Lenovo has been using sport to raise awareness of its brand since its emergence in 2005. It secured the rights to supply the International Olympics Committee with computer facilities for the 2006 Winter Olympic Games in Turin and next year’s Olympic Games in Beijing. It even gained the distinction of designing the torch that will carry the Olympic flame to China.
Earlier this year, Lenovo became the new sponsor of the Williams Formula 1 team. From the Chinese PC maker’s point of view, F1 offers a great platform to show off its technical expertise as well as imbuing an image of speed and reliability.
In its role as a secondary sponsor of the Williams team, Lenovo is proving its technical prowess with the provision of an eight teraflop supercomputer cluster to calculate airflows over the racing car designs. But the main reason for Lenovo’s sponsorship of the Williams team is to raise brand awareness through sponsorship of a high-profile sport in preparation for its assault on the consumer market.
What the company may not have noticed is that F1 currently mirrors the PC market. McLaren and Ferrari are the top teams and are streets ahead of the competition while the minor placings are disputed by the other players. Among the PC makers, HP and Dell are way out in front and constantly vie for the number-one slot, while the secondary race is between Lenovo and Acer.
A success in its native China, Lenovo gained international recognition when it announced its acquisition of IBM’s PC group in 2005. The agreement covered all of the division’s contracts and brand names ­ primarily the respected ThinkPad laptop range along with the IBM tag. The branding deal is set to expire after five years, but Lenovo hopes to throw away the crutch of IBM’s name as soon as possible.
Overnight, Lenovo became a major world player and rocketed up the league tables to displace Gateway from its third-place position. Since 2005, Gateway has waned in importance and has been replaced by Taiwan’s Acer as the thorn in Lenovo’s side ­ a fairly painful thorn for Lenovo at present.
In August, Lenovo revealed it had entered a memorandum of understanding to “explore the possibilities of a proposed acquisition of Packard Bell”. However, last month, Acer burst Lenovo’s bubble when it announced it was to buy Gateway. Gateway then revealed it would exercise its first refusal right to purchase Packard Bell ­ a deep cut that could shred Lenovo’s plans.

Strategy
Speaking at an event at the Monza race track, home of the F1 Italian Grand Prix, Lenovo’s president for EMEA, Milko van Duijl, concentrated on the plan to position the firm’s work with Williams, but could not ignore the buzz about Packard Bell.
“We decided to make an acquisition to help us accelerate [our entry into the consumer market] because we thought Packard Bell fitted us well. We discussed it and reached an agreement and we were in conversation with the owner to see if we could complete that transaction. We still hope to do that; that strategy has not changed.”
Packard Bell was originally the consumer wing of NEC Computers before it was snapped up by Lap Shun Hui, co-founder of eMachines, last October.
The Chinese entrepreneur sold eMachines to Gateway in 2004.
Van Duijl tried to be upbeat, but the legal agreement between Gateway and Packard Bell makes Lenovo’s acquisition attempt unlikely.
“To be number three or four of course makes a difference in terms of the number of units sold and the bargaining or purchasing power. It’s important to try to get to number one and we’ll see how long that will take us,” he said.
“The Packard Bell benefit for us is that we would have an entry into retail straight away. We would gain significant time and we would not need to set it up ourselves. There is a team [at Packard Bell] that has the retail contacts, they have relationships with suppliers and that would be a big asset to us. In Europe, the one market we are not active in is the consumer market and Packard Bell is 100 per cent involved. The fact that it has a good share in that market makes a big difference.”
Market analyst IDC shows that Packard Bell’s share of the EMEA market is relatively humble at just under 850,000 units compared with NEC’s near two million, Lenovo’s two and a half million and Acer’s massive eight million sales. The figures make Acer’s purchase of Packard Bell through Gateway look like nothing more than a cynical attempt at upsetting Lenovo’s grand design.
To some degree Michael Larner, IDC’s senior research analyst for the PC market, disputes that this
is Acer’s sole aim. “The Gateway acquisition is more to do with their position in the US retail channel,” he said. “By adding the Packard Bell element Acer is saying that they’re putting the economy of scale argument together. It gives it a stronger bargaining power with the different component suppliers.”

