Q&A: Lenovo President Talks Tablets, Android And Cloud Computing

It may be impossible to quietly become the fastest growing PC manufacturer in the world, but Lenovo has come close. Last month, for the fourth consecutive quarter Lenovo reported PC shipment growth that outpaced the overall industry rate. And for the fourth quarter, Lenovo’s worldwide PC shipments jumped 59 percent year-over-year, marking the second consecutive quarter Lenovo ranked as the fastest growing PC maker in the world. While much of the attention in the hardware space is focused on HP and Acer battling for the top market share spot and Dell struggling through a major slump, Lenovo has snuck up on the competition in the number four spot.

When CRN last spoke to Lenovo President and COO Rory Read, he was holding court inside the upscale AquaKnox restaurant at the Venetian Hotel & Casino in Las Vegas, which Lenovo had designated as its ’booth’ for CES 2010. Read’s company was enjoying a stellar CES, having generated a great deal of buzz and press accolades at the show with a host of newly designed desktop and mobile PCs that took many people by surprise. After years as being known primarily as the ThinkPad corporate notebook maker, Lenovo began to branch out into all-in-one desktops, smartbooks and even tablets.

Now six months after the new-look Lenovo’s coming out party at CES, many of those new products have launched and more are on deck. At the D&H Distributing Mid-Atlantic Technology Show earlier this month, Read spoke with CRN about how his company’s new products are being received. In addition, Lenovo’s president gave us his take on the emerging tablet market, explained why the PC maker has embraced Google’s Android operating system and offered his honest opinion of the cloud computing phenomenon.

Lenovo had a strong showing at CES this year, but now it’s six months later. You’ve already launched some of the new products featured at CES, with more scheduled to arrive this summer. How have the products been received so far, and how important was the event to Lenovo in retrospect?

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That was a great show, no doubt about it. There was a ton of energy there, and the message we shared there really resonated. People saw Lenovo as a high-quality, highly innovative company that was reacting to their needs in the client space. I think customers and partners were excited to see the innovation we had at the show and see us moving the ball forward with some new designs. We launched the ThinkPad Edge, the SMB notebook, and that product has been very well received. We launched the 13 Edge and now we have the 14 and 15 models, and they’re all performing above our original expectations. We also announced the X100e ultra-portable notebook; I like to think of it as a netbook killer. It’s a very manageable product that has the attributes of a ThinkPad but with a dynamite price point and is lighter and smaller than a traditional ThinkPad.

We also launched LePhone in China, and that smartphone has done very well and exceeded our initial sales projections. I think there’s a lot of pent-up demand for new smartphones. I saw pictures of stores in Bejing with people waiting in line to get the phone, so that’s a good thing. And the most important thing we saw about that launch was how this new mobile ecosystem had taken off. And with what we’re doing with LePhone and other mobile Internet devices like the Skylight and the [IdeaPad] U1 Hybrid, I think it’s going to be a very interesting space over the next five years. I think the mobile Internet space can be the same size as a market as the PC business within 3-5 years. Of course, it all depends how you want to count and categorize each device. But that mobile Internet space is going to be key for us.

You mentioned the IdeaPad U1 Hybrid and Skylight smartbook. Both products earned a lot of buzz at CES but we haven’t seen them yet. Are they still coming?

Yes, they are. We had some recent announcements around Skylight and the U1. We haven’t launched those to the public yet, and here’s why: in the tablet space, we refocused our work there to make sure we leverage the Android technology. We announced that development a few weeks ago. So we learned from our customer feedback since CES that they loved the form factor and they loved the concept. But that ecosystem around Android is really picking up speed, and I think it’s a smart move to combine our efforts with what’s going on with Android and make sure we hit that sweet spot. So you’ll see that come later in our fiscal year as we launch those new products. And I think that will fulfill on energy and buzz we saw at CES. Again, as we’ve introduced and started to sell a lot of those products we showed at CES, the uptick has been very, very strong and ahead of our plans. In our most recent earnings announcement, we were the fastest growing PC maker on the planet for second quarter in a row. That was 58 or 59 percent volume growth year over year. The customers are speaking, and they see the value of what we’re doing.

