Lenovo's Strategy Still A Question Mark

While the transition from IBM to Lenovo has gone better than expected, they add, Lenovo still hasn&t asserted itself in the market as a formidable competitor against Dell.

The promise Lenovo brings to the channel is of a well-capitalized company with low production costs that can go toe-to-toe with Dell. The newly combined company is on a $10 billion annual run rate according to its most recent financial report. What&s more, solution providers point out, Lenovo comes at Dell with a well-established brand backed by a loyal channel. Consequently, there is a great deal of anticipation from solution providers about Lenovo&s plans.

John Edwardson, chairman and CEO of CDW, Vernon Hills, Ill., said that CDW has had numerous visits with Lenovo executives both before and after the deal with IBM.

“We have been working with them as far as what products we think the SMB market and other markets need from them,” Edwardson said. “There have been regular conversations and significant input from CDW at Lenovo&s request about what we think the customers in our different segments need.” Edwardson, while not providing details, said he is confident that Lenovo is poised to pull the trigger against Dell. “You are going to see a lot [from Lenovo] based on what we are hearing,” he said.

However, to date, the company hasn&t issued any drastically new terms and conditions. It hasn&t moved in an aggressive way to take advantage of channel turbulence at Hewlett-Packard. Nor has it acted to take advantage of Dell&s problems of growing revenue fast enough for Wall Street while continuing to cut industry pricing off at the kneecaps.

So far, these are the signs that Lenovo has posted:

• The New York-based company has been aggressive about updating and refreshing the ThinkPad brand it acquired from IBM, Armonk, N.Y. Not only has Lenovo introduced the first ThinkPad-branded tablet, the ThinkPad X-Series, but last week it formally rolled out the ThinkPad Z-Series—the first of its kind with integrated EVDO. The ThinkPad Z-Series also has a built-in wide-screen format and the option of a titanium cover instead of the traditional ThinkPad black.

• Deepak Advani, Lenovo&s chief marketing officer, made it clear during a news conference in New York earlier this month that Lenovo would continue to keep the IBM logo on the ThinkPad lineup for five years—as the purchase agreement called for—while other Lenovo executives said it will build on IBM-developed technologies such as drop-resistant components.

• The company will continue to build on legacy IBM technologies including ThinkVantage, and Lenovo CEO Steve Ward appeared on stage with Intel CEO Paul Otellini at the Intel Developer Forum in August to showcase Lenovo management technologies on the forthcoming Intel processor lineup.

• Yuanqing Yang, Lenovo&s chairman, said at the New York press conference that the company would be eager to build its worldwide business into a 50-50 split—putting its consumer, small business and education businesses on one side, and its enterprise and government ones on the other. In China, 70 percent of Lenovo&s business is with what it calls “transaction” customers—SMB, education and consumer. In the United States, the business formerly owned by IBM is all-commercial, focused largely on the high end. Prior to the IBM acquisition, IBM had made it a corporate strategy to completely shun the consumer space in favor of a commercial-only strategy, and had limited success in the SMB space.

• Lenovo will continue direct relationships with a few, large corporate accounts, executives said, but will work to grow its sales through the channel rather than via direct.

Yet despite progress in the these areas, the company&s top executives have yet to answer many questions about Lenovo&s channel plans. Asked directly at least twice during the press conference what Lenovo would do to beat competitors Dell, Round Rock, Texas, and HP, Palo Alto, Calif., in the marketplace, Yang would answer only in generalities about leveraging Lenovo China&s formidable and efficient manufacturing capabilities. He said Lenovo&s “worldwide infrastructure footprint” and “top-notch management team that is the most diversified in our industry” gives the company “a significant competitive advantage.”

Following his New York appearance, Yang quickly exited the building en route back to Beijing. Through company spokesmen, he declined to answer follow-up questions, and other Lenovo executives were unavailable for comment.

As CRN went to press, Lenovo executives responded in an e-mail to questions by echoing Yang&s remarks that Lenovo would add to its transactional sales and said the company would leverage its ThinkVantage and Think Express programs to fight Dell and work with the channel.

Ronald Coleman, CEO of MarCole Interactive Systems, a Walnut Creek, Calif.-based Lenovo partner, is one of the solution providers saying he hasn&t heard much of anything from the company, despite its stated intentions to leverage the channel.

“Maybe they e-mailed something that got caught in my spam filter,” Coleman said. “But I haven&t received much in the way of communication from them indicating they are changing anything.”

Chris Ferry, executive vice president of Technology Integration Group, a solution provider based in San Diego, said the transition from IBM to Lenovo has gone smoothly in commercial markets and that his Lenovo business is growing at a double-digit clip so far this year. But he does have some concerns.

“Their biggest problem that they&ve had are some challenges on the availability front,” he said. “I think that they anticipated that they would lose more business during the transition, but that was not the case and they got caught in a shortage on some stuff.”

John DeRocker, senior vice president of sales and marketing at Nexus Information Systems, a solution provider in Plymouth, Minn., said he has had virtually no problems with the transition from IBM to Lenovo.

“I have deals signed for a 1,300 [Lenovo] desktop deployment beginning Jan. 1 that was up against HP and Dell,” he said. “My customers don&t care if it&s Lenovo or IBM. I haven&t had a single [IBM] account leave me or question anything after we told them about how it&s transitioning.”

The only problem with Lenovo has been in trying to figure out “who&s my channel guy, who&s my rep, who&s my resource,” DeRocker said. But he added that&s easily fixed. “Once you figure out who it is, it&s done.”

Ferry said, too, that availability problems have largely been fixed, but Lenovo must address channel conflict problems in the public-sector market. “The friction points that need to be worked on are in the public-sector side of the market,” he said, adding that what&s happened is that the IBM direct model seems to hold sway in government and education markets where Lenovo direct is undercutting channel prices.

“We find ourselves competing with the classic [direct] IBM sales force that has supported that side of the business,” Ferry said. “Lenovo has proposed deals with prices that we had to walk away from because they didn&t make business sense. Those lines are blurry. We are not able to lead with Lenovo [in the public sector] because we haven&t bridged the trust issue.”

According to CRN Research&s Monthly Solution Provider Survey, there has been a slight decline in the IBM brand&s notebook popularity that Lenovo bought earlier this year. Of more than 200 solution providers surveyed by CRN several months after the Lenovo-IBM deal closed, a little more than 12 percent of solution providers listed the Lenovo notebook brand as their best-seller, compared with about 14 percent a year ago.

On the desktop side, about 6 percent of solution providers listed Lenovo as their best-selling brand. While that&s about the same percentage as cited a year ago, other branded vendors—notably Apple—have made significant gains over the year-ago period.

While Lenovo grapples with its notebook presence in the channel, other companies have been in transition as well. Toshiba last week put longtime channel executive Jerry Lumpkin in charge of the company&s channel efforts, naming him to the post of vice president of business channel sales for the Digital Products Division of Toshiba America Information Systems.

Earlier this year, Sony, which has been working to build Vaio&s share of the channel market, saw a major change in its channel sales executive leadership.

Ferry said that with Lenovo, questions also remain as to how and where the company intends to expand its portfolio. “Are they going to be in the printer business, in the server business, or the broadstream desktop business?” he said. “Where are they going to play?”

The channel&s still waiting for answers.