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Lenovo to pump $1.2bn into AI, other tech over 4 years

PC merger deal with Fujitsu: 'The sooner, the better' -- CEO Yang

Lenovo aims to raise the contribution of smartphones and other new businesses to 50% of total sales, from 30%.

TOKYO -- Chinese PC titan Lenovo Group will invest more than $1.2 billion in research and development into artificial intelligence, the internet of things and big data over the next four years, said Chairman and CEO Yang Yuanqing.

The company will also work with Google and Amazon.com in product development to meet its goal of raising the contribution of smartphones and other new businesses to 50% of total sales from the current 30%, he told The Nikkei.

Lenovo controls 20% of the global PC market, putting it neck and neck with U.S. rival HP in the race for dominance. While that is a big slice of the pie, the pie continues to shrink.

To grab a bigger chunk of that market, the Chinese company concluded that it needs to make its first foray into AI tech, specifically hardware.

Lenovo Chairman and CEO Yang Yuanqing

The investment sums it has laid out are huge: $1.5 billion a year for R&D across all fields through the business year ending March 2021. "Of that amount, more than 20% will go toward AI, big data and IoT," Yang said.

The crystal-ball gazers at Lenovo see a future where the types and uses of PCs are as varied as the people that buy them. It hopes to provide videos, games, music and other content through a diverse array of terminals, Yang said. He said the "personalization" of PCs will only deepen.

Artificial intelligence, real money

Of those investments, Lenovo is likely to focus on developing human resources in the R&D sector. Budget-wise, Lenovo is not going as far as its U.S. counterparts such as IBM.

Lenovo will work with Google and Amazon.com, which already have basic AI technology at a high level. As a step toward developing terminals that use proprietary AI technology, Lenovo plans to develop new software in cooperation with the U.S. companies, Yang said.

It will also seek to develop systems that use AI to connect PCs, TVs, smartphones and in-car entertainment devices.

Lenovo already sells a smartphone that uses Google's Tango augmented reality computing platform. The handset enables users to, among other things, view new BMV vehicles as if they were in a showroom.

In addition, Lenovo will soon release a smartphone with Amazon.com's AI app, Alexa.

PCs accounted for 70% of Lenovo's sales of $44.9 billion for the business year ended in March 2016. Weak earnings at Motorola, which the Chinese company acquired from Google, drove Lenovo to a net loss for the first time in seven years.

For the year ended March 2017, however, Lenovo expects to bounce back into the black despite a moderate decline in sales.

Yang appears unfazed by the fact that the PC market has shrunk every year for the past five years, saying, "The bottoming-out of global demand means the segment is now poised to enter a phase of stable growth."

One big reason for the contraction is that people are not replacing their PCs as often as they once did. It used to be once every three to four years; now it's every five to six years. Yang said backloaded demand will emerge down the road, and brisk demand from gamers will nudge sales steadily higher.

Yang said he expects "more industry consolidation ahead, with the number of PC makers regrouping into just three or four players."

Lenovo is among that group, with the Chinese company currently in talks with Fujitsu to integrate their PC businesses. Although they were unable to strike a deal by the target in March, Yang said, "We are discussing last-minute details. The sooner, the better." He added, "The pairing will generate significant synergy." 

Lenovo merged its Japanese PC business with NEC's in 2011, creating an entity that now controls nearly 30% of the Japanese market. When Fujitsu comes aboard, that share will expand to nearly 50%. Meanwhile, costs will go down thanks to the sharing of procurement and sales networks.

One thing that will not change, Yang said, is the Fujitsu brand, which will stay due to "its high profile in Japan."

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