To solidify its market foundation, going it alone is clearly inferior to collective strength.

@Tech New Knowledge Original

In October, Lenovo was very busy.

First, the 2024 Lenovo Tech World was held on the 15th in Seattle, Washington, USA, where Lenovo showcased its innovative products, technologies, and solutions in the field of artificial intelligence. Intel, AMD, and NVIDIA, the three giants, simultaneously supported the event. Later, Lenovo filed a patent infringement lawsuit against ZTE in the High Court of England and Wales.

Under the strategy of ALL in AI, Lenovo is fully committed to personal computers, mobile phones, smart solutions, and other directions. Its determination to make a big push is evident, but the higher the expectations, the greater the difficulties. According to the 2023 China Mainland PC Market Report (Desktops + Notebooks) released by market research firm Canalys, in the fourth quarter of 2023, PC shipments (excluding tablets) in China Mainland amounted to 11.3 million units, a year-on-year decrease of 9%. Among them, desktop shipments fell by 13% year-on-year to 3.3 million units, and notebook shipments fell by 7% year-on-year to 8.1 million units. For the entire year 2023, shipments totaled 41.2 million units, a year-on-year decrease of 17%.

Lenovo needs to increase its voice to consolidate its foundation. Obviously, shouting alone is far inferior to collective momentum. Relying on friends is naturally Lenovo's preferred choice to solve problems. However, in the business world, the establishment of a circle of friends is inherently based on interests. Some will help you, while others won't. Some will come first, while others will come later.

Given the current situation, Lenovo inevitably has a 'love for the new, hatred for the old' attitude.

01

Making Friends in the Auto Industry

Lenovo has once again expressed its stance towards the auto industry.

On October 17, Rui Yong, President of Lenovo's Emerging Technology Group (ETG), reiterated that Lenovo's entry into the smart car field is not to acquire data from automakers but to focus on the computing platform, positioning itself as a computing power platform provider.

This statement has somewhat reassured Lenovo's friends in the auto industry. Currently, there are about 140 automotive brands competing in the Chinese market, including nearly 100 local brands and over 40 multinational brands. According to data from the China Passenger Car Association, from January to August 2024, a total of 173 domestic auto models have seen price reductions, exceeding the 150 models in 2023 and significantly surpassing the 95 models in 2022.

More severely, many automakers have disappeared in this intense competition within the auto industry. Zhu Huarong, Chairman of Changan Automobile, predicts that 60%-70% of brands will face closure or restructuring in the next 2-3 years.

Against this backdrop, Lenovo's commitment not to manufacture cars is good news for automakers. Lenovo also values the role of a 'shovel seller' and has decided to enter the market. Back on November 9, 2022, at the Lenovo Tech World, Lenovo Group first announced its strategic planning and development vision for automotive computing, focusing on developing main products such as smart cockpit systems, autonomous driving, and smart displays, and providing related services for computing platforms such as operating system software, middleware, and application development environments. At that time, the new energy vehicle market was booming, with the first half focusing on electrification and the second half on intelligence, becoming an industry consensus. Serving automakers with equally huge sales and demand is naturally Lenovo's main direction of advancement.

In fact, at that year's Tech Innovation Conference, Lenovo first showcased a smart cockpit system jointly developed with Chery Automobile, including intelligent products such as multi-screen integration, smart cockpit domain controllers, curved transparent A-pillar systems, driver health monitoring systems, and multi-device wireless charging. The intention to bind with automakers is obvious.

Choosing to be friends with automakers, Lenovo once again stated at this year's Tech Innovation Conference that it does not require data, which is also driven by the situation. With the acceleration of intelligent driving technology evolution, the issue of data ownership under the participation of intelligent computing cores has increasingly become the focus of automakers. Cases have emerged where Tesla, BYD, NIO, and other automakers have used back-end collected driving data to resolve disputes. At this time, as a super vendor, Lenovo naturally needs to provide customers with sufficient convenience and security, without competing for data ownership, which is for this purpose.

Of course, the closer Lenovo gets to automakers, the farther it means getting from some competitors. Huawei is a name that Lenovo cannot avoid since entering the automotive industry. Early on, speculation about whether Lenovo would become the second Huawei never ceased. From a business perspective, Lenovo and Huawei compete in multiple dimensions such as computing power, systems, and in-vehicle domain controllers. To date, the Huawei Intelligent Automotive Solution BU (BU) has attracted investments and partnerships from automakers such as Changan Avitar and Thalys, surpassing Lenovo in both service depth and customer loyalty.

However, Lenovo is not without its trump cards. At this year's Lenovo Tech Innovation Conference, Chairman and CEO Yang Yuanqing and NVIDIA CEO Jen-Hsun Huang jointly announced that Lenovo Group will independently develop the latest generation of in-vehicle domain controller platforms based on the new generation of NVIDIA DRIVE Thor system-on-chip. Lenovo Group is the first Tier 1 company to adopt the NVIDIA DRIVE Thor platform.