Next: Smartphones, Palm And Android

You mentioned LePhone. Are there plans to launch the product in North America in the near future?

Our focus right now is launch the phone in China, win in China and build off the strong brand we have there and then build out the ecosystem and expand. We’d like to take it to other emerging markets and then ultimately across the globe. But we’re going to focus on that one key market initially. Get the scale, get the base, then step by step build out the ecosystem and move forward.

There was a lot of speculation in the previous months that Lenovo was in the running to acquire Palm before HP bought the company. It sounds like Palm wouldn’t have meshed with your approach with not only LePhone but also embracing Android. Was Lenovo ever seriously close to making that deal?

I can’t comment on specific acquisitions targets. But I will say we’re very confident and comfortable with the technology base we’ve put together with our smartphone, mobile Internet and of course our PC heritage with our ThinkPad and IdeaPad brands. I think we’re in a very good position to build those out and build on the convergence of PC technology and mobile Internet technology. We’ll look at acquisitions as we move forward, as we do all the time. But we really feel comfortable with our technology base right now. And the reception of LePhone has been very positive and represents that we have a finely-tuned device that has the right platform and is tailored to a specific customer set.

Lenovo has obviously embraced Android, selecting the OS for LePhone and as the new platform for the U1 and Skylight PCs. What made you decide to bet big on Android?

Well, what’s really interesting about Android is its momentum. In the mobile Internet space, there is going to be a series of key platforms and the winners and losers are set yet – you know who the usual suspects aren't. Android has shown some really interesting momentum over the last six months, and I think it’s a strong bet that it’s going to be one of the key platforms going forward. So we’re making a significant bet on them. That’s not to say Android will be the only one; I think there will be several. Right now, maybe there are 10 or 12 and then it will drop down to four or five and then ultimately, like each technology standard, it will settle down to probably two or three. We’re in the early stage right now, but Android looks like a good bet and one we’re very confident in. And that’s of course why we’ve retailored the U1 and Skylight in that direction.

Next: Tablet Fever And Cloud Computing

Back at CES, you predicted netbook sales would begin to slow and the model would be blended into other categories like smartbooks, traditional notebooks and tablets. We’ve already started to see that happen this year with the iPad reportedly eating into netbook sales. What do you see happening in the tablet market now that the iPad has launched with great success? Are you planning a stand-alone tablet of your own or are you going to concentrate on the U1 Hybrid?

Well first, I think you’re going to see a lot of Windows-based slate solutions and Android-based tablet solutions and a variety of those kinds of offerings from a lot of different [manufacturers]. For us to take the tablet from U1 Hybrid and run it as an independent product is not a big jump. But I think you’re going to see a lot of clamshell smartbooks and a lot of tablets and pads, so I think the U1 hybrid is a great offering because it’s going to bridge those two oceans together, particularly over the next 3-4 years as these spaces evolve. But I think, yes, we’re going to see a lot of iPad-type products hit the market. And it may get oversaturated a little initially. But this kind of touch screen interface with a thin, flat form factor is definitely going to have a market. There’s no doubt there’s going to be a real segment. I think we’ll also see a variety of sizes from maybe just a little larger than your smartphone all the way up to bigger 15 to 17 inches over time. And I also think beyond the traditional tablet, there will be clamshell tablets with attachable keyboards. We’ll see a little bit of ’Pad’ fever for a while. But that will shake out over the next 18 months and then you’ll see the real innovative, high quality devices and solutions take hold of the market. The more interesting thing will be the convergence of the PC experience – not just the data but the whole experience – on all these mobile devices. That convergence is going to lead to an explosive growth of innovation over the next five years.

A lot of people are banking on the concept of cloud computing to help push that convergence you’re talking about and connecting all of our mobile devices. What do you think of cloud computing, and will it play into Lenovo’s mobile ecosystem strategy?

