Recent financials from some top tech players haven't brought much good news about the PC market, but Lenovo is bucking that trend in a big way. The China-based multinational is gobbling up market share and is now neck-and-neck with Hewlett Packard Co. for leadership in overall PC sales.
For our CEO Interview Series, Chief Content Officer John Gallant talked recently with David Schmoock, President of Lenovo in North America, at IDG Enterprise's CITE conference on consumerization of IT in New York City. Schmoock, who had hosted the launch of a slew of new Windows 8 and hybrid laptop/tablet products the night before, discussed how Lenovo plans to help enterprises deal with the bring-your-own-device tsunami.
He also talked about why Lenovo is opening a manufacturing plant in the U.S. and the potential for major consolidation in the PC industry. Schmoock, once Lenovo's CIO, discussed the company's expanding server strategy and explained why you shouldn't expect Lenovo's smart phones to be sold in the U.S. any time soon.
For more detail on the Lenovo announcements referenced in this interview, read Lenovo announces new Windows 8, RT hybrid laptop/tablet devices. For more about the CITE conference, go to www.citeconference.com.
Q: We're talking at an event all about consumerization of IT. You play in both the consumer and enterprise markets, how do these come together for Lenovo?
A: I'm glad you brought up the consumerization of IT. We've heard that loud and clear. What you will see from -- and we'll take the ThinkPad Twist [an ultrabook that converts to a tablet] as a prime example -- is trying to provide the core things IT professionals love about Think, but also adopting more consumerization trends.
ThinkPad Twist is a cool-looking form factor, it's more social-media friendly -- all those things that people use in the consumer ecosystem, you're trying to bring those things more into your professional environment. We're adapting more of those consumer-friendly trends at the same time still building out a core ThinkPad machine that the IT professionals need around reliability, durability, manageability, security. All those things they care about in their day-to-day life in the IT world, but at the same time addressing what the consumers want.
When you talk about consumerization, you have to design for two different markets. We have to make sure the guts of the machine appeal to the IT professional, things the end user may not see, but at the end of the day the IT professional cares about. At the same time, making the outside and appearance and the way the user interface works appeal to the end user. So you have to merge the combination of the two. When we're successful at doing that, which I believe we will be, that allows us to take our business to the next level.
Q: When it comes to strategy in the enterprise, how do you differ from competitors like Dell and HP?
A: Three years ago in North America, we came out with a channel-first strategy. At that time we were tiptoeing between the channel and being direct. It was clear to us, with Dell being a very direct company and HP traditionally channel but moving more direct, the opportunity for us was to really embrace the channel.
So we came out with a few principles at the time. We want to be consistent, we want to have simple programs and we want to be predictable. What that meant was we went from roughly 27 to 30 channel programs down to about ten.
Consistent means people can bank on the programs being there. We're not changing them. I'm not coming up with the program of the month or the program of the quarter. Consistently in and out, they know how they make money with us. In our business a lot of the channel players, especially on the hardware side, live on let's say lower margins than let's say other products. So that consistency and predictability allows them to really make decisions internally to grow the business with us as a partner.
Predictable means I'm not going to yank things away from them. So when you had the hard drive crisis last year -- which was not a man-made event, it was a catastrophe -- but the point is we didn't take any channel programs away from the players. We just stayed predictable, consistent, we're there.
And for us it resonates. Three years ago about 65% of our business went through the channel and now we're up to between 85% and 90% of our business goes through the channel. We still have some direct, but that's more for large global customers.
In that same period of time we went from number seven to number four in U.S. market [share] and for the last 10 quarters we've been the fastest growing player in the U.S. PC market. It could be coincidental, but we really feel that change in strategy has been the catalyst to allow us to have superior-to-market results over the last three years.
Q: But how does that benefit enterprise IT? What does that bring to them that a Dell or an HP doesn't bring to them?
A: It allows us to focus on bringing the best solution in the ecosystem. Focus on what we do well and allow the channel partners to do what they do well. So while we do do services, and services is a key part of our business, we're trying to do services that are close to the box that makes sense to do coming off the factory line, such as asset tagging, image loading, damage protection.
What we're saying to our partner community is that you really need to build out the services that go beyond [what we deliver] in the factory. And it makes sense for you to do that because you're closer to the customer and you know what they want. You don't need to worry about me competing with you in that environment. We're trying to focus on what we do well and become experts at what we do well. What you've seen is our serviceability rates have gone up. Our time to market in our products has gone up.
We're really focused on listening to customers about creating great products that they want in their enterprise and allowing our channel partners to focus on the services and other aspects of delivering that solution to the customer. If you look at our traction with great partners like CDW over the last couple years, their growth and our growth, they're not only having a wonderful run right now, we're also moving up in our depth of relationship. That's just a great thing from our perspective.
Q: You are battling head to head with HP as the number one overall PC company. What's driving that success? How much is attributable to what you are doing and how much is attributable to the missteps that other companies are making?
A: I really don't focus on other companies. I focus on what we're trying to do well. One is that we're really focused on what we want to be. We still believe there's a ton of innovation in the PC market and so we're investing in product innovation.
Look at the products we've [come out with]. I talked about Yoga 13 [a tablet/PC hybrid], which won best in class show at the Consumer Electronics Show in January. We just celebrated our 20th anniversary of ThinkPad on October 5th. That brings us up a level of product innovation.