Q: You and I came up through the company at a time when IT said, 'Here's your desktop; here's your laptop.' Are we past that point? Are IT shops going to standardize anymore or give a portfolio of things to choose from?
A: I think there will be different solutions. We don't have a one-size-fits-all environment any longer. I think some people will try bring-your-own-device and drive more to the cloud as the way they handle that environment. I think some people, on the other hand, are going to still have [corporate-mandated] devices, because they have a very secure, managed environment and can't take any risks.
You have two ends of the spectrum, right? Everyone in between is really going to be grappling with what flexibility to give people to choose their devices. And I think you're really looking at multiple devices. I think tablets are clearly going to have a market. There's a category of convertibles that is going to address people who want to use a laptop, but sometimes want to use a tablet, but don't want to carry two devices. I think all-in-ones have continued to make a bigger and bigger presence with the desktop market, and allin-one plus a tablet might be the solution for a lot of customers. We've seen different choices and different combinations.
We're in a world of multiple choices and what we need to do as a device provider is to make really cool devices and allow our products to be flexible enough so that I just don't have ThinkPad for the locked down, secure environment. I just don't have IdeaPad over here. I need to make sure I've got devices that span the continuum.
Q: So while you guys do well, the overall PC market has slowed down. We're seeing some of your competitors are actually declining in share and in sales. Do you expect over any time in the near term that we'd see a consolidation amongst some of the larger PC manufacturers?
A: I think you've already seen some of that. We purchased NEC, which was the number one player in Japan. We purchased Medion in Germany. We purchased CCE in Brazil.
If you are asking about consolidation among the top two or three providers, I don't see that happening from the standpoint that you run into regulatory and antitrust issues in certain markets. I mean you just do the math and you start combining certain players and certain geographies -- either the U.S. government is going to say hold up, that position is too strong, or you go to Europe and the EU looks and says hold up.
I'm not an antitrust expert or lawyer, I have no background in that, but when you start approaching the 35%, 40%, 50% market share level of combinations between players, [regulators] start to push back. Also, if you're going to do an acquisition, it's about scale and efficiency. If you were not able to keep, say, half of a company [in order to get a deal approved], that reduces the benefits of scale and efficiency. So I don't think we'll see the top players coming together
Q: Lenovo has a stated strategy of rolling out new products in China first and then bringing them out to the rest of the world. How does that benefit buyers in the U.S.?
A: In the categories that we play in in the United States, we roll out products around the world at the same time. If you look at my notebooks, desktops, tablets, the U.S. is either first or at the same time as China. So there is no strategy to bring our core products for the U.S. to any other market sooner.
We do have other categories of products that I don't sell in the U.S., and for good reason. I'm not big enough. We are 35% of the PC market in China and number one by a wide margin. They need different categories of products to bring to market. They have the right distribution presence, the Lenovo stores, the channel partners, the direct sales coverage. It makes sense to add categories like smart TV, smartphones, etc. Smartphones and smart TVs are consumer-oriented devices. I need to get my share presence and my brand presence up in the U.S. first. When I get 15% market share in the U.S., it makes sense to add those categories.
Eighteen months ago we were in about 400 retail stores. This holiday season we'll be over 4,000 retail stores. I've got the breadth of retail. What I need to do now is get the depth of the relationship with the retail partners -- i.e., my share of their business goes up. What works is [when] I've got a deep breadth of PC products -- from entry price points through $999 -- on the shelf and you're doing good volume with that. Now you're building up your brand so people know who Lenovo is.
We started [a brand campaign] a year ago this past May, so we've had about 15 months in market. In that timeframe, I've seen my consumer [unaided] brand awareness go up 3x and my SMB [unaided] brand awareness went up 4x. This past summer we signed the NFL Partnership to be the official supplier of PCs to NFL and I'm going to tie my brand to the NFL very tightly, because it is the premier sporting league in the U.S. We're going to do a lot of advertising this fall around NFL games, post the Windows 8 launch. So Monday night, Sunday night, Thursday night and through a lot of the digital media, we're making a big investment with the NFL. We believe that will continue that unaided brand awareness going up.
But I want to get in the top two or three in unaided brand awareness. I want to get a deeper relationship, and when that happens I'll be the first one pounding on [Lenovo CEO] Yang Yuanqing's door saying: 'I need smartphones. I need smart TVs.'
Q: We shouldn't expect smartphones in the U.S. from you any time soon?
A: Well, my job is to get to that point sooner rather than later, but no, it's not going to happen this holiday. It's not going to happen next quarter. The point is, and I've been honest, I've been pushing the company back, saying -- look, I don't want those products yet because I want to make sure that when we launch we do it right. We have to have the right distribution presence and we have to have the right brand equity for me to enter a new category.
This is not an extension of our ThinkPad brand into some other market, right? This is coming into a whole new category with a whole different set of competitors and you've got to put the right foot forward. You've got to have the right value proposition and a deep enough relationship that when you go to market with somebody it's not a pure price play for you to get on shelf. There are certain things I need to do first in the U.S. market with my team to set the environment and lay the framework and the foundation to do it right longer term.
Q: Let's talk about servers. What should people expect from you in the server market?
A: This is a multiyear journey of building our own server portfolio. I'm very excited about servers. I think there's a huge opportunity for us in servers. We signed a partnership with EMC to become our storage partner, and frankly also help us make sure that we're designing that systems management layer that sits on top of the servers to be fully interlocking and cooperative with their storage platforms, so we can provide a seamless experience. We're going to embed our servers in EMC over time.
We've just signed a partnership with Avaya to embed our servers in the Avaya products. So what you're going to see for us is starting the journey this year and continuing to build out that portfolio of products to really address the core towered rack server market.
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