Lenovo, Its Time to Grow Up

On its first birthday, the PC company's immediate challenge is getting its brand known.

On its first birthday, the PC companys immediate challenge is getting its brand known.

Itll be business as usual at Lenovo Groups headquarters on May 2. However, the day will hold special significance, marking the first anniversary of its acquisition of IBMs Personal Computing Division.

Since the closing of the $1.25 billion deal on May 2, 2005, the "new Lenovo," as the company often calls itself, has plotted a course that it hopes will broaden its customer base and ultimately hoist it upward in the ranks of the worlds top PC makers.

To date, the company—a distant third in market share behind Dell and Hewlett-Packard—appears to be steadily, if slowly, advancing toward its goal.

Its already in better shape than HP was one year after purchasing Compaq, for one. But the new Lenovo still has work to do, analysts say.

Granted, Lenovos and IBMs businesses, which essentially focused on China and the rest of the world, respectively, were more complementary than those of HP and Compaq.

But Lenovo management is credited by analysts and customers as having kept up its product quality and service standards and for having maintained the bulk of its large customers. Some customers say it has also become more aggressive on pricing, particularly in large bids.

"There was a certain amount of trepidation" about the deal, said Robert Rosen, president of the IBM user group Share, of Chicago. But, "The bottom line, from everything Ive seen ... nobody notices a difference, which is good news."

But even though it saw solid growth in the first quarter—it shipped 3.4 million units, up 10.5 percent, versus market leader Dells growth rate of 10.2 percent, according to Gartner—analysts expect more from Lenovo.

"The step to demonstrate, now, is to start growing market share," said Richard Shim, an analyst at IDC, in San Mateo, Calif.

Lenovo faces both perceptual and legal challenges. It must continue to establish its brand name as well as counter challenges such as opposition to an agreement reached by CDW to sell the State Department $13 million worth of computers.

/zimages/1/28571.gifClick here to read more about how Lenovo is working to cater to the SMB market.

Ray Gorman, a Lenovo spokesperson in Purchase, N.Y., said the company believes that CDW has already done its due diligence in the State Department deal. Before that, its acquisition of IBMs PC arm passed muster with the Committee on Foreign Investments in the United States, which reviewed the deal in March 2005.

Lenovos more practical concerns revolve around its efforts to gain market share. It shipped 3.4 million units in the first quarter of 2006, versus Dells 9.6 million and HPs 8.7 million, according to IDC.

Lenovos strategy, in part, centers on its Lenovo 3000 brand, an all-new line of computers that rolled out in February to target SMBs (small and midsize businesses).

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Over time, Lenovo aims to sell to three sets of customers worldwide, as it does now in China. It plans to target larger businesses—a traditional IBM ThinkPad stronghold—as well as SMBs and consumers, according to Mark Cohen, executive director of Lenovos Notebook Business Unit, in Raleigh, N.C. To that end, the company plans to add some products to the Lenovo 3000 line as well as to develop a consumer product line.

"Were starting to work on bringing [the consumer line] into selected markets, first in Asia and then looking at where its applicable outside of that ... in order to further extend our reach and capture opportunities that are out there," Cohen said.

Indeed, "the biggest challenges its going to face, going forward, are going to be go-to-market," said Leslie Fiering, an analyst at Gartner, in Stamford, Conn. Lenovo "needs to get the Lenovo brand into the channel. This is not an area where it has had to play seriously before. Theres a learning curve there," Fiering said.

Editors Note: This story was updated to clarify the nature of opposition to the CDW-State Department ThinkPad deal.

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