Lenovo is gearing up for a consumer push in the A/NZ region. In an interview with Reseller News Matt Codrington, MD of Lenovo A/NZ describes the shape that drive will take, the products the region might soon see in retail stores and the changes the company foresees in an increasingly commoditised hardware market.
Q: Can you give a brief on the Lenovo business in the region?
Matt Codrington: I joined Lenovo A/NZ about a year ago. I have been with the company for around eight years now. It is a healthy business in this region, especially the commercial segment. In Australia, in a given quarter, we are either number one or two in the commercial segment. ThinkPad is a very strong product.
Here in NZ we do good business with a number of enterprise customers. We have very strong partnerships with key resellers here. From NZ perspective we have an opportunity to grow. In Australia we have got opportunity to grow in the consumer segment. We have not got a consumer business as yet. That leaves us almost half the market unaddressed.
Lenovo has been a very successful vendor in the consumer space globally but in A/NZ it is an expensive business to be in. We want to make sure that we do it the right way. So part of my strategy in the coming period would be to look at how to enter the consumer space both in Australia and NZ, and achieve that market addressability.
We are traditionally quite strong in the education space in both countries, but more so in Australia. As concepts such as BYOD or CYOD come to the fore, that would be a good play for us to be in the retail presence, because that will serve as part of that volume.
Traditionally we have had a more direct relationship with the boards of education with schools - we would continue that. We have got some very strong partners in the education space, but I think we also need to consider the BYOD element. Although we have been very successful in the PC business over a period of time, the intent of the company is to be a connected devices company. So it is about what happens next in terms of tablets, smartphones and so on.
That’s really the focus, to build that part of the business, and branching to the high growth areas for long term success.
In A/NZ we have around 150 people along with support structures.
We have people in Auckland and Wellington. Our head office is in Sydney and we have around a distributed sales force across Australia.
Q: Describe your partner network in the region.
MC: Lenovo is partner centric organisation. We do have some direct relationships driven by our global business. But on the whole, it is more of a heavily weighted channel business than a lot of other hardware vendors.
About 55 per cent of the business in the commercial space goes through the channel. It can even probably be around 85 per cent depending on the quarter and who is buying. It is very important for us to maintain a strong relationship with the channel. We have refreshed some of our channel programs over the last year really to drive more profitability. I think we are all challenged by similar things in terms of the margins within the box. To maintain that longer term relationships with partners we don't have a services strategy to go direct. We are also interested in building the right programs to help drive behaviour and profitability in a client PC sale.
We run promotions with them time to time. We have events like we have today. We have unique support for the channel. We run a platinum certification for our partners around the tools we have. We certify them and then get them to understand and utilise the tools we have. We provide marketing tools where they can essentially leverage deliverables, marketing tools, information tools and customise them to their customers and hopefully drive more demand that way.
We have BDMs and all distributors to go out and support the channel as well.
We have a tiered model where we have direct relationships with some larger partners and then a broader tier 2 structure through distribution. We have three key distributors in Australia and two in NZ. We enable and invest with them to deliver the right programmes but also have a value-added service on their behalf.
Q: Do you have any plans on expanding your partner network?
MC: I am always interested in growing our partner network.
In terms of our managed partners there is a certain level that we will maintain, and that is driven by the amount of business that they do with us. Our unmanaged partners are largely through the distribution channel. We have an acquisitions strategy there. We offer incentives and deals to acquire new partners and have them purchasing Lenovo for the first time. I am very interested in continuing that and driving that a lot harder.
If you look at the partner communities in ANZ we service a fair share of those but we have opportunity to do that better. We try to enable the right tools for even the smaller resellers.
We have got probably the best product in the market. We have got a very strong product in the ThinkPad box that delivers innovation continuously. It is really about exposing a broader partner community to that. So we can get them aboard and keep them aboard.
Q: How will you be driving the consumer business in the region?
MC: We are talking to a number of retail partners now about the right strategy. I think my strategy would be a focused play in retail. I am not going to have a broad distribution across all partners and all products.
There are some products - like tablets - that are already in market and available. But from a pure consumer perspective, what you will see in the next year is a more focused strategy with specific retailers.
We are talking now with them. Nothing is 100 per cent defined or locked. We are talking to retailers both sides of the Tasman. In October last year we launched some products into JB Hi-Fi in Australia. It was a relatively limited release with mainly tablet-based products. The PCs, the Yoga product that has been very successful for us in Best Buy in the US will come this quarter.
We have quite a wide portfolio of products. Some are better suited to some products than others but I would say that we would launch the right set of products to cover most of the markets.
We have a JV with NEC with Japan. NEC produce some really cool innovative interesting products that are only available in Japan. I would even potentially look to bringing some of those to market here. They have got the thinnest 12 inch, the lightest 13 inch, the lightest and thinnest 14 inch. These are more premium products, absolutely, but we may get them out here as well.
I am working on it now. I hope in the next 12 months we will see some products land.
