chain but did not see eye-to-eye with Amelio. Liu Chuanzhi later said, “Liu Jun has his shortcomings but he’s a great leader. The new CEO neglected him thanks to a culture clash. I almost cried when he gave him a low score at the strategy committee.”
Amelio subsequently left the company in 2009 after it posted a quarterly loss. Liu Chuanzhi returned as chairman, with Yang Yuanqing becoming the new CEO. Liu Jun returned a few years later to set up the group’s smartphone and internet businesses.
p5w.net relates how he adopted the same strategy he’d forged in the Nineties to help make Lenovo China’s top PC producer. He decided to create a phone that could be sold for a cheaper price than mainstream brands. To start with it worked. During 2012, Lenovo rose from tenth to second in the domestic rankings with sales of seven million phones and a 13.1% market share. One year later sales had quadrupled to 28 million phones and revenues clocked in around the $3 billion mark.
But p5w says there were problems from the outset. Firstly, Liu Jun had started drinking his own Kool-Aid, or as the website puts it: “spouting rhetoric while sipping Pu’er tea during internal meetings”. Secondly, p5w says he became too focused on Lenovo’s international push and stopped overseeing the phone unit’s domestic growth. He left this to his two “generals”, Feng Xing and Zeng Guozheng, who began fighting each other after Zeng was made Feng’s deputy.
Liu Jun headed what the domestic press termed the “Mongolian cavalry,” which charged out into the international markets looking for assets to buy. This culminated in the acquisition of Motorola Mobility and IBM’s x86 server business in 2014.
While senior management were focused offshore, domestic players such as Xiaomi and later Huawei, Oppo and Vivo started to eat into Lenovo’s market share onshore. By 2015, smartphone sales had dropped to 15 million and in 2016 they plummeted to three million (see WiC308 for our detailed analysis of how Huawei’s strategy bested Lenovo’s in smartphones).
Liu Jun’s glamorous lifestyle also attracted media comment, especially after a high-profile hug with starlet Fan Bingbing (see photo) at a product launch at the Lenovo Tech World conference. Shortly after this corporate event in May 2015 it was announced he would depart Lenovo again.
At this juncture it was also becoming plain that the Motorola acquisition was not proving transformational after all (veteran local business journalist Zhang Tingbin described it as buying the “leftovers and scraps” from Western tech firms). Website p5w says Liu Jun has spent the past two years “drinking red wine and giving friends’ business plans the once over”.
Can he help make Lenovo the success it once was? Liu Chuanzhi once famously told his employees the company stood on the banks of a river and “will die if we fail to cross it”. It went on to become a PC giant.
“Once again Lenovo stands at the river of life or death,” says p5w. “There’s danger in the air. Can Liu Jun wade through in time?”
The company’s critics say it has become too big and bureaucratic and needs an outsider, not an insider like Liu Jun, to bring radical change. Others believe he may have learned from his previous mistakes.
Following his return, CEO Yang has announced the group is splitting into two divisions: a consumer facing business (which will focus on PCs and smart devices) plus a business-to-business platform that will focus on data. Liu Jun will run the consumer facing business in China. (Actually, another problem Lenovo has faced in recent years are frequent restructurings – Economic Weekly reckons a 2013 reorganisation that put Liu in charge of a new ‘mobile internet digital home’ division was a mistake because it bogged him down in politics and further diverted his attention from Chinese smartphone sales.)
Liu Jun has previously likened his leadership style to the formation of a Spartan phalanx – a closed-ranked grouping of soldiers with interlocking shields that moves as one, crushing the enemy. “I am part of that phalanx,” he said. “I may be at the helm, but the direction and rhythm of our advance is under a unified command.” The Spartans were famed for their unflinching bravery – a quality that will be necessary given the brutal competition in the Chinese smartphone market. Meanwhile, after a couple of years away, Liu returns with something to prove. Investors must hope his reintroduction to the top ranks will be a case of third time lucky.
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