Then there were three: Lenovo prepares to join the US smartphone race

lenovoI’ve been doing a bit of work researching a piece on the latest Lenovo bombshell to hit the tech world – its $2.9bn bid for Motorola Mobility. Now, in my innocence, I reckoned there might be quite a few hurdles for Lenovo on this one, but the analysts I spoke to were pretty upbeat on the deal.

Remarkably, most were pretty confident this was a good buy and that it’ll help propel the firm to third in the global smartphone stakes in a matter of a couple of year.

It’s easy to see why on paper. Here’s what Canalys APAC MD Rachel Lashford told me were the main benefits for Lenovo:

·         Immediate entry to the US market, Motorola’s major market, as well as key markets in Western Europe and Latin America.

·         A unique relationship with Google.

·         Credibility with operators and consumers worldwide.

·         Existing US operator relationships and a handful of global ones.

·         Additional experienced phone sales teams.

·         Additional and highly rated phone engineers.

·         Additional tablet and phone shipments, as it becomes the key manufacturer of Google’s Nexus line.

Hard to argue with that lot. It’s also hard to see how Lenovo could have done better than Motorola – there wasn’t much choice out there, after all (BlackBerry? HTC?). Except that doesn’t mean it’s going to be a success. Although it has high brand recognition in the US, Motorola is a fading star, with neither innovative designs or huge volume sales to its name.

I wonder then if it’s really going to give Lenovo that huge leg-up into the US smartphone space it desperately wants. I’ll be even more surprised if Lenovo merges the two brands, as various analysts told me will happen eventually, unless Plan A has succeeded perfectly.

The thing I imagined would cause the biggest potential roadblock is a US political backlash. Lawmakers can be a pretty obstinate bunch, especially when they feel their country is being invaded by ‘foreign hordes’.

It’s certainly right to say that Lenovo has a better relationship with the US government – where ThinkPads are still used – than most Chinese firms, and that consumer smartphones are hardly a national security matter, unlike telecoms infrastructure (sorry Huawei, ZTE). But I still think there’s the potential for a unwelcome bit of political interference here, especially if some more news comes to light on Chinese spying and state links to tech firms.

Given the stakes, it’s not surprising Lenovo has apparently hired some big name attorneys, some of whom have worked for the CIA and Homeland Security, to help it lobby the deal through.

Lashford even speculated that “announcing two deals in one month will ease its progress, not complicate it”. I suppose we’ll all have to wait and see on that one.

One thing’s for certain: Motorola employees will be a happy bunch. I wonder how may will be queuing up for Lenovo CEO Yang Yuanqing’s annual $3m employee bonus giveaway?

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The Communist Party’s everywhere in China, even in foreign multinationals

chinese flagToday an interesting tale of ideology, back door deal making and hypocrisy as the worlds of government and hi-technology collide.

You’ve presumably all been made aware by now of the US lawmakers’ report into Huawei and ZTE which basically warns off all American firms and government bodies from purchasing their telecoms kit because of the national security risk they pose.

The key point is that the Chinese tech giants were unable to allay investigators’ concerns about the role of Communist Party committees within their firms.

The report has the following:

In essence, these Committees provide a shadow source of power and influence directing, even in subtle ways, the direction and movement of economic resources in China.

It is therefore suspicious that Huawei refuses to discuss or describe that Party Committee’s membership. Huawei similarly refuses to explain what decisions of the company are reviewed by the Party Committee, and how individuals are chosen to serve on the Party Committee.

All of which is fair enough, although virtually all Chinese companies are required to have a Communist Party committee on board, as Huawei argued to the lawmakers.

However, it has been mentioned since then that may foreign companies, including US ones, with outposts in China also have these committees. If true, it would seem to add weight to Huawei’s argument that the report reached a “pre-determined outcome”, and that its authors were unfairly harsh on the Chinese duo, even hypocritical given Party involvement in US firms in China.

Tea Leaf Nation, for example, pointed to articles claiming IBM, Nokia Siemens Networks, Standard Chartered and others all had communist bodies within them.

Now, I’ve heard back from NSN and IBM who both claimed their Chinese businesses don’t have Communist Party committees but that individual members of staff are free to join the Party if they wish.

However, I’ve yet to hear back from IBM on what  this picture and article refers to, as it seems to indicate a party branch of IBM China members.

Most likely at play here is semantics. These firms are denying having an organised party committee within their organisation, but it seems (at least in IBM’s case) they do have self-organised groups of Party members therein.

Whether this amounts to the same thing is difficult to tell, because if it’s one thing the Party is pretty good at it’s secrecy.

It has become adept over the past several decades at hiding the orchestrating role it plays at all levels of Chinese society – a role so key that it is pretty obvious if a large MNC wants doors to open for it then it needs to acknowledge and engage with the Party.


Meet Huawei, the not so hidden dragon

huawei campus shenzhenI’ve just spent a fascinating two days with Huawei in Shenzhen. If you haven’t heard of the firm you will soon – it’s the world’s number two manufacturer of telecoms kit, powering all the UK mobile operators and BT, Talk Talk and Virgin Media’s fixed line operations.

It’s also number six in the mobile devices market globally, with its eyes on a higher position, and has entered the enterprise IT space where it sees big growth potential.

The trip was a chance to see and be impressed by Huawei HQ, a sprawling campus in a suburb of Shenzhen in the south of China next door to Hong Kong, rather than have an opportunity to quiz senior execs on the firm’s roadmap.

The firm has been spending rather a lot of money to show rather a lot of journalists the same thing – well, it can afford to, having made around $32bn last year.

The reason is that despite its best efforts it’s still not winning a huge amount of enterprise custom, its devices don’t have great brand recognition and, most irritatingly for the firm, it’s the subject of a high profile US Congressional investigation into links with the Chinese government.

The US has regarded Huawei with great suspicion and reckons it may have links to the PLA and the Communist Party (via its founder Ren Zhengfei) which make the firm’s products a potential risk to national security.

Needless to say, Huawei’s PR team were more keen to focus on the less contentious part of its story. And it is a very impressive story. Ren apparently founded the firm with a few thousand pounds and today, 25 years later, it has 140,000 employees, makes billions, operates in 150 countries and the average age of employees is just 29.

Yup, not really the impression many might have of the company. Due to its unique corporate structure which makes it wholly employee-owned, staff can retire at 45 if they’ve spent more than eight years with the firm with their share dividends providing a handsome retirement fund.

The analysts are in agreement that it has great technology, bags of patents and huge potential, so is the US just being protectionist?

Well, yes and no. Huawei may open up some of the source code of its products for investigators to scrutinise but apparently the big sticking point is info on how the firm is run, and past a certain point Huawei will not divulge that, so it may be deadlock for some time yet.

Ren is still a member of the Communist Party and for anyone who’s read the book The Party by Richard McGregor, this will be a cause of concern to some foreign governments – although it must be said not to the UK, which has welcomed the firm’s investment with open arms.

Now, I’m not saying I fully agree with all of the book but McGregor speaks very convincingly of the Party as acting “like a large magnet that makes iron filings suddenly cling together as it moves into position above them”, making them “stand to attention when it focuses its attention on them”.

In the end, both the West and Huawei are learning to cope with one another. We’re just starting to understand the firm a bit better and it is beginning to understand the greater level of media scrutiny, demands for more transparency and need for a more media friendly executive board – all of which are pretty alien to Chinese companies.