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Tuesday, April 18, 2006 - Page updated at 12:00 AM

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Chinese PC giant takes on big role in piracy fight

Seattle Times business reporter

A year ago, the head of China's largest computer maker paid a visit to Redmond to talk with Microsoft Chairman Bill Gates and Chief Executive Steve Ballmer about pirated software.

Yang Yuanqing, the chairman of Lenovo Group, had recently announced his company would purchase IBM's PC business, reflecting its global ambitions to expand outside China.

"I told them if you want to sell more genuine Windows copies to the Chinese market, if you want to get more business from the huge emerging market, both of us have to contribute something," Yang said in an interview Monday in Bellevue.

Yang joined Lenovo in 1989 and led the company's rise to become the best-selling PC maker in China before spearheading the IBM acquisition. Lenovo exemplifies the drive of a growing number of Chinese technology companies to compete around the world.

But reaching those goals will also require better protection of intellectual property at home, Yang said. Without such protection, the incentive to innovate won't be there.

Yang is visiting Redmond to announce a partnership with Microsoft, timed to coincide with the visit by Chinese President Hu Jintao. Hu is to visit the Redmond campus this afternoon and dine at Gates' Medina home tonight.

China has been under fire for failing to curb software piracy. Last week, the Chinese government took a major step by publicizing a new order that all computers sold in China come pre-loaded with legitimate operating-system software.

On Monday, Lenovo said it will purchase $1.2 billion in Windows software over the next 12 months, furthering a deal the two companies signed in November for Lenovo to pre-install genuine Windows on its machines.

In that short time frame, the percentage of Lenovo customers choosing machines with Windows has climbed from less than 10 percent to about 70 percent, Yang said.

Customers can choose to buy Lenovo PCs with the Microsoft DOS, Linux or Windows operating systems, he said. (DOS is used to make selling the computer legal at minimum cost).

To keep the prices of PCs with Windows within reach for consumers in China, both companies agreed to absorb some of the costs of adding the legitimate software, Yang said.

Up to now, many Chinese consumers have bought PCs without pre-loaded operating systems and installed pirated versions later for as little as $1. Out of the box, Chinese versions of Windows XP cost between $200 and $300.

Yang would not say how much the price of new PCs would rise as a result of software costs, but he said it varied with each model, calling it "a very small amount."

Lenovo stands to reap benefits for taking the first step back in November, said Yang, 42, who speaks English, though somewhat haltingly, and looks the part of a young entrepreneur.

"We are one step ahead of our competitors," he said. Having genuine software on computers will give consumers in China a better experience because they can start using the machine right away and get updates more easily.

It will also encourage companies to develop new software applications for China. Lenovo, for example, is developing security and anti-virus software in its Beijing lab, Yang said.

Yang sought to dispel recent rumors in the U.S. that Lenovo is a state-owned company. The company had an initial $25,000 investment by the Chinese Academy of Science in 1984, but its purpose was actually to break away from the planned-economy model, he said.

Lenovo, originally called Legend, was the first company in China to grant stock options as incentives to management.

Since the IBM acquisition, its management has become more global. The company's 12-member board includes five Americans. Its chief executive, William Amelio, was formerly a senior vice president at Dell.

"We are a totally market-oriented company," Yang said.

In the early 1980s, the Chinese PC market was dominated by state-owned enterprises, he said. "Right now you couldn't even find them," he said, calling China's PC market "the most intensively competitive market in the world. A real state-owned enterprise cannot compete."

Yang's meteoric rise in China's technology world sometimes prompts comparisons to Bill Gates. "Maybe I have no opportunity to be as rich as he is," Yang said, "but I want this company to be as successful as Microsoft."

Kristi Heim: 206-464-2718 or kheim@seattletimes.com

Copyright © 2006 The Seattle Times Company

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