Key retailers
On the subject of Lenovo, Larner said: “Consumer sales is a hole in terms of Lenovo’s revenue streams at the moment. Packard Bell would have made a natural fit into the western European consumer PC market place and would have given it a leg-up into key retailers such as Dixons Stores Group International (DSGi) with which Packard Bell historically had a strong relationship. Now Lenovo is coming back and saying it’s not a key setback.”
Van Duijl confirmed this at the Monza race track, which is ironically positioned a few kilometres from Acer’s European headquarters on the outskirts of Milan.
“I’m sure Packard Bell would have accelerated our pathway. You look at companies such as Acer and they have grown from nothing to quite a large company in a relatively short time. Retail is a very interesting segment where it doesn’t take many years to get to that starting position. If a firm has a good product, people know about it and it is providing good value for money, there are always some players who will take it on. As a retailer, a firm gets to a certain point where it wants a balanced portfolio; and not simply to end up with HP or Acer. They want to hedge their bets with a portfolio of brands,” he said.
The next step for Lenovo is to strengthen its brand awareness and find its own retail outlets. This is where its current resellers may help. Combined with this, Lenovo already has a connection with DSGi’s PC World chain through having its products carried by the PC World Business division.
“In terms of what it does next, I think Lenovo needs to make a clear evaluation of all of its reseller network base, including the commercial ones,” said Larner. “Can it use them in the SME market, for example? Do they have much of a presence selling to the consumer space? If Lenovo also develops a formal relationship with the Dabs and Ebuyers of this world, it will give it a strong traction in the online channel. Lenovo has to make more effort engaging those types of partners instead of just buying into the consumer market with the Packard Bell acquisition.”

Expansion
Larner stressed that Lenovo has to cash in on its sponsorships. “Lenovo’s sponsorship of Formula 1 cars has to create a broader brand awareness in terms of technology know-how, but also has to make it as a consumer play.
“Thinking about the Olympics next year, it can keep plugging away at getting its name out there, but if consumers can’t get hold of the products it’s going to fall flat. It must do something in the next six to nine months to get some RoI on its outlay.”
Though Van Duijl was not willing to outline exact plans for the consumer market push, he did reveal that the products are “ready and tested”.
“We will start in a few countries and then expand quickly. I think by the second quarter of 2008 we will move outside of the pilots in the first few countries [France and South Africa]. As to which countries we’ll move to next, we aren’t prepared to say. It could be Germany, but a lot depends on the results of the pilots.”
Naturally, the UK is also a major target and the firm will be actively scouting to recruit resellers it sees as major to these important consumer centres. This means that Lenovo may have to bite the bullet on margins.
“It will have to take a hit for the next 12 to 15 months The big retailers ­ PC World and the big hypermarkets such as Carrefour in France ­ are looking for margin and they are not 100 per cent loyal to any particular vendor, which is why Lenovo could get involved with them,” said Larner.
“But the company also has to bear in mind that none of these retailers are actively looking to reposition themselves because support is important. They have to offer support, but maybe Lenovo could offer something as well to tempt them too.”
Another problem though is that Dell appears to be building its own retail assault, initially through Wal-mart in the US. “If Dell is going
for the same space, it’s going to be a tough call for Lenovo,” said Larner.

Specialisation
However, Lenovo is not just feeling its way through a tough world. It has similar humble roots to the garage culture of HP and Apple. Lenovo was born under the name of Legend in a tin shack in China and had to fight to get where it is today. It’s a streetwise firm ­ a point that van Duijl hammered home.
“We are the number-one supplier in China. Half the market is consumer and we have a 37 per cent market share where Dell only has seven or eight, so we are five times what it is in China,” he said.
“Half of our sales comes from the consumer market so we must have been doing something right because consumers in China are as, or probably more, conscious about price than EMEA customers. We have a proof point that in the market we come from we are absolutely hitting the price points. In India and the US it is the same thing.
“Firms need to be competitive and at that competitive price they can still differentiate themselves and be a bit more expensive than the next one. My car may be different from someone else’s because I like specific features in a car. That’s the difference in the Reserve Edition laptop ­ we want to appeal to specific people.”
The Reserve Edition is a leather-bound ThinkPad retailing at about £3,000. It is aimed at the chief executives of this world and comes with an executive service agreement included in the price.
Differentiation of this kind is a specialisation of Lenovo in its home market and will be a key offering in the consumer market. To complement its sports sponsorship, the firm has a red Olympic Games edition laptop. Also in red, is a Coca-Cola model with the drinks firm’s international logos in a bas relief design over the lid. For the younger market there are Mickey Mouse designs and other Disney characters are likely to follow. No doubt a Williams F1 design will soon be on the starting grid somewhere in China.
Acer, on the other hand, will
have four brands to manage: Acer; eMachines; Gateway; and Packard Bell. By simple accumulation based on sales this gives Acer the lead over the competition, but it depends
how this breaks down under Acer’s management.
Having to maintain and position four brands will challenge the firm because many of the products compete directly with one another. Gateway will most likely survive as a well-established brand in the US, but eMachines, Packard Bell and Acer’s own brand all compete in the EMEA market and it is likely that at least one brand will disappear.
Acer takes on Lenovo with $710m Gateway buy