When it began two decades ago, the company now known as Lenovo Group Ltd. was little more than a glorified delivery service, a venture launched by academic researchers in Beijing who earned cash by distributing personal computers built by prominent brands in faraway countries.
Now, the company has captured one of the most glittering names in capitalism with its $1.75 billion deal to acquire International Business Machines Corp.'s personal computer business -- a deal that boosts Lenovo's plans to turn itself into a global company with a recognized brand.
Lenovo has been the top seller of personal computers in China for seven years. Soon it will be No. 3 in the world.
(Claro Cortes Iv -- Reuters)
Video: IBM is selling a majority stake in its pioneering personal computer business to China's biggest computer maker, Lenovo Group, for $1.75 billion in cash and stock.
The deal is a dramatic sign of the ongoing transformation of the still nominally communist People's Republic of China into an increasingly outward-looking nation integrating itself into the world economy. The purchase twins one of the classic names in U.S. business with a society that officially reveres Chairman Mao and Karl Marx, even as its daily life increasingly revolves around Bill Gates and Warren Buffett.
Lenovo's move "will encourage other Chinese companies to go overseas," said Fang Xingdong, an information technology expert at Tsinghua University in Beijing.
Formerly known as Legend Computer, Lenovo has long been at the top of the list of Chinese companies with the potential to become global brands. It came to life in 1984, when China's market-embracing policies were just beginning to create new opportunities for entrepreneurs. Chinese academics were increasingly engaged in what was known as xia hai, or "jumping into the sea," leveraging their connections to university research centers and engineering know-how to create businesses.
The driving force behind the company, Liu Chuanzhi, was raised in coastal Jiangsu province, northwest of Shanghai. He graduated with a degree in radar communications from the Xian Military Communications Engineering College of China in 1966, just as China entered the frenetic and violent years of the Cultural Revolution. In that time of persecution, his education made him suspect. He and his classmates were sent to the southern province of Guangdong to do farm work, according to Lenovo's Web site.
Four years later, Liu was recalled to the rarefied world of research, securing a post at the elite China Academy of Sciences in Beijing. He remained there until the early 1980s, when the new policies of Deng Xiaoping blessed the previously heretical concept of making money.
Liu and 10 other researchers launched the company with $25,000 in capital from the academy, according to Lenovo's Web site. At first, the firm simply bought and distributed IBM computers and Hewlett-Packard printers. In 1990, the company began designing and manufacturing its own line of computers under the Legend brand. Four years later, it sold shares on the Hong Kong stock exchange, though the academy maintained majority control.
After the Lenovo-IBM deal closes, Yang Yuanqing -- now Lenovo's vice chairman, president and chief executive -- will succeed Liu as chairman.
The rise of Lenovo is one of the great growth stories in the world's most populous country and is touted as a sign of China's emerging economic prowess. Using the country's vast pool of cheap labor, the company pressed production costs ever lower, luring customers with no-frills home computers that sell for as little as $350. For seven years it has been China's biggest computer seller, capturing more than one-fourth of the market and 12 percent of the larger Asian market, excluding Japan, according to the technology research firm IDC. Sales last year were about $3 billion.