Lenovo Says No To Price War

Stephen Ward, senior vice president and general manager of IBM's Personal Systems Group, is set to become CEO of Lenovo at the close of IBM's pending sale of its $11.5 billion PC business to the China-based computer giant.

Ward told CRN in an interview Friday that Lenovo won't play in the commodity PC market.

"If you look at what we've been doing at IBM over the last two years, we have decided to be exceptionally aggressive in product innovation and value that we deliver to customers," Ward said. "We are going to sell the way we've always sold [at IBM]. This [deal] is not a price-war thing at all. We [at IBM] have generated growth at very competitive price points but ones that are, frankly, above our competitors because we build a better product. I do not see us changing that."

Ward's strategy may disappoint some solution providers who hope the deal will make IBM more price-competitive against Dell and Hewlett-Packard.

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"My hope is that Lenovo will come out with low price points that we can hit Dell right between the eyes with as soon as possible," said CDW CEO John Edwardson.

Speaking at the Raymond James IT Supply conference in New York last week, Edwardson said PCs manufactured by Lenovo will allow CDW to compete much more aggressively against Dell. "I've made two trips in the last two years to encourage Lenovo to come to the [United States] so we could have a more price-competitive product against Dell," he said.

IBM consistently declined to create low-priced machines to be more competitive with Dell, Edwardson said. "We have many customers that just want to buy the least-expensive notebook possible," he added.

Edwardson said he hopes and expects that Lenovo will come out with low-cost PCs to help reduce the need for special price bidding in the channel to counter Dell pricing.

Other solution providers hoped that the IBM-branded systems from Lenovo would benefit from reduced manufacturing costs that would make them a more aggressive player in the PC market.

"I am looking for that kind of impact on the market," said Laurie Benson, president of Inacom Information Systems, a Madison, Wis.-based solution provider that grew its IBM business 150 percent this year. "I understand the profitability model [IBM is faced with], and I absolutely trust them to take into account the best interests of their customers and their business partners."

But IBM chose to stick with the "business as usual" script even as rivals Dell and Hewlett-Packard said they hoped to capitalize on the sale of the vendor's PC business to Lenovo.

IBM General Manager of Global Business Partners Donn Atkins said the vendor is working hard to make sure there is no disruption in business for partners or customers. "We are working to make sure that nothing stays frozen," Atkins said in an interview with CRN, noting that IBM is working with individual partners to ensure sales forecasts are met and any issues that could lead to a disruption in business are addressed quickly.

Despite the attempt to ease fears, many partners said the deal has the potential to freeze millions of dollars in sales of IBM PCs and ThinkPads.

"What we are doing now is very proactively reaching out to ensure the engine runs and continues to run," Atkins said. "I don't really anticipate there is going to be any need for any major adjustment or anything else."

As of late last week, Lenovo had yet to name a channel chief for the new organization. Ward told CRN that he had decided on the new channel chief, but he declined to identify him.

Channel sources said Frank Vitagliano, IBM's vice president of worldwide distribution channels for the IBM Personal Computing Division, had been offered the job. Vitagliano could not be reached for comment.

Even before the deal was officially announced last Tuesday night, IBM's PC rivals were already planning attacks. HP Chairman and CEO Carly Fiorina earlier that day said IBM's expected sale of its PC business to Lenovo presents a "big opportunity" for HP and its channel partners.

"Of course, we'll wait to see what they're really doing," Fiorina told CRN following the HP Security Analyst Meeting in Boston last week. She said that Lenovo mainly plays in the Chinese market. "For a company that has been totally focused on China--and frankly, over the last year, has had a little bit of trouble competing as others have entered [that market]--it is going to be a complex process to put the two together," she said.

Duane Zitzner, executive vice president of HP's Personal Systems Group, added, "It does give us and our channel partners a great opportunity to go in and offer more stability."

Zitzner added that IBM's PC channel would be in "disarray" as a result of such a deal.

Dell Chairman Michael Dell said the move shows IBM's lack of commitment to the small-business market. "If you look at the last few years, there has been a continuing trend, not only a decline in markets, but a de-emphasis and divesting of assets in the small-computer business at IBM. It's clear that this is not a long-term strategic priority for them," Dell said at Oracle OpenWorld in San Francisco last week. "I'm not a big fan of taking companies and smashing them together. When was the last time you saw a successful merger or acquisition in the computer industry?"

Under the deal, IBM-branded PCs and ThinkPads will continue to be sold through existing IBM channels, including about 7,000 IBM PC business partners in the United States. Lenovo will have access to the IBM brand name for five years. The current IBM branding will remain on the ThinkPad and IBM desktop products for 18 months. The company will then transition to an IBM-Lenovo co-branding model from 18 months to 40 months. That will be followed by Lenovo branding with an IBM tagline from 40 months to 60 months.

John Marks, CEO of JDM Infrastructure, a Rosemont, Ill.-based reseller that does millions of dollars in IBM business every year, said the five-year branding limit could hurt Lenovo. "ThinkPad without the IBM brand is like Happy Meal without McDonald's," he said. "A Lenovo ThinkPad doesn't have the same meat as an IBM ThinkPad. It just doesn't."

IBM advised solution providers in letters that they should expect to see no changes while the transaction is being completed over the next few months. In fact, IBM said, in most cases, the PC specialists on their combined IBM/Lenovo team will be the same people they work with now.

Distributors said IBM also communicated to them that they should expect to see little disruption in their current relationships, but they were unsure whether they would have to sign new contracts with Lenovo or if their current IBM pacts would remain in effect.

"Everybody is more concerned with the stability [of the relationship] rather than exploiting the moment for short-term gains [by renegotiating contracts]," said Steve Raymund, chairman of Tech Data, Clearwater, Fla.

BARBARA DARROW and STEVEN BURKE contributed to this story.