Saturday, October 01, 2005
Lenovo Evolves With Its I.B.M. PC Unit in Tow - New York Times
September 30, 2005
Lenovo Evolves With Its I.B.M. PC Unit in Tow
By STEVE LOHR
Lenovo's purchase of I.B.M.'s personal computer business was unquestionably a bold move and a striking symbol of China's economic globalization. But the challenge facing the combined company is to find a way to prosper in the fiercely competitive PC business, a sector where I.B.M. consistently lost money over the years.
Now, five months after the deal closed, the Lenovo and I.B.M. operations are being combined in earnest as the company tries to chart a path to success. With a management realignment, announced today, Lenovo hopes to advance its strategy.
Crucial elements in the plan, described by Lenovo executives in interviews this week, include a focus on notebook PC's, exploiting the fast-growing markets of China and India, and a move into the American consumer market early next year with Lenovo-branded machines.
So far, Lenovo has managed to avoid the steep fall in sales that have battered some computer companies after a merger. But the growth pace for Lenovo, the world's third-largest PC maker, has trailed Dell, Hewlett-Packard and Acer, a fast-rising No. 4 in the industry.
"Lenovo hasn't demonstrated an ability to get new growth yet," said Roger Kay, president of Endpoint Technologies Associates, a research firm.
Until now, the Lenovo and I.B.M. operations have been run somewhat independently. But the combined company will be led by global teams in areas like product development, sales, the supply chain of procurement, manufacturing and logistics. So the product team, for example, will be responsible for designing notebook and desktop computers sold under the ThinkPad, ThinkCentre and Lenovo brands worldwide.
Growth prospects may be brightest in China and India. But Lenovo executives say they believe that there are also attractive opportunities in America - opportunities that went untapped by I.B.M. because of its business culture and strategy.
I.B.M.'s strength is in catering to large corporations. "But I.B.M. is not focused on really small companies - with, say, 50 workers or less - or on individuals," said Stephen M. Ward Jr., Lenovo's chief executive and former head of I.B.M.'s PC business. "It's not a consumer company."
Early next year, Mr. Ward said, the company will begin introducing Lenovo-branded products in the United States. He did not disclose details, but industry analysts say Lenovo products in China or under development that would be strong candidates include a white laptop with a 13.3-inch screen and translucent keys (similar to Apple's iBook), expected to be priced at about $1,000; a desktop machine designed to handle video, music and Internet telephone service; and powerful, colorful notebooks and desktops for gamers.
Within weeks, Lenovo will introduce ThinkCentre desktops, aggressively priced, with small-business customers in mind. The machines will cost less than $400 without a monitor, but include advanced security and backup features developed by I.B.M., according to analysts who have been shown the desktops in advance.
The ThinkPad and ThinkCentre brands, Mr. Ward said, will be pitched mainly to business and professionals, while Lenovo will be the global consumer brand with more entertainment and media capabilities. The company has the right to use the I.B.M. logo on products for five years. But market research has shown the Lenovo name is gaining recognition outside China, helped, no doubt, by the 15,000 articles published since the Lenovo-I.B.M. deal was announced last December.
"We're on a track to establish the Lenovo brand more quickly than we had anticipated," Mr. Ward said.
To succeed, the new Lenovo, Mr. Ward said, must combine operational excellence and innovation. The new Z-series ThinkPad notebooks, introduced last week, offer a glimpse of both values, with prices starting at $800, and yet they are wide-screen models loaded with features that have been praised by reviewers.
After a merger announcement, computer makers often see a decline in sales as customers hold off orders until the strategy of the combined company is clear. Lenovo, analysts say, has done a solid job of navigating the postmerger uncertainty.
Growth in shipments of the merged company slipped to 6.9 percent in the first quarter of 2005, compared with growth of about 15 percent in the second half of 2004, combining sales of both companies, according to IDC, a research firm.
But Lenovo's growth rate picked up slightly, to 8.2 percent, in the second quarter of 2005, the most recent quarterly statistics.
By contrast, the combined PC sales of Hewlett-Packard and Compaq fell immediately after the companies merged, and so did the sales of Gateway and E-Machines after they merged, Loren Loverde, an analyst at IDC, noted.
The new management team at Lenovo seems to relish the challenge, and they see mostly opportunity. The company has also been able to attract senior executives eager to join the hybrid multinational.
Steven J. Bandrowczak started this week as chief information officer, coming from DHL Express. Wu Yibing, the chief strategy officer, came from McKinsey & Company. Steve V. Petracca, vice president for business development, had been the chief executive of BuilderDepot.com, an Internet store for home improvement supplies. Kevin Burns, the chief integration officer, came from Texas Pacific Group, one of three private equity firms that invested $350 million in Lenovo last spring. Deepak Advani, chief marketing officer, used to be the country manager for I.B.M. in India.
William Matson, the senior vice president for human resources, joined from I.B.M., though from the company's big services group. Lenovo, according to Mr. Matson, may well be a leading example of a new breed of truly global companies, with talent plucked from around the world and senior managers often living in different countries.
The model, he said, is very different from the traditional multinational that becomes powerful in its home market and then ventures out to set up colonial-style outposts around the world.
"Lenovo will be written about as a Harvard Business School case," Mr. Matson said, "and studied in business schools everywhere, whether we are successful or not."
Inside Lenovo, it seems, the learning is well under way. "Thinking globally is new for all of us in the former Lenovo operation," said Liu Jun, the chief operating officer. "That's exciting, all the new possibilities."
