At the peak of his crowning glory, Liu abruptly receded to the background, ceding center stage to Yang and Amelio, who were recruited to spearhead the company's overseas expansion. Elated by the success in turning around the money losing IBM personal computer business in three months rather than a year as previously targeted, many senior Lenovo executives underestimated the potential pitfalls in overseas sales.
In the ensuing years, the company was too preoccupied with integrating the IBM business and failed to capitalize on the changing market paradigms.
"Lenovo was too confident and too eager to succeed that it made some faulty strategic decisions," the company source said.
Concentrating on producing the IBM-designed line of desktop systems and laptop computers for business, Lenovo paid too little attention to developing the consumer market which has been growing at a much faster rate than the corporate market since 2005, with an explosive growth in demand for notebook computers. "Lenovo's problem lies in its inexperience in running a globalized company," said Antonio Wang, research manager, Computing Systems Research, IDC.
In the third quarter of 2008, global sales volume of notebooks, for the first time, surpassed that of desktops, reaching 38.6 million units, increasing by 40 percent year-on-year.
Sensing the opportunities, other global computer giants, like HP, Acer and Dell, began focusing on the consumer market two years ago. Lenovo was falling far behind and entered the sector only in January 2008 by launching the consumer-based "Idea" series including IdeaPad and IdeaCenter.
The proposal by some executives to establish a consumer group in Lenovo was raised as early as 2006. But the approval did not come from the head office until late 2007. "The period of 2005-08 was the best time for any computer maker to tap the consumer market," said Ye Lei, senior analyst from Gartner. But "Lenovo let that opportunity slip away, and it is too late to catch up now," he said.
Sales to consumers and small businesses accounted for 20 percent of Lenovo's total, while at Acer, the ratio was 50 percent.
This was not much of an issue when corporate sales boomed in 2006 and 2007. But the crunch came in 2008, when businesses were hunkering down to brace themselves against the onslaught of the financial tsunami, Lenovo did not have a large enough share of the consumer market to help offset the loss in corporate sector sales.
Plans to cut 11 percent of its workforce, or 2,500 jobs worldwide, and reduce executive compensations by 30 to 50 percent has apparently failed to restore investors' confidence in the company's scrip. Lenovo shares tumbled a total of 72 percent, despite occasional recoveries, in the past 12 months. In comparison, Acer shares slipped a mere 7 percent in the same period.
Latest figures from Gartner, a leading information technology research firm, showed that Lenovo's global market share, at 7 percent, has slipped to the fourth place after HP with 19 percent, Dell with 13 percent, and Acer with 12 percent.
Company executives and stock analysts interviewed for this story attributed Lenovo's problems to a clash in management culture between the expatriate and local executives, resulting in a confusing corporate strategy that confounded insiders as well as observers.
"Under the previous leadership, the corporate strategy has been unclear and there is no idea about what should be given priority," said the source.
Frank Chen, CEO of Interbrand China, agreed. "It seems that Lenovo had not clearly explained what the company's strategy was and what it was focusing on to help itself stand out," he said.
In April 2005, just a few months after the acquisition of IBM's PC business, Lenovo relocated its global headquarters to New York, effectively setting up two operation centers, one in Beijing and the other in the US. Company insiders said the New York headquarters had sapped the strength of its operations in China.
"Lenovo did lose some of its advantage in the Chinese market in recent years. It's not because it did something wrong but some of its competitors did something right," said Simon Ye, an analyst from Gartner.