Lenovo Looks Ahead

By John G. Spooner  |  Posted 2005-08-18

Lenovo Looks Ahead

Lenovo is setting out to make a new name for itself.

By most accounts, Lenovo Group Ltd., created in May when Lenovo closed it multibillion-dollar purchase of IBMs PC division, saw its first 100 days pass by smoothly.

Despite some channel partners complaints of a shortage of its desktops, the company was able to protect its combined market share, while beginning the job of establishing its new identity—thus far its marketing has centered on its Think brands—and it even made some gains in notebook customer satisfaction against rivals Dell Inc. and Hewlett-Packard Co.

Click here to read more about the IBM-Lenovo deal.

But despite turning in a solid second quarter, in which it turned a profit and gained back the market share it lost during the first quarter, the new Lenovo has its work cut out for it.

During the coming quarters, the company must continue to protect its corporate accounts while it begins executives on its plan to entering new markets, including selling consumer PCs in the United States again—all in an effort to boost its shipments and make gains in the Dell and HP-dominated PC market.

"The long term goal [of Lenovo] is world domination. It made the investment [in IBM] because it wanted to go to number two or number one [in the worldwide PC market]. The way to do that its going to have to expand its share, big time," said Leslie Feiring, analyst with Gartner Inc.

Lenovo is already moving on that plan. However, its getting started small, with an effort to entice smaller businesses and some consumers to its ThinkPad line.

It will unveil a new multimedia-oriented, widescreen ThinkPad Z series, in September.

The line will offer models with 14-inch or 15.4-inch wide screen displays along with high-performance graphics and a full compliment of multimedia ports, including IEE 1394 port, sources familiar with Lenovos plans said.

The machines are expected to start in the $1,200 to $1,500 range.

But the company wont stop there. Its also working on an entirely new line of consumer machines, some of which it may transplant from its China operation, and a branding strategy to go with them.

Although it hasnt finalized its plans yet—it could still create a sub-brand under Lenovo for the machines—it appears to be leaning toward affixing its consumer products with the Lenovo brand name, emulating strategies such as Toyota Motor Corp.s Toyota-Lexus model.

The auto maker markets Lexus models as premium autos, which include more features and thus sell for higher prices than its Toyota models.

The Think-brand products are Lenovos equivalent of Lexus models.

Its consumer machines, which would be branded as Lenovo models, would be its Toyota-equivalent.

Next Page: A trial balloon.

A trial balloon

Thus the ThinkPad Z Series is a trial balloon, in some respects, said sources familiar with Lenovos plans.

Its widescreen should appeal to both businesses—a wide screen format allows a machine to display two spreadsheet pages side-by-side, for example—and consumers, who might use it to watch DVD movies.

Despite ThinkPads corporate roots and the Z Series small business aim, Lenovo will also expect to see some consumers purchase the machine as well.

Its already been courting small businesses and consumers business in other ways, including with its pricing. The company has aggressively priced some of its Think machines of late, offering a ThinkPad R Series model for a starting price of $599, via its Web site. Its also offering free shipping on its PCs and accessories, purchased via the site.

Click here to read more about Lenovos work with business customers.

Given its goals, the consumer market is vital for Lenovos future.

Its "what Lenovo brings to the table," said Richard Shim, analyst with International Data Corp. "IBM had the enterprise products and the brand name, and that helps to establish credibility. But, from a growth standpoint, [Lenovo] is stuck in a battle with two of the biggest names in the business. For Lenovo to gain an edge, one would have to stumble, and it doesnt look like thats going to happen."

Thus Lenovo will put to use its consumer smarts—it offers several lines of stylish desktops and notebooks in China—and it "will come out with more innovative designs, designs you wouldnt have seen from the old IBM," Shim said.

The new consumer PC line, which is likely to make its debut next year, is sure to be offered in the United States as well as higher-growth international markets such as Brazil, India and Russia.

The company, which has said it is intent on keeping a hybrid distribution model, is expected to start selling its new consumer machines direct at first. But its likely to enter retail in some capacity in the future as well.

Lenovo already operates its own retail stores in China. It works with partners to sell Think-brand computers in ThinkWorld stores in India. It has also trademarked the term ThinkStore in the U.S.

However, the company says it has no plans to erect stores in the United States. Instead, ThinkStore might be used for its online efforts or possibly for retail kiosks.

"We have no current plans to open retail outlets in the U.S.," said Lenovo spokesman Ray Gorman, in an e-mail. "We will continue to evaluate the best ways to reach our customers and will continue with successful hybrid strategy of selling through channel partners and direct sales."

However, Lenovo has tested what it calls "information kiosks" in a few markets, Gorman said in the e-mail. The kiosks only displayed the Think products. Customers were instead directed to channel partners or Lenovo direct sales.

Gorman declined to discuss future products or marketing strategies, however.

As Lenovo is preparing to take the next step, "Its in good shape as far as that goes," said Roger Kay, an analyst with Endpoint Technologies Associates Inc.

But, going forward, "It needs to execute very cleanly in the next while to promote whatever Lenovos international brand is, to move Lenovo out of China into the rest of the world, to sustain the Think [brand] equity and keep existing enterprise customers—and expand that base a bit—and to achieve world class cost structures so that it can fight the good fight [on price] with Dell and HP."

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