But I think the reality is that we will have to expand not only our product sets but also our retailer base over time to make sure we have got the right market coverage.
Q: With your push into the consumer space, do you see the ratio of revenues between commercial and consumer changing in the region?
MC: Around 90 per cent of our revenues are from the commercial side.
I see our commercial revenue growing. But I also see our consumer revenue growing faster, given that we will be investing in market addressability.
In the commercial and enterprise business we will still continue to see some strong growth. If I look at last year, in Australia and NZ, we grew at quite strong premiums to market. We hold a reasonable position in the commercial space, and yet we still grew much stronger than the market, and that will continue to be our intent in the commercial space.
In the consumer space we can grow quite quickly and that would be my expectation.
Q: How do you see the x86 acquisition affecting operations and the partner network in the region?
MC: As we go through the regulatory discussions and approvals, I am limited in what I could say. What I could say is globally we are bringing in 7500 employees, through the x86 acquisition. We are bringing on more than 3000 employees through the Motorola acquisition. So the team will expand.
When you look at the various businesses Lenovo has some very strong partnerships in the client business, whereas IBM has strong relationships that are different both in terms of partners and customers. So these acquisitions will certainly expand our partner base, both from an enterprise perspective and mobility perspective.
Motorola has a smaller presence here.
If you look at the businesses, the x86 server business for me will become a core focus for me. And the smartphone business will become a core focus for me. So there will be levels of investment there to drive them much faster. And again in the enterprise and headset space I hope that we will see a much faster growth than the market, as we invest in those areas.
Q: How do you see growth from NZ businesses in the near future?
MC: I have had discussions with some of our customers and partners. The sentiment is coming back and reasonably positive. Globally it has been a tough couple of years. The sense I get from partners and customer s is that that they are a lot more positive and bullish on the economic outlook, which will drive business.
Things like XP have driven refresh cycles as we move to Windows 8, Android platforms. Even with commercialisation there are opportunities for companion devices and that is a growth area. Smartphones are a rapidly growing space and we will have some opportunities there. In the commercial PC space the advent of touch and new technologies will drive refresh cycles for us to grow in. And then if you look at cloud computing there is opportunity there to be of service on a different model.
From a partner and customer perspective, you have the possibility of something like the managed desktop where you have an endpoint device, backed up by infrastructure maybe as a service, where customers are paying per seat by the month. How we can go and service something like that is interesting.
And then you can enable very quickly the right devices in the right spaces so you are not tied into that longer cycle with procurement of technology. That will drive bits of innovation in that space and give us more opportunity to almost verticalise the products - with the right touch products, with the right guys in the warehouse, as opposed to the guys in the head office or the guys in the outbound sales force.
Sales automation tools such as Salesforce.com and the various choices out there around those sorts of mobile enablers also give us an opportunity to drive better efficiencies in organisations.
Q: Where do you see Lenovo fit into the managed desktop scenario?
MC: I would like to see the partners drive essentially the end-to-end solution. I think we can provide the hardware in that. We have the ability to help small resellers with financing options, or with programs. The value add has to come from the reseller base for us, since we are a channel centric organisation.
I would love to work with partners that either have a vertical solution in a certain space, be it healthcare, manufacturing whatever, but then a broader solution as well to give larger companies that flexibility. There is an opportunity for them to go and do that, and we would act as a support mechanism and hardware vendor for that.
In the past we have done a couple of managed desktop rollouts.
Q: What are the main challenges for Lenovo going forward?
MC: A challenge for the industry in general is that over time we have seen declining margins in the products as commoditisation sets in. The market itself is flat at best. So I think the challenge for me is to make sure that we are clearly focused on moving towards what we call the PC+ era.
The PC will continue to be the cornerstone or bedrock for our business. It is still a multi-billion dollar global business. So we will remain heavily invested there. But then in the next five years it is about what happens next, and some of our recent acquisitions belie the fact that we are clearly focused on smartphone and tablet space. So the question would be, how do we grow those areas?
When I look at some of my competitors, we have not been that invested in the enterprise space. Whether that be server or services, I think we can have a value proposition to our partners by engaging them to drive up the service side. The IBM x86 server business takes us from number 6 to number 3 globally. We get scale out of there and I can go drive some investment as well.
We get to be more of a serious player in that enterprise space which will drive opportunity for us. The integration is going to be a challenge. But we have got some great history there. We have got a recent rich history of being successful of driving those integrations.
So I don't have any concerns there but it is going to be a big job.
Q: What are your growth targets for A/NZ?
MC: Traditionally, we have grown at more than 10 per cent premium to the market and I think that will continue. We have grown faster than that in the regional view. If you were to check the figures through the past years, in SMB we have grown at 30 per cent premium to market.
There will be swings. But that is a commercial number. Overall we might grow faster than the 10 per cent premium to market given that we are growing the consumer business as well. And from a smart connected devices view we are already the third largest smartphone vendor in the world and we are not in some of the largest markets in the world, and now in ANZ. That is a lot of upside for us.