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Lenovo's two-front war

Posted by: Bruce Einhorn on April 21, 2006

Ever since he took over as Lenovo CEO in December, Bill Amelio has been busy repositioning the Chinese PC maker for the U.S. market. He’s launched a new line of PCs, with the Lenovo brand rather than the IBM brand that the company inherited when it took over Big Blue’s PC division last year. Under Amelio’s watch Lenovo has also teamed up with Best Buy, in order to make inroads into the American consumer and small-and-midsized business market. And this week, the former Dell exec accompanied Lenovo chairman Yang Yuanqing and other Lenovo execs to Redmond where they signed a $1.2 billion deal with Microsoft to sell PCs in China with legit copies of Windows preinstalled. The last deal doesn’t directly affect Lenovo in the U.S., of course, but the fact that Lenovo has so publicly taken a stand on one of the issues most important to Sino-U.S. trade relations - the fight against IPR piracy in China - might help win over some critics.

And Lenovo sure does have critics. For instance, my colleague Steve Hamm writes about the grief that Lenovo is taking for a deal to sell 16,000 PCs to the State Department, with CNBC’s Lou Dobbs and others seeing a possible threat to national security. While Lenovo gets scrutinized for its Chinese roots, Amelio has to contend with shrinking market share in the U.S. According to a report released yesterday by Hong Kong-based Deutsche Bank analyst William Bao Bean, in the first quarter of 2006 “the company continued to lose market share overseas as overall share dropped to 6.4% from 6.6% YOY and U.S. share fell to 3.5% from 3.8% YOY.” And don’t look for the numbers to get better soon. “We expect continued market share losses,” he writes.

Perhaps most worrisome for Lenovo, which has counted on its dominance in the Chinese market to cushion blows overseas, Bean sees Dell, Acer and others posing more of a threat: “Within China our checks indicate growing competitive pressure from global and local players,” he writes. “Lenovo has been careful not to get too aggressive on pricing in China as it’s the source of most of its profits as the int’l business continues to go through transition and restructuring but they might have to begin defending their home territory more fiercely going forward.” The last thing that Lenovo needs as it tries to reclaim territory in the U.S. is to fight a two-front war, but that might be what Amelio, Yang and their colleagues are going to have to do.

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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