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Lessons for Lenovo

The Chinese firm still hasn't set up a Canadian office, but resellers and analysts are already coming up with advice on how it can revive IBM's money-losing PC business. Is anyone listening?rn



If IBM couldn’t make a go of its PC business, what chance does Lenovo have?

The deal to buy the division and operate it as a joint venture with Big Blue isn’t expected to close for several months, but there are questions about how the Chinese company might succeed where IBM failed.

Some

of IBM’s problems became more apparent when it recently released some numbers as part of a regulatory filing. Normally, Big Blue doesn’t break out earnings for its divisions, but reported a cumulative loss of almost US$1 billion over three years for its PC business.

According to IDC Canada, IBM registered year-over-year growth of 4.9 per cent in the third quarter of 2004, based largely on sales of its ThinkPad line of notebooks, which grew 13.2 per cent. It came in third place, however, after Dell, which owns 24.6 per cent share of the Canadian PC market, and HP.

The transition may be a tough one for Lenovo, according to one Hamilton, Ont. reseller, who says the company may have to counter the perception that a move away from IBM is a move away from quality.

“”They’re a relatively unknown entity on this side of the ocean,”” said Paul Furtado, vice-president of Audcomp Computer Systems.

“”I don’t have an easy answer for how they’re going to get around that. I think they’re really going to need to strengthen their IBM PC partner program in order to get the backing of those that are out in front of the customers.””

Discounting Lenovo computers and laptops may not equate to an increase in sales, he added. Machines from chief rivals Dell and HP are already priced competitively.

The key may be concentrating on operational efficiency, said Harry Zarek, president of Richmond Hill, Ont.-based Compugen Inc.

“”Long-term success for Lenovo will be for them to figure out a lower cost model. I’m not convinced that lower cost means lower costs of goods — just a more lean operation. If Lenovo understands that that’s the only business they’re in, they should really work hard to get their operating costs down,”” he said.

Lenovo’s position as a powerhouse in Asia should make that a reasonable goal for the company, said Dean McCarron, analyst with Scottsdale, Ariz.-based Mercury Research. Its name in that part of the world, combined with the influence of IBM in the West, should help increase sales globally, as well as drive down the cost of PC components through volume pricing from suppliers.

“”Lenovo and IBM combined are going to have greater purchasing power than either of them alone,”” he said.

McCarron said there will not be a great deal of overlap between the two companies since the former focuses on the consumer PC market and the latter on the corporate customer.

Same faces

Many of the same faces that partners recognize from IBM’s PC division will transfer over to Lenovo, according to Mike Quinn, IBM Canada’s manager of corporate public relations. “”It’s really business as usual for the next five or six months,”” he said.

Heather Ross, who is currently in charge of IBM Canada’s PC business, will take the reins of Lenovo Canada — a company that will be established here once the overall deal between IBM and Lenovo closes. Ross was unavailable for comment at press time.

The next six months will be vital in terms of securing channel relationships and reassuring customers, said Furtado.

“”Everybody always labelled IBM as being quality product and they had Big Blue supporting them in the background. What’s going to happen to that level of support?”” he said.

“”If they can’t satisfy their existing user base, it’s going to be even more difficult to go out and get new business.””

But most customers will be able to see the deal for what it is, said Zarek. “”What is the product made up of at the end of the day? It’s an Intel motherboard with Microsoft software,”” he said.

“”It’s really more of a naming change. I think most customers are sophisticated enough to understand today that where product gets assembled and who assembles it is not [the same as] the label that’s on the box.””

Zarek added that while IBM’s deep losses from its PC division are troubling, sales of IBM PCs in Canada were brisk compared with much of the rest of the world.

He said he plans to keep selling IBM PCs and would also sell Lenovo branded machines.

Quinn said that some of the questions that resellers may have about the transition from IBM to Lenovo will be answered later on this month at its annual PartnerWorld conference in Las Vegas.