Buy a big name brand. Move it to China. Drop the costs and export. Repeat.
This worked well with the IBM (IBM - Get Report) PC division, which Lenovo bought in 2005, when the PC was already a mature market. Lower prices and the IBM brand gave Lenovo the leading share of that market by last year.
But it was the leading share in a collapsing market. Total shipments for 2013 were down 10%, according to IDC. Lenovo was able to defy the trend, shipping 15.3 million units during the fourth quarter and taking the market-share lead from Hewlett Packard (HPQ).Lenovo now wants to repeat the trick, this time with IBM's server unit and Google's (GOOG) Motorola brand. Both deals will take time to close, partly because there are 2,000 patents involved and partly because U.S. lawmakers don't like selling our best brands to China. cheap China play." Since the ADR began trading in the U.S. in 2004, the shares have mainly made steady progress, collapsing alongside U.S. shares from late 2007 to early 2009, increasing in value by 446% during the last five years and falling again in the weeks after the two new deals were announced. $321 million in profit, mainly due to smartphone deliveries in China. There is anecdotal evidence that Lenovo's PCs are having quality issues and the latest ThinkPad designs are getting thumbs-down from the U.S. press. Lenovo is spending $2.3 billion on the IBM purchase and $2.9 billion on the Google purchase, meaning it has committed more than $5 billion in capital. Once those acquisitions are complete, it hopes to have higher-margin businesses with a global footprint and brands with a better reputation than those of its China rivals. But will it?