Lenovo Soars on Business Customer Sales

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If you ask a random person on the street, “Who makes ThinkPads?”, they will probably say IBM, but the truth is that Lenovo is the mighty company responsible for transforming ThinkPads and IdeaPads into some of the best PCs on the market. Several years after buying the IBM PC business, Lenovo is now the number two PC maker in the world. How did they do it?

Six years after the Chinese PC vendor Lenovo Group Ltd. acquired the PC business from IBM, it is now the number two PC vendor in the world, behind only HP. It took a while to get there, but the company did it by using a different tactic than one-time insurgent Acer.

For the fourth quarter of 2011, Gartner puts Lenovo in second place, with 14 percent of the worldwide PC market and 23 percent year-over-year growth. HP remains in the lead with 16 percent market share, but its sales fell 16.2 percent, undoubtedly due to residual problems from its ill-advised threat to spin off its PC business earlier in the year.

Acer is down to number four, with sales down 18.4 percent year over year. For a time, Acer was the number two PC maker behind HP, according to Gartner, buoyed by the rush to netbooks. But netbooks fell out of favor as fast as they came, thanks in part to lower-than-expected performance and the arrival of tablets like the iPad.

Also, Acer went the cheap route and targeted the mass market with budget laptops. Acer suffered for it with high return rates and an unfavorable reputation online for low quality and poor reliability. Lenovo, on the other hand, has maintained high product quality with top-rated notebooks like the ThinkPad T420 and ThinkPad X220 while focusing primarily on businesses, both enterprise and SMB (Small and Medium Business).

“[Lenovo] are taking sales on the professional side of the market, and the professional side is very stable with consistent growth because of the PC refresh cycle,” said Mikako Kitagawa, principal analyst at Gartner.

The difference, though, is Lenovo has lower margins than HP and Dell and can live with it. Dell and HP need at least 5 percent margin, but Lenovo can dip as low as 2 or 3 percent, Kitagawa explained.

This helps Lenovo compete on price without sacrificing quality, something people expect from the ThinkPad line of laptops. “Dell and HP have an expectation from the shareholders. Lenovo does too but it’s different. In the U.S., a public company is expected to make profit for their shareholders. Japanese and Chinese public companies do not have that kind of mission. They are more aggressive on pricing. Their intention is to expand their market. They really want to gain market share,” she said.

Lenovo also made significant gains in the SMB market by building a significant channel partnership over the past six years. It used to be dependent on IBM’s Global Services unit, but they started their own service organization about five years ago and they did a good job of establishing their own channel program and building relationships with channel partners, said Kitagawa.

“It took them a while to get to this level, but by looking at the results, Lenovo established a pretty good presence in the channel so far,” she said. She added that Lenovo has not ended its relations with IBM, it just is not solely dependent on the group.

The outlook for 2012 is a bit murky, given the economic state and the disruption of hard drive supply due to the floods in Thailand, Gartner expects the PC market to be negative when compared to 2011, at least for the time being. One thing is for certain, businesses and business-oriented consumers are more aware of Lenovo and its ThinkPad and IdeaPad notebooks than ever before.

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