CheckMag | 20 years ago, IBM sold the ThinkPad: How Lenovo used it to become the PC juggernaut
On the 7th of December 2004, the unthinkable (pun intended) happened: IBM, the godfather of the personal computing industry thanks to its "invention" of the PC, announced that it was leaving the business. The most important brand of computers manufactured by IBM, the ThinkPad, would be made by a Chinese company called Lenovo from here on out - and it still does now, 20 years later. How did this happen? And how did Lenovo become the world's biggest PC manufacturer by volume?
IBM's failure, Legend's chance
Once upon a time, the laptop and desktop computer market was firmly in the hands of US American companies. HP, Dell, IBM and Compaq were the big players around the start of the new millennium. However, change was afoot, as new players from Asia entered the market, like Asus, Acer and Legend - companies that used to manufacturer PCs for the Americans now started to produce them under their own brand name. At the same time, the laptop market started to overtake desktop PCs and prices started to drop, making laptops a staple for many consumers. The PC manufacturers became embroiled in a hard price-based competition.
This was the backdrop to IBM's decision in 2004. The once very profitable PC division was now losing money for "Big Blue" at an alarming rate, as IBM could not compete with the other brands on pricing. ThinkPad laptops had an amazing quality and reputation, but they also were really expensive - the IBM ThinkPad T series started at $2,150 in 2002, which would be roughly $3,800 today adjusted for inflation.
IBM was not willing or able to make adjustments to its strategy at this point, as the company was not interested in maintaining what could be a low margin business at best.
The choice was made to divest from the PC market - but who would buy a business that was losing money instead of making it? Enter the aforementioned Legend, which rebranded to Lenovo as the Chinese company eyed an expansion to Western markets. Before, Legend only sold PCs in mainland China, and mostly cheap consumer PCs at that. For Legend/Lenovo, IBM's PC division was going to be the ticket to the West.
ThinkPad as the key: Lenovo goes big
Of course, when Lenovo started running the show in mid 2005, many people had doubts. Could the inexperienced Chinese company still deliver the quality that IBM was known for? And could they make the business profitable again? Would all development move to China?
As it turned out, Lenovo went about the transition in a really clever way: Instead of the Chinese taking over directly, former IBM managers were put in power over the newly combined company. IBM development centers in the USA and Japan were retained, while ThinkPads were still branded "IBM ThinkPad" for a few years. This eased customers through the uncertainty of the new ownership.
At the same time, Lenovo reduced the manufacturing costs. Expensive, unprofitable hardware options like the IBM FlexView IPS screens were cancelled and a closer partnership with Microsoft was signed, which was signified by Windows keys on the ThinkPad keyboard - IBM was the only manufacturer never to adopt them before. The design language of ThinkPads remained largely unchanged for the first five years of Lenovo's ownership. Lenovo even added new premium-models to the lineup, like the ThinkPad X300 and ThinkPad X1 Carbon. Overall, Lenovo kept ThinkPads around as a well-known brand for the business market, by far outselling IBM and making them profitable again in the process.
With the reputation as the ThinkPad manufacturer, Lenovo also started to expand into the consumer market more. At first, many of the consumer laptops of Lenovo were of cheap quality and mainly designed by the Chinese part of the company. But over time, the Lenovo consumer laptops changed to be a little more like the ThinkPads, adopting similar keyboards and with the quality also improving. Also, more premium consumer brands like Yoga or the Legion gaming laptops were introduced.
In the end, Lenovo made the business work again. The margins were maybe thin, but selling PCs was profitable again. In 2013, Lenovo overtook HP as the largest PC manufacturer by volume, a title it still holds 11 years later. And with the profits and success in the PC market, Lenovo expanded into other areas as well: In 2014, Lenovo bought another US American brand, Motorola Mobility, adding a reputable smartphone brand to its portfolio. In the same year, IBM sold its System X server business to Lenovo, bringing things full-circle for the company.
What the future may hold for Lenovo
With a trade war looming between China and the USA, the fate of this Chinese-American hybrid company is certainly an interesting one. So far, Lenovo has avoided being targeted by the US government, unlike purely Chinese companies like Huawei.
Lenovo's dependence on partners like Intel could also turn out to be a liability - Intel, once the exclusive processor manufacturer for ThinkPad laptops, has long kept its PC partners afloat by paying them subsidies for hardware development. If Intel fails, this could be a big blow to Lenovo.
On the other hand, Lenovo now also produces ThinkPad laptops like the ThinkPad T14s Gen 6 with Qualcomm Snapdragon chips (available over at Amazon) and AMD Ryzen AI CPUs, so it certainly seems like the company is well aware of the need to diversify and get more partners on-board. Unlike IBM, a company which had the manpower, vision and R&D money to be more self-sufficient, Lenovo is dependent on its technology partners. Whether this will turn out to be a strength or weakness for the PC manufacturer, only the future may show.
Source(s)
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Engadget
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