Lenovo turns to IBM's old guard after $1.77b takeover

From looking at the new Australia-New Zealand Lenovo team, you'd swear you were looking at the old IBM team - and the observation would be an astute one.

"All the people who were part of this before have come over," said Lenovo's ANZ managing director Alan Munro during his team's recent road show across New Zealand. "It really is the old IBM."

China's Lenovo Group first announced in December it was buying IBM's PC business for US$1.25 billion ($1.77 billion) in stock and debt, and the deal finally closed in May.

Munro and his team have since been touring Australia and New Zealand, introducing the new-old team to customers and media.

With the only apparent difference being the logo on their business cards, the transition thus far seems to be a non-event.

"From an ANZ point of view, it's kind of business as usual," Munro said, adding that only one member of his 140-person staff dropped off during the transition through "natural attrition".

But business as usual for the now-Chinese-owned company means overcoming a pair of obstacles. First is the stigma associated with Chinese firms - that they're good at manufacturing goods cheaply, but not so great at innovating or making high-quality products.

Munro countered the argument by saying the companies were, in effect, doubling their innovation capacity by combining their research and development forces.

"Innovation will definitely come from both sides," he said.

He also pointed out Lenovo's plan to open a new US innovation centre in North Carolina, announced in May, as an example of its R&D commitment.

Moreover, the company has lined up some heavyweights to partner with on the centre, including Microsoft, Intel and Symantec.

Analysts say the power of IBM's brand recognition should be enough to counter the Chinese stigma.

"If you can build [computers] at a low cost and then place a really well-known and respected name on top of them, you have got some advantages to success there," said Liam Gunson, PC market analyst for IDC Research.

"The only thing I see them possibly running the risk of is if they jump out too early with the Lenovo branding, they could be seen as another cheap Asian brand."

Munro said Lenovo plans to keep using the IBM brand, at least for the near-term.

The other problem for Lenovo is the global trend of slowing PC sales. This month, the company reported that fourth-quarter profit dropped by 12 per cent to HK$166 million ($30.2 million), with revenue dropping 6 per cent to HK$4.7 billion over a year ago.

It said falling prices for computers in China over the past year - a 12-per-cent decline - had created a "challenge to profitability".

The quarterly results obviously didn't include IBM's PC business, but they left some observers wondering why Lenovo would want to expand into a seemingly flat market.