My editor in chief, Larry Dignan, wrote an excellent analysis this morning about the challenges that Lenovo faces in an industry with ever-decreasing margins, a large set of hungry competitors, and also the difficulties in integrating its most recent $5.21 billion worth of acquisitions, namely IBM's System X server business and the Motorola Mobility smartphone/tablet business that was previously owned by Google.
Larry cites time to digest these companies as well as supply chain savvy as potential impediments to continued growth and increased marketshare. I'm just going to bellow a big buddha belly laugh and state that if these are Lenovo's biggest problems going forward, then they are good problems to have.
I also have to dismiss the supply chain statement outright, as Lenovo, for all practical purposes, is an extension of the Chinese industrial complex itself, and while it is not currently anything like Apple or Samsung in the smartphone or tablet business on an international scale, it manufactures a heck of a lot more PCs than either of those companies combined.
So, no snark intended, but I think it knows something about large-scale supply chains and dealing with manufacturing in China.
In May 2012, I made the following statement in my article Post-PC era means mass extinction for personal computer OEMs:
The biggest hurdle the PC OEM industry will have to face is the inevitable and painful consolidation. This is a process which began 20 years ago, when there were literally at least a dozen Tier 1 manufacturers as well as scores of Tier 2 and white-box vendors. Many of those companies no longer exist today, due to mergers, acquisitions, and companies simply going out of business.
The white box and system builder phenomenon is also in danger of disappearing entirely, much to my own remorse.
Lenovo is likely to usurp HP as top PC dog within the next two years, because it is not as fat a company, it's a virtual subsidiary of the Chinese government with huge domestic demand for its products, and has done well diversifying into Android and Windows tablets in addition to smartphones.
I think that statement stands as true now as it did then. Lenovo has home court advantage, and out of all of the PC companies, it is the most organized, with the clearest vision. It is also, in my opinion, the best prepared for industry consolidation and is the prime consolidation change agent itself.
And if you compare it to its industry peers, it has the most complete portfolio of products. Let's have a quick look at this.
|Vendor||Bus. laptops||Bus. tablets||Desk.||Serv.||Cons. tablets||Cons. laptops|
|White Box OEM||•|
|Note that (X) means "difficult to classify"|
You'll see that I have marked specific categories for some of these vendors with an (X) because they don't precisely fit in the category.
Microsoft and Amazon aren't server vendors per se, because they have cloud IaaS and PaaS offerings.
Panasonic, while producing enterprise-grade tablets and laptops, doesn't fit the traditional mold because its ToughBook line has a distinctly vertical slant.
Microsoft's Surface Pro also defies easy categorization as either a business laptop or business tablet (it's kinda both), and the iPad, while frequently brought into business settings, isn't a business tablet per se.
Lenovo is now the only company in the entire industry that hits every single product category across business and consumer computing. Hewlett-Packard comes close to matching its portfolio, but currently lacks a smartphone business.
Lenovo has the very same "cool" or "sexy" factor as it applies to business hardware as Apple does for its consumer products.
HP and Amazon may very well end up having smartphone businesses sometime in the future, but that is simply conjecture at this point.
Dell can also be said to be hitting most of the categories, but has a much more focused product selection than HP, and now that it is gone private, is aspiring to become leaner.
Both Apple and Sony intersect on the consumer and enterprise side of Lenovo's business, but even when given the benefit of the doubt on this chart, I have difficulty calling Sony an enterprise player.
While both of these companies make "prosumer"-class laptops, much more MacBooks end up being used in enterprises than Vaios. But with Lenovo's help, this could change soon.
(Editor's note: 2/6/2014 SONY has sold its VAIO PC business to Japan Industrial Partners for an undisclosed sum. We've altered the chart to reflect this.)
Asus also shares many product categories with Lenovo, but many of its product offerings do not exist in the lucrative North American market. Its PadFone, for example, will only become available in the US later in 2014.
Asus' "business" laptops, like Sony's, are essentially spec'ed-up versions of its consumer offerings, and its servers effectively have no presence here, either. Much of the same could be said for Acer's products (such as its smartphones), as well.
HP is clearly Lenovo's main competition now. To me, HP's challenges are much more serious than the ones Larry Dignan brought to light for Lenovo earlier.
As of its last earnings report for Q4 2013, the company's overall revenue is down, of which a poorly performing software division is a contributing factor. We'll have a more accurate picture when the company reports Q1 2014 earnings at the end of the month, but I'm not expecting a miracle turnaround.
HP is a much larger company overall and has other divisions that Lenovo lacks, such as services, UNIX systems, enterprise storage, networking equipment, and printers.
So the overhead that HP has to deal with is considerable, not to mention that the company also has to manufacture its hardware in China and also compete in the same supply chain in which Lenovo has a home court advantage, along with a huge, built-in domestic market.
It shouldn't go without mention that in addition to the retail channel, historically, Lenovo has sold desktops/laptops to IBM's customers on large software and services deals, and now, presumably, it will do the same with its (formerly IBM's) x86 servers. And in addition to IBM, it also has a strategic partnership with EMC.
In other words: Lenovo gets the benefit of having access to the same portfolio of things that HP has, without the baggage of actually owning them.
So if HP is going to have a rough ride when facing competition from Lenovo, we can surmise that a number of other also-rans on this list are also going to hit some serious turbulence. As I said back in May 2012, consolidation is an inevitability, but as to how that plays out eventually is anyone's guess.
So that gives us a complete competitive landscape. But there's another aspect to Lenovo, which I think is an intangible asset the company possesses that is perceived but not necessarily recognized offhand: Lenovo has the very same "cool" or "sexy" factor as it applies to business hardware as Apple does for its consumer products.
In a very practical sense, Lenovo is "yin" (dark) to Apple's "yang" (light) if we are to use a Chinese Daoist philosophical analogy. Hey, it's Chinese New Year and I'm fresh out of horse jokes. Let's run with it.
Like Apple, Lenovo has an instantly recognizable industrial design, which in every sense projects "executive" and "well engineered" with many of its products, particularly the ThinkPad line, which it bought from IBM in 2004.
There will almost certainly be a great deal of crossover of that industrial design, once the Motorola acquisition is complete and there is unified branding. With crossover sales of those product categories to its target audience as well.
There are other companies on this chart that are certainly business oriented, but they lack Lenovo's unique, jet black, this means business, "I drive a Cadillac CTS and have a key to the executive washroom" Amex corporate card-carrying and airline clubbing je ne sais quoi.
OK, that was French, not Mandarin, but you get the picture.
Is Lenovo's ultimate strategy to becoming top dog in PCs, mobile and enterprise by being yin to Apple's yang? Talk back and let me know.