Should Lenovo Buy Hewlett-Packard?

[Anonymous]

Should Lenovo Buy Hewlett-Packard?

Lenovo is an ambitious Chinese company with a bold strategy.

Back in 2005, the company acquired IBM’s  personal business in spite of a backlash in US Congress. This acquisition allowed the company to successfully challenge Hewlett-Packard and become the world’s largest PC maker.

Now, Lenovo wants to be the Apple of China. According to a Chinadaily report last week, Lenovo is ready to challenge Apple  in the smartphone and tablet market in China and the rest of the world.

As a Chinese company, Lenovo enjoys three advantages: a strong brand name, an R&D base, and an extensive distribution network. But that’s not enough to beat Apple’s innovation and marketing machine. In fact, Lenovo’s China R&D and marketing base is a disadvantage for the company.  As I have discussed in previous pieces, the Chinese economy isn’t conducive to Schumpeterian entrepreneurship, which drives the creative destruction of the high technology industry.

The discovery and exploitation of radically new products like iPhones and iPads does not blend well with China’s culture of conformity. But there is another problem – and it’s not that Chinese lacks the ability or knowledge to pursue innovations. Nor is it that the country is led by ill-intentioned communist leaders or government bureaucrats.

Rather China’s problem can be traced to the nature of its institutions, which cannot follow and catch up with the demands of new technologies and global markets.

That’s why Lenovo needs a larger presence in the world’s largest consumer market in the US. And a purchase of Hewlett-Packard  or parts of it could be a quick and inexpensive strategy to achieve this objective.

Hewlett-Packard has a market capitalization of $28billion; add another $29 billion for the company’s debt, and you still get a bargain in today’s easy money world.

A purchase of Hewlett-Packard fits very well with Lenovo’s business, creating efficiencies and synergies that will turn Lenovo into the world’s dominant player in several sectors of the high tech industry; and may give the company a chance to turn around the ailing Palm division of HPQ; and even develop its own smartphone top compete in Apple’s home-turf.

Here’s the Bottom Line: Hewlett-Packard as a whole or in pieces could serve Lenovo’s ambitions; and Hewlett-Packard’s stockholders wouldn’t hesitate to sell, given the ongoing bleeding in the value of their shares.

Whether Lenovo will manage to swing US Congress this time around to go along with such a deal is another matter.

[Author]

October 9, 2012 at 9:10 AM