Copyright 2005 The New York Times Company Home Privacy Policy Search Corrections XML Help Contact Us Work for Us Site Map Back to Top
Lenovo Evolves With Its I.B.M. PC Unit in Tow
By STEVE LOHR
Lenovo's purchase of I.B.M.'s personal computer business was unquestionably a bold move and a striking symbol of China's economic globalization. But the challenge facing the combined company is to find a way to prosper in the fiercely competitive PC business, a sector where I.B.M. consistently lost money over the years.
Now, five months after the deal closed, the Lenovo and I.B.M. operations are being combined in earnest as the company tries to chart a path to success. With a management realignment, announced today, Lenovo hopes to advance its strategy.
Crucial elements in the plan, described by Lenovo executives in interviews this week, include a focus on notebook PC's, exploiting the fast-growing markets of China and India, and a move into the American consumer market early next year with Lenovo-branded machines.
So far, Lenovo has managed to avoid the steep fall in sales that have battered some computer companies after a merger. But the growth pace for Lenovo, the world's third-largest PC maker, has trailed Dell, Hewlett-Packard and Acer, a fast-rising No. 4 in the industry.
"Lenovo hasn't demonstrated an ability to get new growth yet," said Roger Kay, president of Endpoint Technologies Associates, a research firm.
Until now, the Lenovo and I.B.M. operations have been run somewhat independently. But the combined company will be led by global teams in areas like product development, sales, the supply chain of procurement, manufacturing and logistics. So the product team, for example, will be responsible for designing notebook and desktop computers sold under the ThinkPad, ThinkCentre and Lenovo brands worldwide.
Growth prospects may be brightest in China and India. But Lenovo executives say they believe that there are also attractive opportunities in America - opportunities that went untapped by I.B.M. because of its business culture and strategy.
I.B.M.'s strength is in catering to large corporations. "But I.B.M. is not focused on really small companies - with, say, 50 workers or less - or on individuals," said Stephen M. Ward Jr., Lenovo's chief executive and former head of I.B.M.'s PC business. "It's not a consumer company."
Early next year, Mr. Ward said, the company will begin introducing Lenovo-branded products in the United States. He did not disclose details, but industry analysts say Lenovo products in China or under development that would be strong candidates include a white laptop with a 13.3-inch screen and translucent keys (similar to Apple's iBook), expected to be priced at about $1,000; a desktop machine designed to handle video, music and Internet telephone service; and powerful, colorful notebooks and desktops for gamers.
Within weeks, Lenovo will introduce ThinkCentre desktops, aggressively priced, with small-business customers in mind. The machines will cost less than $400 without a monitor, but include advanced security and backup features developed by I.B.M., according to analysts who have been shown the desktops in advance.
The ThinkPad and ThinkCentre brands, Mr. Ward said, will be pitched mainly to business and professionals, while Lenovo will be the global consumer brand with more entertainment and media capabilities. The company has the right to use the I.B.M. logo on products for five years. But market research has shown the Lenovo name is gaining recognition outside China, helped, no doubt, by the 15,000 articles published since the Lenovo-I.B.M. deal was announced last December.
"We're on a track to establish the Lenovo brand more quickly than we had anticipated," Mr. Ward said.
To succeed, the new Lenovo, Mr. Ward said, must combine operational excellence and innovation. The new Z-series ThinkPad notebooks, introduced last week, offer a glimpse of both values, with prices starting at $800, and yet they are wide-screen models loaded with features that have been praised by reviewers.
After a merger announcement, computer makers often see a decline in sales as customers hold off orders until the strategy of the combined company is clear. Lenovo, analysts say, has done a solid job of navigating the postmerger uncertainty.
Growth in shipments of the merged company slipped to 6.9 percent in the first quarter of 2005, compared with growth of about 15 percent in the second half of 2004, combining sales of both companies, according to IDC, a research firm.
But Lenovo's growth rate picked up slightly, to 8.2 percent, in the second quarter of 2005, the most recent quarterly statistics.
By contrast, the combined PC sales of Hewlett-Packard and Compaq fell immediately after the companies merged, and so did the sales of Gateway and E-Machines after they merged, Loren Loverde, an analyst at IDC, noted.
The new management team at Lenovo seems to relish the challenge, and they see mostly opportunity. The company has also been able to attract senior executives eager to join the hybrid multinational.
Steven J. Bandrowczak started this week as chief information officer, coming from DHL Express. Wu Yibing, the chief strategy officer, came from McKinsey & Company. Steve V. Petracca, vice president for business development, had been the chief executive of BuilderDepot.com, an Internet store for home improvement supplies. Kevin Burns, the chief integration officer, came from Texas Pacific Group, one of three private equity firms that invested $350 million in Lenovo last spring. Deepak Advani, chief marketing officer, used to be the country manager for I.B.M. in India.
William Matson, the senior vice president for human resources, joined from I.B.M., though from the company's big services group. Lenovo, according to Mr. Matson, may well be a leading example of a new breed of truly global companies, with talent plucked from around the world and senior managers often living in different countries.
The model, he said, is very different from the traditional multinational that becomes powerful in its home market and then ventures out to set up colonial-style outposts around the world.
"Lenovo will be written about as a Harvard Business School case," Mr. Matson said, "and studied in business schools everywhere, whether we are successful or not."
Inside Lenovo, it seems, the learning is well under way. "Thinking globally is new for all of us in the former Lenovo operation," said Liu Jun, the chief operating officer. "That's exciting, all the new possibilities."
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