Lenovo Mobile's dilemma: high inventory and financial constraints

On January 18, 2016, Liu Jun, the former president of Lenovo Mobile, who had been silent for half a year, made his first appearance and announced that he would serve as the chairman of 499fang. This is a startup company focusing on the concept of "baijiu + crowdfunding". The founder Zhang Chuanzong is a middle-level manager who worked at Lenovo for 15 years.

A little-known detail is that just a few days before Liu Jun took over, Lenovo founder and Lenovo Holdings Chairman Liu Chuanzhi visited 699fang, and Zhang Chuanzong held an internal exchange meeting with the theme of "Becoming connected with Lenovo and writing a new legend."

If nothing unexpected happens, Legend Holdings will invest in 499fang, and Liu Jun will also return to Liu Chuanzhi's side in this way, just like Chen Shaopeng, senior vice president of Legend Holdings. In 2011, Chen Shaopeng, a protégé of Liu Chuanzhi, left Lenovo Group and joined Legend Holdings to do agriculture. Later, he became chairman of Joyvio Group and Fenglian Group, in charge of Legend Holdings' agriculture and wine. Now, Liu Jun, who was once selected by Liu Chuanzhi as the "Lenovo master", meets Chen Shaopeng again at Legend Wine.

People who are familiar with Liu Jun say that he has a "great tolerance for alcohol and can drink a thousand cups without getting drunk". Lenovo Wine Industry may be a place where you can turn your hobbies into a career. In contrast, many people have never had a chance to work at Lenovo. Half a month before Liu Jun came out, Wang Dayong, the last VP of Lenovo Mobile who was in charge of procurement, resigned, and all the executives under Liu Jun have left Lenovo. The executives under Chen Xudong, the new president of Lenovo Mobile, were basically parachuted in from the PC department.

Liu Jun, who can drink a thousand cups without getting drunk, has gotten rid of the troubles of Lenovo Group and entered the wine industry, but for Chen Xudong, the troubles that led to Lenovo's frequent failures in mobile phone business still exist, and are even more serious than in Liu Jun's era.

"Master" Liu Jun

This should be the second time Liu Jun left Lenovo. The last time was in 2006. After Lenovo acquired IBM's PC business, it invited Dell executive Amelio to be the CEO. Liu Jun and Amelio had great conflicts in terms of corporate management philosophy, understanding of corporate culture, and views on international business. This was the direct reason why Liu Jun left Lenovo at that time.

"In fact, before the acquisition of IBM, Lenovo discussed many times within the group about going international by acquiring IBM. Many people opposed it, but Liu Chuanzhi and Yang Yuanqing took turns to persuade everyone, and everyone basically agreed to this strategy." Mai Dou (pseudonym), who just resigned from Lenovo Mobile recently, recalled to reporters: "In the end, only one person raised his hand to oppose it, Liu Jun." Liu Jun's reason was, "Our market is China, and this market has not been well developed; and we are not familiar with overseas markets. At this stage, our assets should be invested in the Chinese market. There is no need to gamble on the unknown."

Even today, it is difficult to judge the merits of Lenovo's overseas business. Lenovo is often called "the conscientious enterprise of the American Empire" by netizens because similar products sold overseas by Lenovo are cheaper than those sold domestically. Although Yang Yuanqing has repeatedly explained that "this is because China's value-added tax is high", it is undeniable that this also shows that Lenovo has been using revenue from the Chinese market to subsidize its international business.

In 2005, Amelio took charge of Lenovo, Yang Yuanqing served as chairman, and Liu Chuanzhi served as a director. Liu Jun and Amelio were incompatible in many aspects. Liu Jun considered the long-term and formulated a long-term transformation strategy of "turning a big corner", while Amelio hoped to quickly get everything done within his five-year term.

After the $1.25 billion acquisition of IBM and the bet on internationalization, Lenovo was largely tied to Amelio, and Lenovo's values ​​and management continued to compromise with Amelio. In 2006, Liu Jun resigned as COO of Lenovo Group. "This was also a compromise. Liu Jun was suspended from work with pay and went to Harvard University and Stanford to study for an EMBA."

There is no doubt that Lenovo paid a price for its compromise. McDull recalled: "In 2004, Lenovo had a net cash reserve of 3 billion US dollars. In the eyes of a PC manufacturer, this was really an endless amount of money." After Amelio came to Lenovo, he launched a number of overseas acquisitions in the hope of opening up the international market. By the end of 2007, Lenovo's cash flow was only 1 billion US dollars.

