Lenovo North America Chief On Why The PC Business Is 'On Fire' And The Intel CPU Shortage Impact

Zielinski On The Record

Lenovo has been seeing a resurgence in the U.S. PC market in recent months, capped off by fourth-quarter unit sales that rose 23.4 percent year over year, according to Gartner. Helping to oversee this turnaround for Lenovo—the No. 3 player in the U.S. PC market behind HP Inc. and Dell—has been Matthew Zielinski, who took over as president of Lenovo's North America PC and Smart Devices division last February. Following upheaval in Lenovo's channel business in 2017, Lenovo rolled out an array of measures in the channel last year with the intent of spurring growth in the North American PC market. Now, "the [PC] business is truly on fire," Zielinski told CRN last week. "The channel was an enormous part of that. If you look at our SMB growth alone, on a year on year basis, we were near triple digit percentages. That just speaks to the vote of confidence and the renewed vigor in the channel."

Last week, Zielinski sat down with CRN during the CES 2019 tech convention in Las Vegas, where Lenovo unveiled major updates to its PC line including refreshed models of the popular ThinkPad X1 Carbon and ThinkPad X1 Yoga. What follows is a portion of the conversation with Zielinski.

What results has Lenovo seen since you revamped your channel efforts early last year?

The last time we reported was our fiscal Q2 [the third quarter of the calendar year]. And it was a record-breaking quarter for us. As a company, our revenue was up 14 percent year on year. We were the fastest growing PC manufacturer on the planet. And for North America, we were also the fastest growing PC manufacturer. The business is truly on fire. We're very proud of those results. The channel was an enormous part of that. If you look at our SMB growth alone, on a year on year basis, we were near triple digit percentages. That just speaks to the vote of confidence and the renewed vigor in the channel.

Our [customer] acquisition business in corporate is exceeding our expectations. What we're finding out is, when people can try Lenovo products, they're buying them. So our acquisition engine is working. We've taken almost 400 basis points of share since [in early 2018], from 11.8 percent to just south of 16 percent in North America. And we're just getting started.

Are you expecting to be able to keep up this pace of growth from here?

We're back to looking at 25 to 50 basis points [0.25 to 0.5 of a percent] of share sequentially each quarter. We went fast out of the gate, which is good to see. We made progress in certain areas [during the last quarter of 2018], but if we don't take another 100 basis points of share--we hold flat--I'd be very happy with that. I would be very confident that we get back on the "beast mode" path--which we discussed when we first started this--for our fiscal Q4/calendar Q1 and beyond.

How is Lenovo comparing to competitors on innovation?

For our ThinkPad X1 Carbon product, we're in the seventh generation of that, and we're not standing still. We made significant improvements on a year on year basis. It's still the thinnest and lightest 14-inch business notebook on the planet. Part of it is that while it's always had carbon fiber, one thing we've done is that we've put the carbon [on the outside] like you see on a fancy sports car. It truly is just sleeker than it ever has been. One thing we're proud of is, not all of our innovations are our own ideas--we've taken a lot of customer feedback to make this generation of X1 better. One of the things our customers are telling us is that they want to use the notebook as a Skype device. So we doubled the speakers, we used Dolby Atmos, we put four far-field microphones in. We think it's the ultimate client device in terms of Skype.

Security is a big one. We now have a shutter for the webcam, ThinkShutter, instead of putting a sticker across your HD camera. Privacy -- we have a very good solution there, called ePrivacy, that digitally masks that image so others can't see it and only you can see the image. [X1 Carbon] is our flagship product--it exudes quality and innovation, and it's still on top.

How are premium products important to the efforts with your channel partners?

The premium business in the channel is off the charts. It's all about getting people to touch our products--and if they do, they buy them. And obviously taking X1 Carbon and all of our premium ThinkPad products to market, that's what our partners love the most, that's what they like to sell the most. Everybody likes to sell high end, all of our best flagship-type products. The demand for premium products is extraordinarily high.

Overall what are your priorities for partners this year?

We've got to keep the acquisition engine going for corporate. Our education business is very good, but you're going to see us take a huge swing in state and local government, and higher education. And our partners are already aware of that. We remain 100 percent focused on the channel as our SMB engine. We couldn't have had more success in the channel if we tried last year in that vector, and it really is, "let's just keep doing what we're doing in SMB." I think you're going to see us pay a lot more attention to growing our workstation business in the channel, and to growing our services business in the channel. Last year we made some apologies, and we made a lot of promises. We showed a new strategy, and we said we're going to revisit it when we meet at Accelerate [Lenovo's partner conference in May]. And we're going to do that. But I really think we've made some good progress.

What changes in particular have resonated with partners?

The team has done a very thoughtful job of redesigning the entire program. We've created "tier envy" by having partners earn their way in [to higher tiers]. With partners that are more invested in us, comes greater investment. That was very intuitive and very smart for us to put in play. I think we really took a lot of feedback to heart from [last year's] Accelerate. We've done a lot of due diligence for getting our deal registration process right. I'm looking at how we price, and ease of doing business, and having it not take two days to get pricing to partners. We're down to 24 hours-ish for turnaround time for quotes, but we still have to get better. So it's not like we're perfect--we have more work to do. But I think we've really taken all the feedback to heart and made significant improvements in all those vectors.

What do you want partners to know about the workstation opportunity?

We've got fantastic products--we've got the best portfolio we've ever had. That is an area of investment for us. The market is primed for it, customers like it. So that will be an area of significant focus for us this year. We're very under-indexed, and we have a very solid product line. Our go to market rhythm there is largely channel-based, and a lot of our channel partners have robust business [in workstation] with namely one other vendor. But they're very keen to embrace us and have more competition. Really, it's a matter of getting focused. We've made programmatic changes that brought hyper focus to the main parts of our business, so I'm 100 percent confident that as pay more attention in the next fiscal year, that we'll start to get a lot more mindshare around workstations.

How is the ongoing CPU shortage at Intel impacting Lenovo and its partners?

It's having an impact. It's not over yet. Having been a silicon guy for most of my life [at AMD], building silicon is a challenge. These things happen. We're still committed to Intel as a partner. But I don't think we go back to business as usual until the second half of this calendar year. I think Kaby Lake Refresh is getting a little bit better. I think we're still going to have challenges on "small" core--Gemini and Pentium. I think that will bring some challenges to the market for the first half of the year. But one of the things we did early on last year was we put a category re-organization in place, and they have been planning for just such a dynamic for several quarters in a row. Based on alternative offerings with AMD, and alternative offerings specifically for Chrome ARM solutions, we have a lot of good options that will allow us to offer alternatives to our customer base. Does it create a lot of work? It does. Does it impact the industry? It will. But I do believe that we are in a really solid position.