Lenovo Headed for M&A Hangover 联想激进并购或留下後患

I hate to sound too negative on PC giant Lenovo (HKEx: 992), as I really do admire this company for its noble aspirations to become China’s first truly commercial global tech giant. But that said, I have to say that I’m also increasingly concerned about Lenovo over the next 2-3 years, as its fixation with global acquisitions seems to be going on steroids these days. The company’s growing addiction to global M&A was on display once again in the headlines today with Lenovo’s announcement that it would acquire Stoneware, a US developer of cloud computing products and services. (company announcement)

The deal comes just a week after Lenovo announced an even bigger plan to purchase leading Brazilian electronics and PC maker CCE, in a deal valued at $147 million. Those 2 deals come after after 2 major deals last year, which saw Lenovo form a joint venture by merging its Japanese operations with those of local PC leader NEC (Tokyo: 6701); and which saw it purchase German PC maker Medion. It also announced a major joint venture last month with EMC (NYSE: EMC), the world’s biggest maker of data storage products, which came right around the same time that rumors emerged Lenovo might be weighing a bid for stumbling former cellphone giant Nokia (Helsinki: NOK1V). (previous post)

I didn’t even write about the Brazilian deal when it was announced 2 weeks ago because, frankly speaking, I was getting a bit tired of writing about yet another overseas purchase by the hyper acquisitive Lenovo as it marches towards its often-stated goal of overtaking Hewlett-Packard (NYSE: HPQ) to become the world’s top PC maker.

This latest deal involving Stoneware looks interesting enough by itself, as cloud computing is clearly a big growth area and Lenovo wants to develop its own services in this space to bundle with its core PCs. And as far as size goes, the acquisition certainly looks manageable since Stoneware is a relatively small company with just 67 employees located in the states of Indiana and Utah.

But rather than look at just this latest acquisition, one really needs to take a step back and ask if Lenovo’s recently named Chairman Yang Yuanqing is perhaps biting off a bit more than he can comfortably chew in his near obsession with becoming the world’s biggest PC brand. A quick look at this hodgepodge of acquisitions and joint ventures shows they cover a very wide range of geographies, from developed markets like Japan, Germany and the US to developing markets like Brazil.

In doing any M&A, it’s always important that a company’s top managers have the time and resources to focus on integration issues that inevitably accompany such purchases, especially when they involve cross-border deals. So for Yang and his team to think they can comfortably manage such a wide range of purchases in an equally wide range of geographies, while also maintaining the company’s dominance in its home China market and stealing the global PC crown from HP, seems like a recipe for disaster to me.

If Lenovo were a juggler, I would say it has far too many balls in the air right now and seems eager to throw up even more as long as it can. But the result will inevitably be that some or all of those balls will fall to the ground, creating a big financial and operating mess for Lenovo as some of these purchases begin to unravel over the next year or 2.

Bottom line: Lenovo’s latest overseas acquisition reflects an overheated M&A strategy, with the likely outcome that many of its purchases will run into major integration problems in the next 2 years.

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