Following Lenovo's May 1 acquisition of IBM's (IBM) PC division, executives from the Chinese computer maker insisted that the takeover was no reason for American consumers and corporate buyers to turn off their ThinkPads for good. The same folks that produced your trusty laptop, Lenovo said, were still in charge -- they're just getting their salaries from a different paymaster.
Exhibit A: Lenovo shifted its official headquarters from Beijing to Purchase, N.Y., just a short drive from Big Blue's Westchester County home. And Stephen M. Ward Jr., formerly head of IBM's PC division, was Lenovo's new CEO. That, however, doesn't look so convincing anymore. On Dec. 20, Lenovo surprised the industry with the announcement that Ward was immediately stepping down as CEO and would become a consultant for the company.
PLUGGING A GAP? Even more surprising was his replacement: William J. Amelio, who since 2001 has been senior vice-president in charge of Asia-Pacific and Japan at Lenovo's leading competitor, Dell (DELL). "It's kind of like signing a top pitcher from another team," says Sam Bhavnani, an analyst with PC consultancy Current Analysis (both Dell and Lenovo have been clients). "For Dell, it's definitely a loss. It's not just that he retired, he went to the top competitor."
The addition of Amelio might also help Lenovo plug a gap in China. It's No. 1 there with 32% of the market, but it's not as strong among corporate buyers as it is with consumers and government agencies. Dell is No. 4 with about 7% of the Chinese market but is strongest with the business set.
"Dell has been targeting customers in the small and midsize enterprise market," says Joy Lee, an analyst with Standard & Poor's Equity Research in Hong Kong. Hiring Amelio, she adds, should help Lenovo boost its profile in that sector.
NO BIG DEAL. Ward says he has reached his original goals at Lenovo. It's already using the Lenovo brand for most products, a transition Ward had thought would take five years, and he says Lenovo has held on to most of its U.S. government business -- a big concern early on. "I've spent the last two years working on this," he says. "I have a sense of accomplishment."
Ward also says he had wanted to bring Amelio into the company and that his successor will be a good fit. Amelio managed worldwide operations for the IBM PC division in the 1990s before jumping to Dell. Bringing him back is "an opportunity for Lenovo to add some really great supply-chain skills," Ward says.
Dell says Amelio's departure isn't any big deal. He was heading out the door anyway and had been sharing the top Asia-Pacific post for the past six months with Stephen J. Felice, a former vice-president for Dell's corporate business group that was sent to Singapore from Austin earlier this year, says Judy Low, a Dell spokeswoman. The power-sharing arrangement was, she says, "in preparation of Bill's impending assignment-end."
STRUGGLING IN CHINA. Even if Felice was ready to take over, Amelio's exit to a major competitor is bound to make life more difficult for Dell. That's especially true after the year it has just endured in Asia. In May, an e-mail from a Dell salesman in the U.S. created an uproar when it made its way onto the Internet. The salesman wrote that buying a PC from Lenovo -- whose biggest single shareholder is the government-backed Chinese Academy of Sciences -- was to support Beijing. After a barrage of criticism, embarrassed Dell executives had to apologize to Chinese officials.
It's probably not coincidental that Dell's sales in China have suffered, with its market share in Asia-Pacific excluding Japan dropping a full percentage point, to 7.8% ,in the third quarter, according to researcher International Data Corp. On Oct. 25, Foo Piau Phang, co-president of Dell China, left the company. Now Amelio is gone, as well.
A big question for Lenovo is what happens to other IBM veterans with Amelio in charge. Having them in top management positions has been very important to the Chinese. With lots of American corporate customers unsure about the Chinese company, Lenovo was keen to avoid any brain drain among IBM vets.
"MERCEDES OF PCs." "We want to convince our customers this new company is a really an international company, that the business has [had] no change at all," Lenovo Chairman Yang Yuanqing told BusinessWeek in November (see BW, 12/12/05, "A Tough Sell for Lenovo"). Clearly, that "no change at all" line won't fly any longer.
But Ward was just the highest-profile IBM executive who stayed on at Lenovo. Still at the company are Fran O'Sullivan, general manager of the global products group; Deepak Advani, chief marketing officer; and Peter Hortensius, who once oversaw research on ThinkPads and now heads the notebook business unit. "One of the reasons they wanted to keep the IBM people is that ThinkPad had the best reputation in the industry," says consultant Bhavnani. "They're the Mercedes of PCs."
Ward was the one who was going to reassure customers that the brand wouldn't slip. But, adds Bhavnani: "this move calls that into question" since Dell is known less for its product innovation than for its low-cost systems. "You're bringing in a guy from a company that's based on beating everyone else down and getting the lowest price possible," he says.
KEEPING IT TOGETHER. With Ward now out and a new boss coming in from Dell, it's not hard to envision a scenario in which some of the other IBM vets walk, too. Lenovo declined to comment on any further departures, but a spokeswoman says the company feels it has a strong team of execs from both the old IBM and Lenovo in place.
Having battled Lenovo for years, Amelio certainly knows its strengths and weaknesses. In September, when he was still with Dell, he spoke with BusinessWeek at the company's China production center in Xiamen, a coastal city in the southeastern province of Fujian. "Lenovo is a great brand here," Amelio said. "It's a formidable competitor."
But, he added, Lenovo couldn't measure up to Dell in some areas. "Lenovo has a very small presence in the server space," he said, adding that as Chinese companies grow, so too will demand for servers. But, he said, "that's not [Lenovo's] sweet spot." Now it's up to Amelio to fix that.
Printer-Friendly Version