Cover Story

Think Lenovo

How is IBM’s PC business doing five months after it was sold to Lenovo? Kusum Makhija finds out.

In an extremely competitive marketplace where wafer-thin margins are the norm and the slightest drop in marketshare is like missing a heartbeat, the sale of IBM’s PC division to Lenovo in May 2005 was perhaps the most keenly-watched development in the industry after the HP-Compaq merger. Doubts were expressed whether the product quality and brand recognition associated with IBM and its Think line would be compromised in the name of greater volumes and market share. Has that happened?

Says Neeraj Sharma, MD, Lenovo South Asia, “Lenovo bought out IBM’s PC division as it made business sense and was in line with our plans to become a global PC player. If you look at the transaction, you’ll see that there is a lot of synergy in the business models of both companies. There was very little overlap. It was also the most cost-efficient and quick way for Lenovo to achieve a global presence and become an international company.” IBM was a leader in the enterprise space, and had already established a strong product brand worldwide with its Think range. On its part, Lenovo was the number one PC vendor in the world’s fastest growing market, China, for eight consecutive years, and was especially strong in the consumer side of the PC business.

Building the brand

Lenovo continues to promote the Think range of products that it acquired as a result of the IBM deal. These include the Notebook series categorised under the ThinkPad X, T and R models. In desktops the company has the ThinkCentre A, M and S series. Apart from this, it also has Think Accessories which comprises projectors and the ThinkVision range of TFT monitors.

“We believe that the new combined brands, products and competitive strengths make us an extremely strong competitor in worldwide markets, with potential for growth that neither organisation could completely realise on its own,” remarks Sharma.

The company is planning to bring to India its Lenovo range of products, in addition to the Think line which it is already selling in the country. Lenovo’s branding strategy has been constructed to address markets across the world at various stages of penetration of the Lenovo brand. Post-acquisition, rather than disrupt the strong base established by IBM, Lenovo is leading with the legacy product brands, ThinkPad and ThinkCentre, to drive sales and also build a strong corporate brand. “During the transition, we will leverage the Think brand appropriately to communicate that the same quality, innovation and service continue. Subsequently, the introduction of Lenovo products will complement the brand that has already been built so that there is no segment for which we don’t have an offering. Thus, we will be the one-stop-shop in the industry with products that are unmatched in terms of innovation and cutting-edge technology—qualities that are common to both the Think line as well as Lenovo’s other products,” says Sharma.

Additionally, Lenovo is a worldwide sponsor of the International Olympic Committee for the 2006 Olympic Winter Games at Torino and the 2008 Olympic Games in Beijing.

Going to market

Lenovo’s distribution strategy will continue to remain both direct and through the channel network with a clear focus on being channel-centric. The IBM channel network and sales teams now with Lenovo will be used to ensure a seamless supply-chain transition. IBM Business Partners (BPs) will now be Lenovo BPs, and will continue to benefit from unchanged levels of responsiveness and service. Lenovo will also continue the blue-chip programmes that BPs are familiar with, and have had success with in the past. Customers will still have access to IBM’s trusted sales network, financing, service and support which will now be part of Lenovo.

“We will be upgrading the Indian manufacturing facility over the next two years in a phased manner to operate even more efficiently to meet increased sales targets. We have planned to switch over to a common supply chain platform on SAP from the current dual platform of Baan and SAP; this will be implemented to derive optimum benefits,” reveals Sharma.

The company intends to inject added thrust into the non-metro markets. Once its Lenovo products are launched in the next few months targeting the consumer and SMB segments, it will be working out a separate channel structure to cater to this line of products. “We are looking at ways in which we can align the business to accommodate a more transaction-driven sales model which is the best way to drive sales in the SMB and SOHO segment,” says Sharma.

More flexible

Unlike IBM, Lenovo has much more flexibility in branding and pricing products, which means they can have value-priced products that don’t bear the IBM tag and (presumably) can be built to lower levels of design and innovation; all they need to do is take care of the quality. Lenovo can choose to enter markets IBM might not choose to enter, such as consumer products, where HP has been very successful and IBM has not played at all. As it is, Lenovo is very strong in these markets in China and other parts of the Asia-Pacific region.

IBM’s biggest problem was its image, which acted as a deterrent to its attempt to penetrate the consumer space. It has always been known as a high-priced enterprise brand for high-end products, and not really a value-for-money kind of proposition which home and SOHO users look for. However Lenovo, with its global strength in the consumer space, can do what IBM couldn’t.

The acquisition of IBM’s PC division was the fastest and most cost-efficient way for Lenovo to achieve a global presence and become an international company Neeraj Sharma Managing Director Lenovo South Asia

Sharma says that Lenovo will differentiate itself from competing PC brands by the level of innovation in its products and technology. “The Lenovo brand will deliver innovative products that deliver real customer benefits,” he promises.

According to Sanjit Sinha, Senior Manager, Hardware Research Group, IDC India, “The scenario ahead for Lenovo will depend to a large extent on how the company carries forward with the IBM legacy products. It can pose a challenge for HP in some time, provided it brings in a comprehensive product portfolio for both the enterprise and consumer space like its rival.”

HP has an inherent advantage in the market—its peripheral products like printers and MFDs are huge growth drivers for the company’s client PC range of products. In a way, these peripherals have helped HP create a brand image for itself, which is exactly what Lenovo lacks in the consumer space.

Moreover, according to Sinha, HP’s channel strategy and its increased focus on exclusive retail selling has been a winning combination. On the other hand, Lenovo is yet to come out in the open with a comprehensive channel strategy. As for HCL, it does not have a very strong presence in the peripheral market. Nevertheless, it is a strong contender by virtue of its channel presence and brand value.

“I do not see why Lenovo needs to rebuild its image as a consumer brand since the IBM umbrella brand is working pretty fine for it, and having a separate identity may [actually] put a few more hurdles in its path. Perhaps they can spread their wings in markets other than the enterprise space, and reach where IBM could not,” opines Sinha.

Adds Sharma, “We do have a challenge in front of us in terms of getting the Lenovo range of products into the Indian market, and addressing the various segments right. We need to focus on synergistic branding rather than individualistic branding. The channel or [transactional model] of course is a strategic part of the whole go-to-market, but while it is being worked out we will continue to have the relational model as well, wherein we go directly to the enterprise.” Right now the company is selling through some tier-1 resellers and distributors along with some top-of-the-line system integrators who work closely with their enterprise customers.

On the growth path

According to IDC, Lenovo India had a market share of 8 percent in Q205 in the client PC space, as against its nearest competitors HCL with 12.5 percent and HP with 16 percent respectively. In India the company has seen a sequential Q-on-Q 34.7 percent growth in PC shipments in Q205. “We definitely want to grow at above-industry rates. This is clearly the plan. To do this we will look at increasing our current line of Think products with a supplementary product line aimed at the SOHO, SMB and very small business segments. Our USP will definitely be innovation,” says Sharma. The company plans to offer notebook PCs and desktop PCs that will provide both enterprise and consumer markets with lower total-cost-of-ownership and higher productivity.

In addition, the company insists it will continue to focus on innovation in its products and technology in such a way that it puts more innovation in the hands of more consumers. More precisely, the R&D effort will be geared towards innovations that are relevant to the Indian market.

kusum@expresscomputeronline.com