With new leadership, Lenovo looks ahead

The global financial crisis has caused many of the largest technology vendors to rethink how they approach the market. At Lenovo, that has meant changes at the very top of its business. Last week the Chinese PC maker announced it had cut ties with Bill Amelio, its CEO of three years, and installed company chairman Yang Yuanqing as the new chief executive.

Lenovo co-founder Liu Chuanzhi was brought back as company chairman and in one of the first interviews after the changes were announced, commented that his company would be refocusing its efforts on China and other emerging markets for computers.

But it now appears he didn't mean it would do so at the expense of the rest of the rest of the markets it plays in. New President and COO Rory Read, promoted last week from vice president of operations, seemed to downplay Liu's comment in a conversation Wednesday with CNET News. The IBM veteran insisted that the company's overall strategy would not be shifting dramatically.

"What's changing here is more about taking ourselves to the next level. I don't think the fundamental strategy changes in a significant way," said Read.

Since Lenovo bought IBM's PC business, management has worked to integrate the two companies and increase its presence beyond Lenovo's foothold in Asian markets to be a global PC vendor. The company has grown to become the fourth-largest PC maker, shipping 7.2 percent of all PCs worldwide as of the fourth quarter of 2008, according to IDC. That's down from 7.5 percent during the fourth quarter of 2007.

But that small dropping of share belies larger issues. Lenovo was bested by rival Acer in the battle for Europe's Packard-Bell brand a year ago in its attempt to grow its worldwide market presence, and recently reported a disappointing quarter as it's been hit hard by the tightening of IT budgets worldwide.

As the company turns the page on its leadership, much has also been made of Lenovo, at heart a Chinese company, bringing a Chinese leader back to the helm. But Read says he believes Yuanqing's potential for success has more to do with his vision than where he's from.

"When you bring Yuanqing into the role of CEO, has got a great strategic view as to how we want to leverage this business model and how we want to do this with speed and velocity," Read said. "I think he understands the various strengths of (Lenovo's) various business models."

What we won't see is Lenovo backing off from the world stage, Read said. Lenovo currently does more than 50 percent of its business with international customers, and that won't change with the new leader. "I think this is more of a natural evolution as opposed to some kind of radical change. This is the next step in that migration."

Lenovo lost $97 million last quarter--which resulted in the laying off 11 percent of its workforce--due partly to the fact that it is so heavily invested in large commercial customers and because its transaction model business in China, which targets small and medium businesses that look for aggressive pricing, "have slowed down a little bit faster" than some of the other segments in the industry. "So we might have experienced that pressure from this downturn a little bit earlier than some of the others," Read said.

One of the things Lenovo is counting on is its nascent consumer business outside of China, which launched the IdeaPad notebooks and IdeaCentre desktops in 2008. Already expanded through parts of Western Europe, North America, and Latin America, Read says he does hope to grow the consumer business so it accounts for more than the current 25 to 30 percent of the company's sales.

"We'd like to do more but we'll do it prudently as we enter different markets so we can do it in a cost-effective, efficient way."

One segment that Lenovo has high hopes for is the burgeoning Netbook market. Lenovo has one model, the IdeaPad S10, which sells for $439. Read says his company sees Netbooks as a primary PC in some emerging markets, but for most customers, a secondary PC with limited functionality but maximum mobility. He sees Netbooks as part of a larger ecosystem of devices that allow people to access their data everywhere, part of the "always-on" computing concept.

While industry observers worry that the focus on Netbooks by large PC makers are cannibalizing traditional notebooks, Read apparently does not.

"I'm not concerned about that," he said. "I think that consumers take the time to understand the product set...I think Netbooks is not a 'cheap PC.' Netbooks is a solution that allows customers to do a set of work activities and productivity items that allows them to be efficient: e-mail, Web access, some light application work."

To be sure, cannibalization is probably less of a legitimate concern for Lenovo, whose notebooks are generally priced in the premium range, than for the Dells and Hewlett-Packards of the world that offer more budget-oriented notebooks very close to the same price point as Netbooks.

In Netbooks and other emerging aspects of the PC market, Lenovo plans to be aggressive despite prevailing economic winds. "We'll look for new opportunities as this market continues to evolve," said Read. "We're not going to retrench in the sense that we're going to hope that this market blows over. We see it as the opportunity to position ourselves and capture the upper hand as the market begins to turn."