Amelio did play a key role after the acquisition of IBM, whether it was the turnaround of IBM's PC business or the integration of global business and supply chain. In the 2007-2008 fiscal year, Lenovo's net profit reached 448 million US dollars and entered the Fortune Global 500 for the first time. However, many of these decisions were made for performance within the five-year term. These business strategies did not meet Lenovo's long-term needs. In the 2008-2009 fiscal year, Lenovo suffered serious losses, with a loss of 100 million US dollars in the first quarter and a loss of 260 million US dollars in the fourth quarter, and fell out of the Fortune Global 500.

In February 2009, Liu Chuanzhi returned to the company, Amelio resigned, and Yang Yuanqing became CEO. At the annual meeting of the holding company that year, Liu Chuanzhi proposed the "ownership spirit". McDull still remembers this meeting clearly, "Almost all the older generation of Lenovo were there, including Guo Wei, who no longer had anything to do with Lenovo. At that time, Liu Chuanzhi reviewed the pain, compromise, struggle and his comeback after the acquisition of IBM. He said, 'Lenovo does not need professional managers. Some people are destined not to become Lenovo's core executives. We need someone with a sense of ownership. There is a person who is a model of ownership spirit. Who is it? Liu Jun.'

Liu Jun, who was strategically minded at the time, was recognized by Liu Chuanzhi again. Liu Chuanzhi said that Liu Jun was "a general we misjudged." This was perhaps the only time that Liu Chuanzhi, the godfather of Chinese entrepreneurs, admitted his mistake in disguise. At this time, Liu Jun had returned to Lenovo from the United States, and the title of "master" also made many Lenovo executives believe that Liu Jun was Liu Chuanzhi's designated successor to Lenovo.

Lenovo Mobile Dilemma

However, when Liu Chuanzhi returned, Yang Yuanqing took over as Lenovo's CEO. After Liu Chuanzhi turned the tide and retired successfully, Yang Yuanqing served as chairman and CEO concurrently. Liu Jun did not truly become the owner of Lenovo.

When Lenovo Mobile made personnel changes at the end of 2014, rumors of Liu Jun's resignation began to circulate in the industry. Liu Jun officially resigned in June 2015, but the specific reason is not known at present.

"Liu Jun resigned on June 1st, and Yang Yuanqing posted a Weibo on June 2nd saying 'Brother Jun is so loud' to thank Liu Jun. But on June 3rd, Lenovo sent an internal email from Yang Yuanqing to the media saying 'You can't wake him up even with a hammer'. This email wiped out all of Liu Jun's contributions." After a wave of personnel purges, they also criticized him in passing. It doesn't seem right no matter how you look at it, as if all the responsibility lies with the Lenovo mobile team.

An undeniable fact is that Lenovo's mobile business has never been profitable since its establishment. In 2008, when Lenovo was in a loss-making situation, Lenovo Group divested its mobile business and sold it to its subsidiary Hony Capital for US$100 million. At that time, Yang Yuanqing, who served as chairman, hoped to "focus on PCs" and also hoped that "the mobile phone business could operate more flexibly in the external environment."

In 2008, Liu Zhijun, the original head of Lenovo Mobile, resigned "due to training" and left Lenovo shortly afterwards. After becoming independent, Lenovo Mobile's business also began to reorganize, with Lv Yan becoming the new head. McDull recalled: "At that time, Lenovo Mobile had been making mobile phones together with Amoi, and the subsequent leadership team including Lv Yan, Chen Wenhui, and Zeng Guozhang were also formed during this period."

In 2008 and 2009, feature phones still dominated the market, and Lenovo only produced feature phones. However, smartphones were already a market trend, and Lenovo Mobile invited Zhang Hui, who was a PC expert at the time, to develop smartphones. "Later, Zhang Hui said at an internal meeting, 'I can't make smartphones. The model is completely different from that of PCs. The difference is too big.'" McDull recalled, "Then, smartphones were transferred from Zhang Hui to Chen Wenhui. Later, it was proved that Chen Wenhui was the person who understood mobile phones the best in Lenovo, no one else."

In 2008, Liu Jun had just returned to Lenovo from the United States and completed the transition period in the mature PC department. Lu Yan, the head of the mobile business, was once Liu Jun's most capable assistant, which also paved the way for Liu Jun to take over the mobile business later.

