Lenovo CEO Resignation Tied to Company Performance

ThinkPad laptop maker Lenovo has been recently hit with massive quarterly losses for the first time in several years since taking control of IBM's personal computer division. As Lenovo competes fiercely against Dell, Acer and HP within the consumer laptop market as well as within the commercial PC market, CEO William Amelio's stepping-down at the end of his three-year contract suggests it will take a new direction.

The U.S. recession and sluggish global economy has shown several vulnerabilities in the PC market in the last few months, but Lenovo's latest results demonstrate how badly some companies have fared as both consumers and businesses curtail their spending.

For Lenovo, which is best known for its ThinkPad laptops, the lack of consumer spending in the United States comes at a time when the Chinese economy is struggling as well, which has further hurt the company's bottom line.

Now that Lenovo CEO William Amelio has resigned, Lenovo needs to begin striking a balance between its legacy commercial PC business, which it acquired from IBM in 2005, and the consumer laptop market, which helped fuel growth for Hewlett-Packard and Acer but has suffered lately due to the U.S recession, according to several analysts.

Amelio stepping down on Feb. 5 was a reflection on the company's economic condition, analysts have told eWEEK. Lenovo, which is headquartered in the United States but has roots in China, posted dismal quarterly numbers, including a $96.7 million quarterly loss.

The company has seized market share in the enterprise through its products such as ThinkPad mobile workstations and other desktops and laptops targeted toward professionals. According to Reuters, its share in 2008 of the global PC market stood at around 7.5 percent. However, Lenovo has not been able to make inroads into the consumer market, where companies such as Acer and HP managed to grow their PC businesses when times were good.

"My take on his departure was that he was really the fall guy for Lenovo's problems in the last year or so - and rightfully so in some respects, because a lot of these issues came under his tenure," said John Spooner, an analyst with Technology Business Research. "I think that if Lenovo had been a little more successful, he may have stuck around for a bit."

Amelio had been at the end of his three-year contract, technically making his stepping-down a non-renewal. His successor will be Lenovo chairman Yang Yuanqing.

"I don't think Lenovo has done anything punishable; they're just caught in the same maelstrom that everyone else is," said Roger Kay, an analyst with Endpoint Technologies Associates. "In China they've done well in both the commercial and consumer segments, and outside they've done OK in commercial, particularly enterprise; but their non-China consumer segment remains relatively empty."

Kay pointed to Lenovo's "paucity of distribution deals" as a key factor behind the company's inability to penetrate the U.S. market.

"I met with Amelio several times during his tenure, and he struck me as a guy with a lot of energy and presence - but he was singularly un-Chinese in his style and cultural affinity," Kay added. "He wasn't an internationalist; he didn't speak Chinese, claiming he didn't have the time to learn."

In 2005, Amelio came to Lenovo from Dell, where he had served as senior vice president, Asia-Pacific and Japan.

While Lenovo benefitted from China's double-digit economic expansion over the past few years, it was correspondingly hard-hit by the recent global retraction. "Lenovo as a whole is pretty focused on both enterprise and China; they're really more exposed to the downturn in that way, because obviously IT spending has been significantly reduced," said Spooner. "They're more exposed than Dell or HP in that they don't have the same breadth of customers."

Amelio had worked on improving Lenovo's profile with consumers, but the company has also lost market share in the enterprise to both Dell and HP, which have produced lower-cost units.

"The perception of value for Lenovo's notebooks has eroded a bit, and that's been a problem for the company," Spooner added. "Hardware quality is important, and that's what Lenovo has; things like failure rates, they're generally good on those, too. But these days, it comes down to value costs - and Lenovo needs to move on that."