Lenovo CEO: Dell's No Threat

Lenovo CEO William Amelio talks about investments in channel sales, Linux on the desktop, and Vista adoption in an exclusive interview. Here are edited excerpts.

ChannelWeb: So where do you think you're biggest growth opportunity is in regard to the channel?

Amelio: I think we have a good [opportunity] with the transaction model. I think that's all channel. Essentially bring on as many partners as we can, duplicating what we've learned in China that's been so successful for us and we've now rolled out in every major market around the world. We've still got a lot of spots where it hasn't been rolled out and it's going to be a source of great growth. In the markets where it has rolled out, the idea is to bring on even more partners.

ChannelWeb: Are there specific areas where you need partners more than in others?

Amelio: As I said, the transaction part of the business, which is the highest growth part of our business, is all partners.

ChannelWeb: How about in certain technologies or vertical markets?

Amelio: Well we're more horizontal, so anywhere we can get a vertical market with a set of partners is fantastic, whether it's financial, medical, insurance, you name it. Everyone of them is helpful. Because our [goal] as a company is not to put a vertical management system in place. Large accounts, we have account executives calling on end users making sure we build relationships up and we'll do it that way.

ChannelWeb: Along those lines, over the last year and a half since you've been on board, have you increased your channel resources, your channel-facing resources and what's the roadmap looking forward, looking at North America, for the transaction model?

Amelio: We clearly put more emphasis on the channel in the last year because we went to the transaction model. Previously we were more a large account business. Some of that is direct, some of that is indirect. But as you move into transaction, that's all indirect. In fact we've gone forward in places where you would consider there would be some normal channel conflict. That's what our web activities, which you're probably familiar with, we've actually installed BTO capability to allow the channel to use our own public web at a discount. That's gone over extremely well with the channel and that's the kind of thing you can expect from us. There will always be some channel conflict with that level of direct and a lot of indirect. We're going to work very very hard to make sure we minimize that.

NEXT: Competing with Dell, and that Packard Bell rumor

ChannelWeb: Your last quarter numbers looked really strong. Over the past year, it seems like you've strengthened your overall business in North America. I'm wondering if you can just give me a quick idea of what was going wrong a year ago and what's going right now and where you intend to take that over the next few months in North America.

Amelio: The North America story is not much different than what's happened in all the geographies outside of China. What we saw was we had a solid set of products. We had a ThinkPad, and the ThinkCentre products. We had a fantastic quota management system in place as well. Where we tended to have some issues is the fact that we were only participating in the large account businesses, the public space. We were leaving open the transaction business, some of the midmarket and all consumers which, depending on the country, is 70 percent of the addressable market. Because we were only playing into the large account space, it's much more difficult to have a world class supply chain.

The reason for that is you can't do demand conditioning very effectively in the relationship space. You get an order for 10,000 pieces and you've got to deliver that order exactly the way the customer wants it, even if you find out there's a part that goes short in the supply chain. You've got a big transaction business you're able to seamlessly transition customers very rapidly.

If there's a shortage of parts, all you do is change price to move someone from an 80 GB hard drive to a 160. Even if you've now got a big transaction business and a relationship business . . .you can move parts over to the relationship business and change the demand profile in transaction by changing pricing. You can't do that with a relationship only business. That put a lot of strain on our supply chain. As we build up a more of a transaction business, naturally we're building up the variability of demand-conditioning.

ChannelWeb: Again, looking ahead. You guys recently caught up and passed Acer. Now you turn around and Dell is coming into the channel again, which is a place they haven't played very publicly or very aggressively. They're stating they're going to be very aggressive with channel sales especially in North America. How do you contend with the changing landscape now that you have a player as big as Dell making no bones about the fact they are going to compete with Lenovo in the channel?

Amelio: I don't think it's different than anything in the past, honestly. This market has always been seriously competitive. Whether you add another player into it or not, it's still seriously competitive. It changes the dynamics but the fact of the matter is we've competed with that company, as well as other companies, all the time.