Later, feature phones and smartphones were merged into a mobile business group, along with smart TVs and tablets headed by Shao Tao. Lenovo established MIDH during the Spring Festival of 2011, and Liu Jun officially took over these businesses. "We kept feature phones and expanded into smartphones, TVs, and tablets. The strategy progressed smoothly in those years."

In 2012, Lenovo shipped 7 million smartphones, a 1,070% increase, with revenue of $1.484 billion. In 2013, Lenovo Mobile reached its peak, with sales of 28 million phones, a 300% increase, and revenue of $3 billion.

However, after 2013, the smartphone market was upgraded to 3G and 4G, and the mobile phone channels shifted from operator channels to Internet channels and public channels. "Lenovo's senior vice presidents were actually familiar with the market and had a lot of PC experience, but in 2013, they still didn't know much about mobile Internet, which was a fatal flaw. At this point in time, Lenovo didn't dare to invest heavily in mobile 4G, nor did it bet on Internet channels." McDull told reporters: "In addition, Lenovo's operation and management of mobile phones has always been based on PC thinking. In 2014, when Xiaomi, Huawei, OPPO, vivo and other companies exploded, Lenovo Mobile, an avalanche!"

According to Gartner's report, Lenovo ranked first in domestic mobile phones throughout 2013, second only to Samsung in China. In 2014, it was quickly surpassed by Huawei and Xiaomi, and in 2015 it was overtaken by OPPO and vivo. Today, it is still in a continuous decline and has not stopped falling.

The real situation was more serious than what was reported. "At that time, all the executives who could see the supply chain data knew that Lenovo Mobile was about to collapse." McDull told reporters: "In 2014, according to the inventory at that time, even if no orders were placed, the worst sales forecast was: the inventory would have to be sold for 50 weeks!"

Lenovo, struggling hopelessly, had to offer discounts across the board. "All products were discounted, some were discounted on the spot, some were stockpiled and sold to third- and fourth-tier cities, and some were sold to overseas markets," McDull said. "This discount cost us hundreds of millions." During this period, Lu Yan, Chen Wenhui and others left the mobile department and Lenovo one after another. Of course, many more people followed them and left Lenovo.

Compromise with finances

In 2014, the worst period for Lenovo, Huawei, OPPO, and even Coolpad, which was also in a difficult situation, began to abandon the strategy of flooding the operator market with machines and turned to the Internet channels and high-quality flagship phones. This was also the year with the most intense changes in domestic mobile phones, but Lenovo remained on the sidelines.

"The entire management team did miss the opportunity. But for a period of time afterwards, even if they wanted to make changes, they didn't have the time." McDull recalled: "As Lenovo Mobile gradually fell into crisis, Yang Yuanqing began to personally inquire about the mobile business, from once a quarter in the beginning to once a month and then once every two weeks. Each review had to include market planning, product planning, new product planning, sales, etc. It took more than a week just to organize these materials. Senior executives including Liu Jun basically had to prepare for the next review after preparing for this week's review, and basically had no energy to discuss changing strategies."

In the meetings that Yang Yuanqing attended, everything seemed to be finance-oriented. McDull said, "Yang Yuanqing was always followed by a large team of secretaries who provided him with data, analysis, and decision-making. The staff was basically composed of the financial department. The head of the secretarial team was also the former CFO Zhou Qingtong. He was the person Yang Yuanqing valued the most, and many VPs wanted to have a good relationship with him." Several Lenovo insiders confirmed that within Lenovo, Zhou Qingtong was like "Yang Yuanqing's housekeeper." Within Lenovo, the financial team also called themselves "CEO is Liu Bei, and finance is Zhuge Liang."

In the face of financial statements, the operator market with a large number of orders still has the highest weight. In this year of turbulent changes in the domestic mobile phone industry, many Lenovo Mobile executives proposed reform plans, but after compromising with financial considerations, they were either not adopted or could not be implemented.

"If you ask who knows the most about mobile phones in Lenovo, at least 80% of people will say it is Chen Wenhui. He is an expert in marketing, products, and technology." McDull introduced, "Chen Wenhui can recite the detailed technical parameters of all the chips from Qualcomm and MediaTek. During product planning meetings, after Chen Wenhui finishes speaking, the product managers will look up the technical data to verify it, and it is exactly the same." Chen Wenhui often discovers problems before the senior vice presidents and executive vice presidents and proposes ideas for reform, but few of them are implemented. Perhaps this is why Chen Wenhui resigned and invested in the drone industry, which is more in line with his interests.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.