BEIJING -- During a sultry August in Beijing, local PC giant Lenovo was kicking the heat up even higher on a struggling Dell ( DELL). In less than a month, Lenovo has poached nearly half a dozen of Dell's key Asia executives -- a move likely to bolster its standing outside its home market and deal a setback to Dell. The incoming Lenovo hires, all announced between Aug. 17 and Aug. 31, include:
Lenovo CEO Bill Amelio came from Dell, it's within expectations that he would take some of his troops to the new company. But the surprise is how many people have left, which is obviously symptomatic of the problems Dell's having." Indeed, the defections come as Dell is struggling with a string of disappointing quarters and an embarrassing battery recall announced in August. Meanwhile, Lenovo, which closed on its acquisition of IBM's ( IBM) PC business in May 2005, seems to be gaining momentum. The top-ranked China PC outfit, which last year moved its headquarters from Beijing to Westchester County, N.Y., beat Wall Street expectations in its fiscal first-quarter earnings report in August. It reversed the prior quarter's loss with a slim $5 million profit, including restructuring charges. Sales of $3.5 billion were up 38% over year-ago levels. The string of staff defections from rival Dell stands to further boost Lenovo's morale.
- David Miller, formerly president of Dell China, will become president of Asia Pacific for Lenovo.
- Sotaro Amano, new president of Lenovo Japan, had been corporate director of Japan home and business sales for Dell.
- Gerry Smith has been tapped as senior vice president of Lenovo's global supply chain; previously he ran Dell's design center and displays business unit in Singapore.
- David Schmoock will lead a new Lenovo organization focused on supply/demand forecasting, pricing and sales strategies, leaving his old role as Dell's vice president of marketing for Asia-Pacific/Japan.
- Christopher Askew has been named senior vice president of Lenovo Services, after serving as vice president of Dell's services unit in Asia-Pacific/Japan.
"Hopefully it's reflective of how much potential Lenovo has in this industry," says Morgan's Ma. The infusion of executive talent could also give Lenovo a lift outside its core China market, which accounted for 48% of its PC shipments in the second quarter. Excluding Japan, Lenovo easily claims the lead spot in Asia Pacific market share, with 19.9% of the PC market in the quarter, according to IDC. Hewlett-Packard ( HPQ) is second-ranked, with 12%. But strip out its China business and Lenovo falls to a distant fourth place in the rankings, with just 6.2% of market share in Asia, excluding Japan. The ex-Dell staffers are clearly intended to bolster Lenovo's business in both southeast Asia and Japan. Four of the executives will be posted in Singapore, with the fifth based in Tokyo. "At the end of the day, Lenovo is clearly making long-term investments to grow outside China," says Bryan Ma, a Singapore-based analyst for IDC, speaking of the Dell exodus. That's appropriate, given Lenovo needs to focus on improving profitability beyond its home turf. Lenovo's operating margins in China proper are a sterling 7.5%. But other geographies weigh on the bottom line: The company's global average operating margin (including China) hovers at a mere 1.5%, trailing the industry benchmark of 4.5%, according to Deutsche Bank.
"There's a lot of low-hanging fruit in terms of efficiency gains outside of China," says Deutsche Bank's William Bao Bean. Bean has a buy on the stock, which he sees as a turnaround story. Others remain cautious. On Wednesday, Citigroup analyst Kirk Yang reiterated his sell rating on the shares. Yang said he expects more progress in operating margins as Lenovo cuts expenses -- in March, the firm said it would lay off about 5% of its workforce, or 1000 employees. But Yang wants to see evidence of sustainable profitability in U.S. operations before he turns more positive. On that front, Dell's willingness to initiate price wars looms as a concern. Lenovo's U.S. business, which accounts for 29% of sales and 24% of operating profits, "will likely see more pressure from Dell in the next one to two years," Yang writes. It's too early to tell how the high-level departures will affect Dell's business. But the loss of its top China hands can hardly help matters for a company that has been trying to goose growth in emerging markets. Morgan Stanley's Ma says there is "potentially some negative impact for Dell's Asian operations for the next quarter or so." However, Bryan Ma of IDC says Dell's sturdy bench of management talent should help sustain it in the longer-term. "If there would be any negative impact to market share, it would be more in the form of items like the battery recall. There may be some buyers who would be paranoid -- unjustly so -- and afraid of Dell
laptops , but that would just be temporary."