ChannelWeb: To shift gears, I want to ask about Linux on the desktop. You made an announcement earlier this week regarding preloading Linux. About a year ago, or so, is when you first started offering the extensive support but you weren't technically preloading. Now you are. Why did it take so long to come to the decision to offer Linux as a preload option and where do you see that space going as a viable market, not just for Lenovo but for your partners.

Amelio: Well we had it on ThinkPads for a lot longer than you just described. We just put it on desktops. The reason is we didn't have a clamoring of customers asking us to do it. Now there is at least enough to have Linux on the desktop. And if you look at the penetration rates as I do, you know it's small. So we're one of the few that actually have it. And this is a great example of our partners actually are doing it for us. This is a great story with the channel, where we actually used the channel to help pull this off. With our own resources it would probably be something we wouldn't want to do, but with our partners helping us we were actually able to get this announcement done.

ChannelWeb: Do you see this as a growth market, or is this still an experimental market?

Amelio: Given the penetration rates, I think it's still experimental, especially on the desktop. It's much bigger in servers, but desktop and client, it's still small. There are zealots, don't get me wrong. If you get on the web and start asking questions about it, you'll be overwhelmed very quickly with people who are really wrapped around the Linux operating system but when you look at sales you'll see the numbers are still small.

ChannelWeb: Do you view Vista to date as sort of a disappointment? How might you describe it?

Amelio: Anything that helps the PC industry I'm for. Vista for sure has driven upgraded hardware. There's no question about the systems we're shipping today, with more memory and bigger hard drives that would normally get people prepared for Vista. So from that standpoint I'm very happy.

I think that with some adjustments and with marketing feedback, [and service packs] that come out will improve it dramatically.

ChannelWeb: You're expecting improvements and changes.

Amelio: They always do. If you look at the history of XP there are always changes that come out and continue to make it better.

NEXT: Vista vs. XP, and that Packard Bell rumor

ChannelWeb: I'll try to ask this another way. Can you break down into metrics? What's the adoption rate on Lenovo products -- "Think"-branded and Lenovo branded -- Vista vs. XP?

Amelio: In a number of markets, we're growing our transaction business very dramatically but we're still bigger in markets outside of China. [In the mid-market] most of those accounts are not going to switch over [to Vista] for a while. The next upgrade cycle they may change the operating system.

ChannelWeb: Can you tell me the areas you plan to invest heavily in RD, and what areas in terms of innovation we should look forward to coming out of Lenovo?

Amelio: You'll see some of it in the products we have already. Now with Santa Rosa, it's a perfect example of our systems chock-full of upgrades. Our systems are running quieter. They are 10 percent cooler. They have the Intel performance boost. We've got the battery stretch in it. We've got the roll-cage, we've got the top cover as well as the bottom cover. That's helped us improve the wireless connectivity pretty dramatically. They are all great features that help improve some of the issues customers have had with previous generations of laptops. I think you'll be seeing that continue on.

In the desktop space, shortly we'll be coming out with some small form-factor boxes that not only aren't more expensive but are less expensive and will change the dynamics in the desktop arena. And you can get away with not wanting to upgrade your desktop, then we've got the desktop for you whether it's in the SMB space or whether it's in the LE space. There will be fantastic price points, it will be great for call centers and it will be something we think we'll have a bit of leadership on.

You'll see us invest in the thin client space, with different approaches as an example. How do you make laptops appear and behave like systems that have push email associated with them so you don't have to go, before you run on an airplane, spend five minutes trying to sync the thing up before you get on board and make sure you have all the email you can work on.

ChannelWeb: The reports are that you're in negotiations for Packard Bell and I'm wondering if you can comment on that and what the thinking might be.

Amelio: We're always looking for growth opportunities. We wouldn't even consider acquisitions at this juncture except for the big one we're in the process on has gone extremely well. It was the acquisition -- almost more like a merger -- between the IBM PC Group and Lenovo heritage has gone extremely well over the last two years. It makes sense to say, 'Are there things, when we grow how much do we grow organically and how much through acquisition?' Just because we're considering something, it doesn't mean we're going to make it. But at least it's under consideration.