High-performance chips are a sweet blessing for Lenovo but a deep pain for Huawei. "The chip shortage once severely impacted Huawei's mobile phone business, and to this day, it is still difficult for Huawei to obtain high-end chips. In this regard, Lenovo is indeed doing much better than Huawei," said a senior industry insider comparing Lenovo and Huawei's chip situations. Relying on deep cooperation with international giants, Lenovo can obtain richer external assistance, both technologically and hardware-wise, than Huawei. From this perspective, Lenovo's circle of friends has once again played a significant role.

However, to enter the automotive industry, the core competitiveness still lies in products. Whether Lenovo can play its strong hand well requires time to verify.

It is understood that the DRIVE Thor chip can integrate various smart car functions into the same AI computing platform, realizing full-vehicle intelligent driving and smart cockpit functions on a single computing platform, including autonomous driving, parking, occupant monitoring, digital dashboards, and in-vehicle infotainment systems.

02

Support from Giants

An exhibition is a circle of friends.

Lenovo's connections in overseas markets were fully demonstrated at this exhibition. NVIDIA CEO Jen-Hsun Huang, Intel CEO Pat Gelsinger, and AMD CEO Lisa Su personally attended the conference to lend support. Additionally, Microsoft Chairman and CEO Satya Nadella, Meta CEO Mark Zuckerberg, and Qualcomm President and CEO Cristiano Amon sent speeches via video.

With the global AI trend, the connection between upstream core hardware manufacturers and downstream host manufacturers has once again tightened. The three giants on site recalled their profound 'friendship' with Lenovo Chairman Yang Yuanqing. Jen-Hsun Huang said that he and Yang Yuanqing have been friends since childhood, and that NVIDIA and Lenovo have gone through several computer revolutions together and are now doing their utmost to reshape the computer industry, which is an honor.

With many guests in attendance, Lenovo was naturally pleased, and the influence of the host was indeed powerful. The presence of long-time CPU competitors Intel and AMD at the Lenovo exhibition is a testament to Lenovo's influence.

Intel CEO Gelsinger proactively joked about the encounter with his competitor: "Today may be the first unprecedented collaboration between Intel and AMD." AMD CEO Lisa Su's expression was more pragmatic. She believed that AMD's focus is on accelerated computing, and Lenovo's market share in fields such as PCs and mobile phones is a valuable partner for AMD processors and graphics cards at the product application level.

However, what does Lenovo have that can firmly bind the three giants? The answer is sales volume.

As early as last year, ALL in AI was Lenovo's future strategic direction. According to institutional data, the proportion of AIPC in the overall PC market will reach 55% in 2024 and 85% in 2027. Meanwhile, market research firm Counterpoint also predicts that by 2027, AI PCs will account for 3/4 of the entire PC market, with nearly 500 million AI PCs expected to be sold from 2023 to 2027.

In this round of AI-driven replacement wave, Lenovo's presence is extremely strong. According to research firm Canalys, as of August 2024, Lenovo's AI PC shipments increased by 228% month-on-month, outperforming the global growth rate of 204% for AI PC shipments. Greater expectations lie in the future: Lenovo plans to achieve a 10% shipment share by the end of the year, reach 25% globally next year, and approach 50% by 2026.

Both upstream and downstream need sales volume, so the three giants naturally follow Lenovo's lead. With the strong support of its circle of friends, Lenovo's influence worldwide has surged, prompting it to consider breaking into sports marketing.

During the Tech World, Lenovo Group announced its partnership with FIFA, becoming an official technology partner. The cooperation agreement covers the 2026 FIFA World Cup to be held in Canada, Mexico, and the United States, as well as the 2027 FIFA Women's World Cup to be held in Brazil.

Lenovo Group's products, services, and solutions, including a series of the latest AI innovative product portfolios, iconic ThinkPad laptops, tablets, Motorola mobile phones, and servers, will be used in the 2026 and 2027 World Cup tournaments.

Obviously, with the support of its circle of friends, Lenovo is unstoppable on the path to breaking through.

03

Increasing Investment in India

With more friends, it is inevitable to overlook some while attending to others, and Lenovo is falling into such a dilemma.

According to Lenovo Group, it will recently expand its investment in India by establishing an AI server R&D center in Bangalore and enhancing the production capacity of the Puducheri manufacturing plant.

It is reported that the plant aims to produce 50,000 AI rack servers and 2,400 graphics processing unit (GPU) servers annually.

Obviously, the increase in investment in India is still heavily weighted towards AI. Within the same sector, Dell, which entered earlier, is expected by the Morgan Stanley analyst team to ship 38,000 AI servers with the Hopper architecture, while Lenovo aims to ship 50,000, clearly intending to compete for a significant share of the AI server market.

It should be noted that under Lenovo's ALL in AI strategy, its original product and technology structure is facing a significant transformation. Lenovo's long-standing position at the top of the global PC market has been based on its bundling with Intel's X86 architecture CPUs. With the arrival of the AI wave, the previous CPU-centric host structure has shifted to a GPU-centric one. However, Intel's products have not kept pace with this change.

