Lenovo's next chief looks to the future

Meet one of the faces of the new Lenovo.

Stephen Ward, general manager of IBM's Personal Systems Group, has been anointed the future CEO of China's Lenovo, which on Tuesday announced a plan to acquire Big Blue's PC business. The new role will admit Ward into a fairly elite club--that of the PC industry CEO--where he will join the likes of Hewlett-Packard CEO Carly Fiorina and Dell chief Kevin Rollins.

But being a chief executive in the PC business isn't quite what it used to be. Growth rates are slower and competition is tougher in the industry-giant-dominated PC world of 2004. Thus Ward will ultimately take charge of steering the industry's newest giant through some rocky shoals.

The thing that's very interesting about this is (that) our market share, combined, in China is bigger than anybody's market share in the United States.

At the outset, Ward will be faced with three major tasks. He'll have to keep quite a few people happy, including his work force, which is made up of just more than 19,000 people, and his numerous IBM customers. At the same time, he'll be working to knit together the new Lenovo's global operations in a way that lets the company leverage both the IBM name and the lesser-known Lenovo PC brands and designs, as well as their manufacturing, marketing and other functions.

The good news, Ward says, is that he'll have plenty of help. IBM has his back when it comes to sales and support. Meanwhile, Lenovo's focus on Asia means there's little overlap to sort out between Lenovo and IBM when it comes to products and personnel in the United States, Europe and other major markets. So Ward maintains that Lenovo will keep all of its employees and its manufacturing capacity in order to take aim at Dell and HP.

Still, keeping customers happy will be a tough task. Analysts are already predicting that major customers will defect. Forrester Research, for one, issued a report Thursday that said the IBM-Lenovo venture could put as many as 14 million PCs up for grabs in the United States. Ward says he is prepared for that too, and with the help of IBM's sales force, the new Lenovo will endeavor to assuage customer concerns.

Ward took some time out Thursday morning to discuss the early aims of the "new Lenovo" and its role in the PC market in the United States, China and parts in-between.

Q. Can you describe what Lenovo is and what its aims are for the post IBM PC group future?
A. Financially, what we've done is sold our PC business to Lenovo. Lenovo is in PCs and in other businesses like cell phones. The entire Lenovo company and the PC company will all be part of one new company we call the "new Lenovo." Its name will just be Lenovo. That company is headquartered in New York--it's not a headquarters in Raleigh, it's not a headquarters in Beijing--it's headquartered in Armonk. The senior management team will be here, including myself, including Yuanqing Yang, who will be our nonexecutive chairman. We'll be here. We'll work, of course, with our customers, with both of our principal operations in Raleigh and in Beijing and with IBM.

We will reincorporate the company. It'll be incorporated, most likely in the Netherlands or possibly in New York. I want you to think of this as an international company--a publicly held company--as it is today.

So it'll be another international brand, just like IBM was before, and Dell and HP are now?
Exactly. And very, very global. The thing that's very interesting about this is (that) our market share, combined, in China is bigger than anybody's market share in the United States. Everyone keeps saying, "Oh, the United States; you've got people that are so dominant you can't possibly beat them." But that's in a market that's not growing and is very saturated.

We're in a market (in China) that's unsaturated and growing like crazy. We have this huge share, so it's kind of interesting to look at that.

How will the integration affect your employees and customers?
Let me take customers first. Lenovo is exceptionally strong in Asia and China particularly, in retail (where they have 4,000 stores), and in small business. They also have a good large business, but they're really strong in consumer and in small business. We're not strong there at all. They don't sell outside of Asia, so there's no conflict outside of Asia.

The reason our competitors are going to throw out a lot of FUD about this is none of them manufacture anything.

If you just look at employees...sales, marketing, management, development, research, back-office, finance--everything other than manufacturing employees--we have 200 employees in China and Lenovo has basically no employees outside of China.

What's the integration plan for the United States? It's real simple. All the Lenovo employees in the United States are IBM employees. What's the integration plan in Japan? It's IBM (employees becoming Lenovo employees). There's nothing really to integrate is the point.

How will you handle the two companies' manufacturing operations?
We have manufacturing, which is our IIPC (International Information Products Company), and Lenovo has their manufacturing. Both of those plants--Lenovo has got a capacity of 5 million; we've got a capacity of more than 10 million--we're using the capacity and they are as well.

The reason our competitors are going to throw out a lot of FUD (fear, uncertainty and doubt) about this is none of them manufacture anything. They do some minor assembly. None of our competitors build notebooks. They buy them all from ODMs (original design manufacturers, basically third-party designers and manufacturers) and they do minor assembly in "plants" that they have around the world.

In this case, think about IIPC as one supplier--we, IBM, own it today and we, Lenovo, will own it in the future--to our new company and Lenovo manufacturing as another supplier to our new company. By the way, there could be other companies who are ODMs who could be suppliers. So that integration is actually pretty straightforward.

