Lenovo is hoping history will repeat itself. The Chinese tech company launched itself onto the global stage by buying and rehabilitating IBM's loss-making ThinkPad division in 2005. Its latest purchase of Motorola poses a similar challenge but with less upside: the US handset maker is a bit player with falling sales.
IBM's PC unit was losing money when Lenovo bought the business. But sales were still growing, and at the time it ranked third in worldwide PC shipments, Gartner data shows. Lenovo turned the business around by using in-house manufacturing to control costs. Even then, it took two years for its earnings per share to exceed pre-deal levels.
Motorola's weak shape makes a similar recovery less likely. It sold a paltry 7 million phones worldwide in 2013 out of a total market of almost 1 billion, according to Canalys. Sales shrunk under Google's ownership, and the business has lost $2 billion before tax in the past two years. What's more, Lenovo will be distracted by the integration of IBM's unprofitable server business, which it bought a week before the Motorola purchase. Lenovo CEO Yang Yuanqing acknowledges the deals will impact profitability in the short term, but said both could be returned to the black in a "couple of quarters". That puts a lot of faith in the enduring power of the Motorola brand.
Lenovo has no plans to further cut staff, and will also take on a Texas factory. That means it will need to reverse falling sales and find cost savings in manufacturing. Whether it can do so is open to question: margins in Lenovo's existing handset business are much lower than in PCs. The two deals - which will cost Lenovo up to $5.2 billion - aren't as big a gamble as the IBM purchase, which quadruped the company's sales. Had Lenovo owned the two businesses last year, they would have boosted revenue by 23 per cent, according to Breakingviews calculations and Eikon estimates.
Nevertheless, if "Moto" doesn't equal new sales in China, renovating it could take longer and cost more than Lenovo anticipates.
