May 1, 2006 4:00 AM PDT

One year later, Lenovo looks for second act

A correction was made to this story. Read below for details.
Howard Locker, the man who holds the future of the ThinkPad in his hands, likes being the top dog for a change.

One year after Lenovo completed its acquisition of IBM's PC business, employees like Locker, the chief architect for desktop and notebook design, are relishing the chance to work for a company that is completely focused on PCs. "When you plotted IBM's portfolio, we were not the most important thing IBM did. Now in Lenovo, we are the most important product in the company," he said.

Lenovo inherited the third-largest PC business in the world last May, when it finalized the deal first announced in December 2004. It has spent its first year shoring up its operations and molding a new company. As Lenovo enters its second year as a reborn PC vendor, it's planning to move beyond its core markets in the U.S and China. But as it ventures into countries around the world, the company must continue to fend off challenges to its base from top players like Dell and Hewlett-Packard.

"My sense is they've set up a strong platform to grow. But they need to show some imagination and take it to the next step," said Roger Kay, an analyst with Endpoint Technologies Associates.

Although IBM's interests have always included higher-margin businesses like servers, software, and services, IBM played a historic role in the development of the PC industry--and for a time IBM and the PC were synonymous to many consumers. Loyal ThinkPad users gave it a strong presence inside some of the world's largest corporations. But concerned about profitability and managing its other divisions, IBM decided it was ready to let go of the PC group.

IBM's revenue has slipped a tad in the year since the sale, but its profit jumped 27 percent in its most recent quarter. IBM did not return a call seeking comment on the Lenovo anniversary.

Sam Bhavnani, an analyst with Current Analysis, thinks that the continuity between the pre-Lenovo IBM group and the post-acquisition company has helped assuage fears that IBM's customers would balk at dealing with a Chinese company. "Any potential company wavering on buying ThinkPads, as soon as they talk to one of the spokespeople or executives, those fears dissipate," Bhavnani said.

Of course, not everyone made the transition. There were a few growing pains involved, such as the layoffs that led to the departure of 1,000 employees in March.

Expect to see more belt-tightening from Lenovo in the coming year, said Paul Pan, director of strategy the company. Lenovo wants to focus on becoming more profitable over the coming year and taking advantage of its Chinese base in manufacturing and supply chain operations, he said.

IBM's PC business was not profitable while part of Big Blue, but Lenovo has turned a profit from that group over the last three quarters, it said when announcing its third-quarter results in January. The entire company recorded a $49 million profit on sales of $4 billion, in U.S. dollars. Still, in the low-margin PC business, every company is always looking for ways to improve profitability.

Dell and HP, while having had problems of their own in recent quarters, seem to have regained their footing, Kay said. Lenovo's best chance at expanding in mature markets like the U.S. is to take market share from smaller players like Toshiba, Acer and Fujitsu, he said. During the first quarter, Dell and HP led the worldwide market with 18.1 percent and 16.4 percent of the market, respectively, according to IDC.

Lenovo lost a little ground during the quarter, recording 6.4 percent market share, down from the 6.5 percent that the combination of IBM and Lenovo's shipments would have accounted for last year, before the deal was final. Acer is fourth in the world with 5.5 percent of the market, while the combination of Fujitsu and Fujitsu-Siemens is fifth with 4.4 percent.

Lenovo also plans to expand into emerging markets, such as India, while it expands its U.S. presence with small businesses and larger enterprises, according to Pan. U.S. consumers aren't on the short-term road map, but Lenovo is very much a consumer PC company in its home country and will target consumers in other countries, Pan said.

As part its plan to step onto the world stage, Lenovo ran a comprehensive ad campaign during the Winter Olympics, introducing itself to many television viewers around the world. The company is looking forward to using the 2008 Summer Olympics in Beijing as a showcase for its products.

IBM first tried to get rid of the PC group as early as 2001, according to Pan.

 

Correction: This story incorrectly spelled the last name of Lenovo chief architect Howard Locker.

CONTINUED: Singles before home runs…
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10 comments

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customers . . . balk at dealing with a Chinese company?
Absolutely. There may be a lot of difference between buying
chinese laptops from IBM and buying direct from Lenovo, but it's
the final straw.

We've bought our last Thinkpad.
Posted by rcrusoe (1305 comments )
Reply Link Flag
robinson crusoe, how apt
anyone outside of your society are savages, unworthy of you.
Posted by pjianwei (206 comments )
Link Flag
Bigot!
n/t
Posted by ddesy (4336 comments )
Link Flag
Lenovo: Terrible Customer Service - Recent Experience
I had to wait almost 6 months for a laptop from these fools. I was trying to audit Thinkpads against our current Dell Latitudes to see if we wanted to switch. Bad idea. After 6 months of "delay" emails, and two voice mails of assuring me "it's on it's way" I decided just to quit on them. When I finally talked to a Manager, he laughed, then apologized because he said, "I have never seen this before". His argument was "We have better machines". I could not believe it and will never deal with this company again. If we do decide to switch from Dell, it will not be to Lenovo.
Posted by ZeroJCF (51 comments )
Reply Link Flag
"I have never seen this before" ... yeah right
Anytime an individual receives bad customer service companies always respond by saying that their experience was an isolated event. Companies know they can get away with such statements because consumers have no way to aggregate their poor experiences to prove that in fact their experiences are not isolated. However, I recently have come across a new and free service that allows consumers to create authenticated records of their interactions with CS centers and also generate statistics on the quality of service that companies provide consumers. The name of the service is 321-CALL-LOG and their website is www.321calllog.com.

-james
Posted by jstaut (1 comment )
Link Flag
Yeah typical from Lenovo
This is certainly a pattern with them.
Posted by regularwhiteguy (1 comment )
Link Flag
Error correction
Kudos for making an in-story error correction prominent in the story header. Shows the advantage that internet news has over print.
Posted by sghanna (29 comments )
Reply Link Flag
bad experience with lenovo thinkpad
lenovo - bad purchase experience with unstable thinkpad x61s and bad customer service. i just brought this brand new X61s, and i was very disappointed. first i had to wait 5 weeks before lenovo can ship it since it was out of stock. once it arrived, it kept crashing on me, i literally had to reboot couple of times a day. i tried calling lenovo for support, it took forever to get thru to someone live, and they were not much help. this is very disappointing since i paid about USD1800 for it and it would even freeze on me every 2 minutes whenever i use msn messenger. they have also shorten the warrantee from 3 years to 1 year, so now i am stuck with it. i will never buy from lenovo/ibm ever again! you just lost a loyal customer !
Posted by jason12125 (1 comment )
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