Lenovo sees itself as top PC maker in five years

PURCHASE, New York - Top Chinese personal computer maker Lenovo Group will start to sell its namesake personal computers outside China in the first quarter of next year as part of its long-term plan to build the world's leading PC brand, its chief executive says.

Lenovo's PC shipments in China were three times those of its closest rival in the second quarter, but it has only recently broken into the international market in a big way, with its US$1.25 billion ($1.81 billion) acquisition of International Business Machines Corp.'s PC unit.

Lenovo will make IBM's flagship Thinkpad laptops available in Lenovo stores shortly. The acquisition has made it the third-biggest global PC vendor behind Dell Inc. and Hewlett-Packard Co.

"We want to grow Lenovo into a worldwide brand," CEO Steve Ward said.

"In five years, we will have a strong chance to be the leading brand in PC."

Whether Lenovo could achieve that goal depends on whether it can add new functions and drive costs down, Ward said.

The company spends 1.5 per cent of its revenue on research, about twice the standard rate for the industry. It has plans to set up research centres in North Carolina and Beijing.

The former IBM business posted a surprising profit in the quarter through June, thanks to cost cutting efforts. The entire company reported a net profit of $HK357 million ($66.63 million), up from $HK336.8 million last year when it did not have the IBM unit.

But there is still room for cost cuts. "We can become more competitive," Ward said.

"Our expense to revenue is higher than where I want them to be."

Emerging markets in India, China, and Brazil will be major growth areas. Lenovo's share in the Americas slipped last quarter, partly due to some uncertainties surrounding the merger, but Ward said that has begun to turn around.

IBM's former PC division used to have products that covered 60 per cent of the market; it now expects to expand that to 90 per cent of the market as it adds new products. Its flagship Thinkpad laptops are priced from US$500 to US$3,000, covering small businesses to large enterprises.

While IBM's stable black Thinkpads are a staple for corporate road warriors, Lenovo's colourful laptops are directly marketed towards consumers. It cornered the market in China, the world's second-largest after the United States. Analysts said the two businesses seem to complement each other well.

"IBM had a broad but relatively thin penetration, selling pretty much exclusively to commercial companies," said Roger Kay, president of Endpoint Technologies Associates.

"The two companies are rather different in their backgrounds and there was not so much overlap."

Cross-borders mergers are notoriously difficult to carry out. The Lenovo-IBM deal is particularly challenging because the drastic difference between East and West cultures.

IBM has used to think globally, but Lenovo makes decisions that target specific customers.

During early meetings, Western managers were very engaged in the discussion while people from China were generally quiet. When they speak, they tend to ponder, sometimes resulting in five-second pauses.

"We are teaching our Western colleagues to be comfortable with silence in a conversation and Chinese colleagues to be 'rude,"' Bill Matson, vice president of human resources, said in an interview. "Now the conversations are much more inclusive and folks from China are more forceful."

- REUTERS