The tough part of the integration, which is a big opportunity, is how do we consolidate our purchasing so that we're now having one voice to Intel instead of two and one voice to Microsoft instead of two? I've spoken to Paul Otellini (Intel's president), and we have spoken with Microsoft already and we'll go through the list...of key suppliers. They're all excited about this, because they see it's an opportunity for a lot of growth, which of course is going to help them.

What of Lenovo's relationship with Sanmina-SCI, which manufactures IBM desktops? We have a great partnership with Sanmina.

How will the new Lenovo position its two brands, Lenovo and IBM, initially?
The only place we have any (brand) conflict whatsoever is in China. Lenovo is not sold in the United States, etc., so we're going to continue with IBM. We're going to continue with ThinkPad with no change whatsoever (in the United States). In China, we will continue with IBM and ThinkPad and with Lenovo (brands). IBM and ThinkPad will be positioned at the high-end corporate market...and Lenovo is positioned (for) small and medium (businesses). We do have an overlap in part of the corporate market that we'll have to resolve, and we'll do that before we get to the closing.

It's important to resolve it, because, as I said, we have this great market position that we don't want to lose. The way to think about it is we are No. 1 in notebooks in China, and they are No. 1 in desktops in China. Our (position) is corporate, and theirs is corporate and small and medium business and individuals.

What's the integration plan for the United States? It's real simple. All the Lenovo employees in the United States are IBM employees...There's nothing really to integrate is the point.

Are you going to start selling Lenovo-brand PCs in the United States and Europe at some point?
That's the next piece. Every customer that's buying (now) is going to keep buying ThinkPad and keep buying everything else. The next opportunity for us is to say, 'Lenovo has fantastic products.' The IBM products are already everyplace in the world. Lenovo has fantastic products. How do we move those products into the rest of the world? Already our teams are doing evaluations. We'd like to show you some of the Lenovo (products).

It's stuff that is very, very targeted at (the smaller customers in) the small and medium business (niche) and at individuals. I think we can look at some combinations of things.

The Lenovo brand will be an important PC brand in the future without any question. We are driving that.

Will you pursue the consumer market with Lenovo-brand products?
We're already very strong in the consumer market in the U.S.--although we've exited retail--in one segment: high-performance notebooks. We sell those both through companies like CDW and PC Connection (and) also off of IBM.com. I absolutely see an opportunity to take Lenovo's products and go after the individual.

When you use the word "consumer," people immediately jump to (thinking about) retail stores. I'm not sure that retail stores is the right approach, right now. Consumers, individuals, students, absolutely make a ton of sense. Those are very, very important markets, and...listening to customers, we will work with the channels to sort out the future strategy for consumers and how we might include retail in that.

Can Lenovo use its new scale to offer lower pricing on PCs?
We have put together what we think are the most innovative PCs in the industry. I'm being a little bit brash. But that's what the analysts (and) the press, as well as customers tell us. So we think we're putting together an exceptionally good value, an exceptionally good price, for the product the customers are getting. If you look at our growth, it looks like that's true. We're doing very well in growing the market.

Our target is PCs that improve people's productivity, not commodities. That said, we have a constant effort to get the absolute best price for our customers for that value that we deliver. So, if you look at, for example, when we launched the new S50 small form factor desktop, people were blown away at the price point of that machine compared with others. When we introduced the new X40--the ultrathin ThinkPad--that was one of the things that hit all the press. They were blown away by the price point of that machine for the value you got.

You'll continue to see a lot of focus from us on giving the absolute best price to customers, but for a product that will improve productivity. You will not see us go into the commodity market (the market for inexpensive PCs that offer little differentiation from those of competitors).

So we're not going to see things like $400 desktop PCs from Lenovo?
No. We're not in the commodity PC market.

Another huge issue is competition, particularly from Dell and HP, which will try to pounce on any uncertainty this deal has created for IBM customers. How are you addressing that right now?
We have the IBM sales force, and we've armed that sales force...to go out and talk with customers. IBM has access to customers that is really fantastic, and of course that will be part of what we have in the new Lenovo.

Already, I get--throughout the day, every time someone has a meeting with a customer on this subject--feedback. Does the customer understand our strategy? Is the customer being harassed by the other PC companies? What FUD (fear, uncertainty and doubt) are the other PC companies passing out, and are we properly able to communicate? Does the customer have a real concern that we need to make sure we're properly answering for them?

I reviewed the first 200 of those yesterday at noon and reviewed another--I forget how many--last night. We'll now go through a daily cadence. We also have, in each one of our geographies, a war room set up that takes any call whatsoever (to answer questions) where our client teams are not comfortable enough to fully explain to the customer why this is good. We've got a commitment to turn that around within 24 hours.

This is IBM. We're using the IBM machinery to make sure that we're totally committed to customers. IBM will be our partner to do warranty and support.