Compared to Google and Microsoft's early investments in the AI sector and their application of high-performance graphics computing, Intel has long rested on its laurels with CPUs. It was not until 2018 that Intel announced its return to the GPU market.

The misalignment between Lenovo and Intel is even more dramatic. Last September, Intel CEO Gelsinger first proposed the concept of AI PCs in Silicon Valley. Subsequently, many manufacturers quickly followed suit, with Lenovo taking the biggest step. However, since Intel's product structure did not meet Lenovo's needs, it became inevitable for Lenovo to fully switch to NVIDIA and AMD.

Intel's sluggishness in the AI field based on the X86 architecture indirectly led to the rapid rise of products based on the ARM processor architecture. Market analysis agencies predict that by 2027, the market share of PC devices based on the ARM architecture will exceed 25%.

The trend is irreversible. Not only has Lenovo partnered with NVIDIA and AMD, but embracing ARM has also become inevitable, as has the market trend. "NVIDIA is too hot right now. Intel is indeed facing a life-or-death moment. If it can't catch up with this AI wave, it will greatly impact its development," said an observer, noting that Intel's market influence has significantly declined. In the fourth quarter of 2022, Intel's market share in the entire data center (including CPUs and GPUs) was 46.4%, which fell to 19.1% in the third quarter of 2023. During the same period, NVIDIA's market share increased from 36.5% to 72.8%, with GPU revenue dedicated to data centers growing by over 400% year-on-year, while Intel's data center revenue declined by over 40% compared to its peak.

Even old friends like Lenovo are adjusting their cooperation layouts, leading to the narrative that 'X86 is facing extinction.' However, Lenovo has still covertly assisted its old friend Intel by facilitating cooperation between Intel and AMD to officially form the X86 Ecosystem Advisory Group, aiming to simplify software development, ensure interoperability and interface consistency, and provide developers with standard architecture tools, instruction sets, and development directions.

In other words, Lenovo is urging Intel to quickly enter its inner circle of core partners, lest it fall behind and never catch up.

04 Suing ZTE

In contrast, ZTE, which has cultivated the communications and mobile phone markets alongside Lenovo for many years, has not been as fortunate.

Last month, Lenovo Group sued ZTE for infringement of 'Standard Essential Patents (SEP)' in the High Court of England and Wales (EWHC). Lenovo Group is the patent licensor, and there are a total of six defendants (four of which are ZTE dealers).

Upon the news, the market was in an uproar. It is extremely rare for Chinese giant business companies to go to court publicly, especially when both parties are friendly competitors in the same market.

In reality, the focus of this lawsuit is still profit. According to insiders, Lenovo and ZTE have negotiated on patent licensing fees for several years, focusing on mobile phones, computers, and other communication products, with the core being the use of 'Standard Essential Patents (SEP).'

However, the issue is complicated because the patent fee disputes between Lenovo and ZTE are divided into two categories: terminals and base stations. Both parties' communication equipment businesses require each other's authorizations, so cross-licensing must consider each party's respective business volume and patent value. Disagreements arise precisely from differing perceptions of value.

According to ZTE's financial report, as of the first half of 2024, it had approximately 91,500 global patent applications and approximately 46,000 globally authorized patents. The "Global 5G Standard Essential Patents and Standard Proposal Research Report (2024)" released by the China Academy of Information and Communications Technology in September this year shows that ZTE ranks fifth globally in the global patent family rankings, with a share of 6.97%. Lenovo does not appear in the top 10 list.

According to the "4G Standard Project Rankings" by IPlytics, a renowned market research company in the patent field, Lenovo has approximately 300 valid SEP families for 4G, while ZTE has over 2,000. Additionally, the "5G Standard Project Rankings" by IPlytics shows that Lenovo has over 2,000 valid SEP families for 5G, while ZTE has over 6,000.

Obviously, in terms of technological accumulation, ZTE has more confidence in itself, but Lenovo is not without its own cards, such as Motorola.

Lenovo Group acquired Motorola, gaining over 2,000 core patents in the field of communication technology. It also obtained non-exclusive use rights for 15,000 patents. With this trump card, Lenovo's mobile phone shipments can be guaranteed overseas, especially in European and American markets. According to the latest 2024 Q3 global mobile phone sales TOP 10 ranking released by market research firm TechInsights, Motorola's shipments increased by 26% year-on-year, with a market share of 5%, ranking seventh. In North America, Lenovo-Motorola firmly occupies the third position, with its market share increasing to 12%. In contrast, ZTE mobile phones have become insignificant.

One side discusses technology, while the other discusses monetization. Years of negotiations between the two parties yielded no results, leading to a lawsuit that surprised the market. However, according to professionals, the primary consideration for choosing to appeal in the UK is the control of compensation amounts, not punitive measures such as sales bans. It appears that Lenovo's attitude towards its old friend is still profit-oriented.

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