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Lenovo: More of a US company?

A Lenovo logo is seen at the computer in Kiev, Ukraine April 21, 2016. Photo: Reuters

Lenovo claimed it had voted for both the LDPC standard and the Polar standard, which was more to do with technology and globalization and nothing to do with nationality.

In the past week, a piece of bad news created a PR crisis for Lenovo. The news is actually quite old. In October 2016, the 3GPP held a meeting to vote for the 5G coding standard. Lenovo did not vote for Huawei's Polar code, but instead stood with LDPC code from Huawei's rival Qualcomm from the US.

This 5G coding standard voting process is divided into three domains: long data code, short data code, and control code. Merely in terms of technological sophistication, Qualcomm's LDPC standard has an absolute advantage over long data codes. Huawei's Polar standard has absolute advantages over control codes. However, in the competition for short data code, Qualcomm and Huawei equal each other and it's very hard for voting companies to determine which standard will prevail.

In voting for long data code, Lenovo voted for Qualcomm. When voting for control code, Lenovo toggled to Huawei. In fact, in both cases, Lenovo's vote won't change anything as Qualcomm has dominant share of votes for long data code while Huawei dominates in short data code category. However, it's not the case when it comes to the short data code, in which Lenovo could be a game changer but chose to abstain from voting. Finally, Huawei lost to Qualcomm with 23 to 24 votes. If Lenovo did not abstain and voted for Huawei. Huawei will surpass Qualcomm with 25 to 24 votes and become the leader in 5G era. China will in turn control the formulation of industry standards in most areas of the 5G era.

Probably due to raging nationalism ignited by the recent ban on ZTE by the US and the looming Sino-US trade war, this old news has triggered a fresh controversy and widespread condemnation of Lenovo on the Internet. Unfortunately, Lenovo was labeled unpatriotic and discriminatory against its own people. After knowing the incident, many people even said that they would never buy Lenovo's products in the future.

To make matters worse, according to revelations of some netizens, the same Lenovo products are sold at significantly different prices at home and abroad. For example, the latest 2018 ThinkPad X1 Carbon sells for $2321.1 (14,781.69 yuan) in the United States, while its domestic price is much higher at 24,999 yuan.

On May 11, under the pressure of public opinion, Lenovo issued a public statement saying that it did vote to support Huawei's Polar standard. Some analysts believe that although every coding standard has the support of interest groups and even national interests behind it, it cannot simply be assumed that LDPC represents the United States and Polar represents China, since each coding standard has a large number of patented technologies, which cannot be completely monopolized by one country or company.

LDPC is not a US invention and Polar is not a Chinese invention as well, and many patents are in the hands of companies all over the world. The reason why Chinese companies represented by Huawei are behind the Polar standard is that the technology is relatively new. European and American companies have relatively little technological accumulation in this Polar standard, which puts China, the United States and Europe basically on an equal footing and even offer Chinese companies a good chance to catch up. The fact is that Lenovo voted for both the LDPC standard and the Polar standard, which has more to do with technology and globalization and nothing to do nationality.

Fluctuating fortunes

In 1984, the Institute of Computing Technology of the Chinese Academy of Sciences invested 200,000 yuan and gathered 11 scientists and technicians to found the predecessor of Lenovo, the Beijing Computer New Technology Development Corporation. Its first product Hanka brought a huge profit to the company. Afterwards, the company entered real estate, agriculture, car rental, and even control switches fields. Eventually, it focused on PC as its main business.

Relying on the rapid development of the domestic PC market in the 1990s, Lenovo’s computer sales have been ranked first in the domestic market since 1996. In 2005, Lenovo Group acquired the IBM PC Division; in 2013, it became the world's largest PC manufacturer.

As for the mobile phone market, Lenovo entered this sector as early as 2002. After 2010, it seized the opportunity presented by the rapid development of the smartphone market and grew to be the most well-known mobile phone brand in China with number one position in terms of shipments in the domestic market by 2014. Also that year, Lenovo acquired Motorola, which marked the beginning of Lenovo's decline in its mobile phone business. Because of its disadvantages in technology and channels, it was soon outperformed by other competitors such as Huawei and Xiaomi.

In retrospect, in the era of personal computers, Lenovo was a success story because of the historical opportunities and its sales-oriented corporate culture, but in terms of profit model, Lenovo has been completely left behind in the Internet era. Most of the Lenovo's patents were bought through the acquisition of Motorola.

Lenovo’s 10-year R&D expenditure from 2006 to 2015 totals only $4.405 billion, averaging $400 million per year, equivalent to 2.5 billion yuan annually. By comparison, in 2014 alone, Huawei’s R&D expenditure was 40.8 billion yuan, accounting for 14.2% of total revenue.

Huawei, a company established in the same period as Lenovo, takes a very different approach featuring technology research at its core. It has been cultivating indigenous technology for many years and has achieved its current status as the world’s NO.3 smart phone maker.  For example: Huawei owns a number of technology patents in the core chip field, and is not reliant on components from companies such as Qualcomm and Freescale. In contrast, Lenovo still relies on imports for its core technology. In the words of industry insiders, Lenovo is more like a trading company than a technology company.

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