In pursuit of innovation, a milestone for Lenovo
FORTUNE — Can China make the leap from manufacturing powerhouse to world-class innovator?
The question has been hotly debated on both sides of the Pacific for years, as China’s leaders have banked on the country’s ability to prolong its growth by following in the footsteps of Japan and Korea.
There are growing signs that, at least in some cases, the answer may be “yes.”
On Wednesday, Yuanqing Yang, the chief executive of Lenovo, was in San Francisco to receive the prestigious Edison Achievement Award for innovation. His fellow honoree this year was Elon Musk, the founder of Tesla and Space X, and past award recipients include Apple’s Steve Jobs, Qualcomm’s Paul Jacobs, Ford’s Alan Mulally and Ideo’s David Kelley.
The award, which is given out by the not-for-profit Edison Universe, an organization that promotes innovation, wouldn’t mean much if it weren’t backed by tangible results. But Lenovo has emerged as a global computing powerhouse — the No. 1 seller of PCs and a serious contender in smartphones and tablets — in part through a focus on innovation.
That it was Lenovo, and not another Chinese company, being recognized should be no surprise. In a profile of the company last year, Fortune wrote that through innovation and market savvy Lenovo was poised to become “China’s first global consumer brand.” It’s a prediction that seems ever closer to being borne out as Lenovo gets ready to acquire Google’s Motorola unit and IBM’s low-end server unit, two deals announced earlier this year that will greatly expand Lenovo’s global footprint.
“It’s a great honor,” Yang said in an interview with Fortune. The award represents recognition for the progress that Chinese companies as a whole have made, as reflected in indicators like the growing number of patents filed by companies like Lenovo, Yang said. “We are doing a lot of innovation work.”
But innovation and market success must go hand in hand, Yang said. “Innovation isn’t just for getting awards,” he says. “It must impact everybody.”
On that front, the two main products for Lenovo that earned it the Edison award have been a mixed bag.
One of them, the Horizon, is a powerful all-in-one desktop PC with a 27-inch screen that when laid flat on a surface becomes an entirely new device — a “table PC” with a custom designed interface that allows multiple users to play games, share photos, and collaborate. Yang calls it an “interpersonal PC” and hopes it will be a screen than brings people together rather than isolate them. The Horizon, introduced last year for about $1,700, has remained a niche product, though a Lenovo executive says it has surpassed the company’s sales projections.
“Many customers, when they see this kind of product, they just say, ‘Wow, I really want to get that,’” Yang said. “But unfortunately, they haven’t seen it.” He says the company hasn’t been able to spend enough to market and distribute the Horizon, but said that will likely change this year.
Lenovo was also recognized for the Yoga Tablet, which it introduced in October. Unlike other tablets, which are flat, the Yoga has a cylindrical bulge on its side, which holds batteries that give it extended power. The bulge also makes it easier to hold in one hand, and to prop up in various positions.
The company doesn’t break out sales by product line, but Yang said Lenovo has sold close to 2 million Yoga tablets. That’s helped to propel the company into fifth place in the global market for tablets, behind Apple, Samsung, Amazon, and Asus, according to IDC. Yang said the tablet has done particularly well in Europe and emerging markets, but its introduction came too late to capture a large portion of market in the United States ahead of the holiday season. New versions of the Yoga, with improved software and screen resolution, will be released soon.
With the Yoga tablet, which built on the success of an earlier convertible laptop also called Yoga, Lenovo is now one of the fastest-growing sellers of both tablets and phones. Tablet sales grew 325% in the fourth quarter, albeit from a small base. In phones, the company has emerged as the fourth-largest, and fastest-growing global maker, behind Samsung, Apple, and Huawei, according to IDC. Yang’s ambition is to eventually surpass Samsung and Apple in mobile devices, just like Lenovo surpassed Dell and HP in PCs.
The acquisition of Google’s Motorola unit should help further that goal. Yang has promised investors that four to six quarters after the acquisition closes, Lenovo will turn Motorola, which is losing about $1 billion a year, into a profitable business.
Yang said he does not plan to reduce headcount at Motorola, which has about 3,500 employees. He said he would reduce the ratio between sales and expenses significantly, as the company applies economies of scale to the purchase of components, and as it expands aggressively in Europe, the United States, and Latin America, and as it reintroduces the Motorola brand in China.
Yang declined to comment on discussions with regulators around the world over its two large acquisitions, but said he hoped they would close, as initially forecast, before the end of the year.