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In a toughening market, Lenovo needs to bring in products that stand out, and yet are priced right

In the midst of their growing animosity, there remain precious few companies like Lenovo, who symbolise the power of American and Chinese collaboration. That bond now stands considerably weakened, for Lenovo, the world’s 4th largest PC maker has got on board Yang Yuanqing, former Chairman of Lenovo as CEO, replacing their American CEO William Amelio, who held the mantle of the firm since 2005. Also, Liu Chuanzhi (who was instrumental in the formation of the company 25 years ago) has taken the post of Chairman.

The reasons, however, are more to do with fading fortunes rather than Sino-US relations. The company posted losses to the tune of $96.7 million as opposed to a profit of $171.7 million during the same period last year. Revenue and sales too dipped to $35.92 billion and $3.6 billion from $44.94 billion and $4.5 billion respectively. The main reason was the dampening of demand in the US and European markets and a weak dollar against a CNY. However, amidst gloomy quarterly results and a recession-stricken economy, a ray of optimism is still beaming across Lenovo as it has got on board their former team of Chinese management. Will focusing on ‘Chinese solutions’ set the distraught PC maker back on track?

“Chuanzhi said that the company would refocus on the China market, and expand offerings for homes and small businesses. The biggest challenge (for Chuanzhi) will be to craft and execute a revised business/product strategy during the current economic crisis,” professes Charles King, Principal Analyst, Pund-IT, Inc. Hitherto, Lenovo’s primary focus had been on enterprise customers, which heavily contributed to losses in the last quarter. “This seems a reasonable response… But it’s difficult to see how consumers and SMBs will contribute significant revenues over the short term,” King adds. The company is seeking the low cost route to return to profitability. Moreover, it has to contend with stronger competitors, particularly HP & Acer, which have gained market share y-o-y by 3.5% and 31.1% respectively in the December quarter, while Lenovo has suffered a decline of 4.5% y-o-y (Gartner).

Concentrating on the Chinese market seems to be a good proposition for the time being as further penetration in the US and European markets in such tumultuous times will be difficult. Explains Rob Enderle of Enderle Group, “No competitor will give up shelf space without a fight and currently Lenovo needs much more retail shelf space.” Enderle opines that Lenovo should follow the Apple model of building high profile products and driving consumers to them. “This approach results in fewer products that will require less shelf space and puts most of the rest of the problems within Lenovo’s control,” avers Enderle. With this kind of pull strategy, Lenovo can gain significant bargaining power over retailers. But it must also realise that it cannot price such ‘wow’ products at a significant premium at the moment, so it needs to balance price and features diligently for the recession hit market.

Savreen Gadhoke

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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