There’s no doubt there’s going to be a continuous evolution of ubiquitous connection to data and applications. We saw it happen with the Internet. It created a ubiquitous connection point for data. What’s happening now with this convergence movement is now data and applications can move across the Internet and be accessed through that ubiquitous connection point. You can call it cloud computing. You can call it whatever you like. I don’t care what you call it. Internet is the network connection that allows you to get the information. Cloud is the idea that now the Internet isn’t just information but also applications. That’s not a huge concept; it’s just extending the ubiquitous connection point to include applications along with data, voice and other things. So cloud has a lot of buzz and momentum, but it’s really because of the concept that the application has finally moved to this connection point where data has been for the last 10-12 years. Well, that’s an important step and a good step, but that doesn’t mean we’re not going to have applications on client devices anymore. What’s more important is that now data and applications can be connected and be more easily accessed across a number of different devices. To really crack it open, we’ll need industry standards. Windows will be one, and I think Android will be, too. Once the winners are settled, then we’ll start to see more interface work on the convergence. It’s the next logical step. But calling it ’cloud’…well, what’s the difference between the cloud and the Internet? It’s just a nice word. It’s a good word, but still. I may get people fired up at me, but I think it’s true. It’s the about the ubiquitous connectivity and the convergence of all these devices. First it was the data. Now it’s the applications. Call it cloud. Call it whatever you want, but that convergence is the next evolution of our industry.

Next: Lenovo's SMB Push And Channel Culture

Lenovo has made a strong push in the SMB space with the recently released ThinkPad Edge, which is somewhat new territory for the company. The ThinkPad brand is obviously known as being the premium corporate notebook with a higher price tag. How did you approach the SMB market with ThinkPad Edge?

It’s almost the same approach we took with LePhone in China. We spent a lot of time with the customers. We wanted to understand how that particular customer used the device. We did the same thing in the SMB segment. That’s why I’m here at D&H’s show. These guys get the SMB space, and they’ve helped us understand the needs of the customer. So we looked at what made the ThinkPad so appealing: innovation, quality, reliability, and the design. And in the SMB space, there were certain characteristics that appealed to the customers like the awesome redesigned keyboard, the quality and the reliability. But they don’t need some of the heavier capabilities or manageability functions that a large enterprise needs. They have different connectivity requirements, too; they’re not always connecting to a corporate Internet. So we tailored the solution and the look and feel for the SMB customer with a price that fits that market. We could have done what some of our competitors have done; they just go to an OEM and buy the next model. But as I told you at CES, the competition left the door open and we are capitalizing on that opportunity.

Some of your competitors in the hardware space have increased their services businesses lately and made some acquisitions of some large services firms and system integrators. Lenovo so far has stayed away from that business, but there has to be some temptation to get into that market, right?

Nope. None at all. Our strategy is all about the channel. When the channel succeeds, we succeed. The channel needs a partner who brings innovative, high quality solutions to them and allows them to wrap it with their own services and solutions. Sure, we have financial services, warranties, extended services and things like that. But we’re doing those things in synergy with the channel. So we’re not going to go out an acquire a large services arm that will end up competing with our channel partners and then force us to sell more direct. We don’t want to do that. Our game plan is to win with the channel. We ultimately think that the combination of Lenovo and channel partners like D&H and their resellers give the customers a better solution. It gives them more flexibility and choice, plus the channel partners have the best services available with a one-to-one relationship for the customer. I firmly believe this is the right strategy; look at the growth rates we’ve shown across the globe. That’s because both the customer and the partner see the value in us.

Last question: how did Steven DiFranco’s departure to HP affect Lenovo’s channel strategy, if at all?

I think because our channel strategy is rooted in the core of the company it didn’t affect us. Our Lenovo executive committee, our board of directors and our senior leadership team are all focused on this protect and attack strategy and believe that the channel is the basis for our success. That’s the reason you haven’t seen any disruption with our channel. Steven’s great, but the strategy doesn’t change with one person. The channel has become part of our DNA, our culture. It’s 25,000 people across Lenovo with the same belief and message.