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Analysis IBM's decision to sell its PC business to Chinese manufacturer Lenovo in 2004 seemed rather curious.

Yes, hardware wasn't quite as profitable as software or services, but this was years ahead of the recession, before the advent of the iPhone and iPad; sales of PCs were ticking along and the imperial success of the netbook was yet to come.

And while IBM didn't sell Lenovo a lemon at the dawn of the noughties, eight years later, China's PC maker finds itself in a challenging situation.

Worldwide sales of PCs are falling but Lenovo's sales seem to be falling more slowly than those of its rivals - to the point where, depending on whether you believe the numbers rattled off by Gartner or IDC, Lenovo is now the world's number one or number two seller of PCs. Its closest competitor on the PC sales front is Hewlett-Packard, which took the second spot in Gartner's list and first place in IDC's.

But there is a problem.

At the top end of the computer and devices market there's high-priced competition from Apple, thanks to the iPad. At the other end is everybody else, each firm aiming its gear at the mass market and competing ruthlessly on price.

The mass market is the traditional playground of PC makers; they have long argued that Macs are for computer snobs, who are keen lighten their bulging wallets by paying the Apple tax.

However, current market forces are eating low-end players alive - making the top end a lot more attractive.

In the world of mass-market PCs, which Lenovo and pals have called home for so long, sales aren't just falling, the value of what's being sold is too - and profits and margins are being squeezed to their limits. Just last month Gartner had to re-forecast predicted IT spending in 2013 taking $40bn off its initial forecast, because more low-priced devices are entering the market and being bought.

The prime culprit is Google's Android, an operating system that comes minus the licensing tag - a fact that means PC- and device-makers get a cost advantage in manufacturing that they can pass on to the consumer.

In some ways this helps, as margins are squeezed, but Android is also the cuckoo in the nest, which is eating PC-makers from the inside out on price.

Lenovo's answer is to re-organise into two business units to sharpen focus on the high and low end; it is currently re-organising into The Lenovo Business Group and the Think Business Group.

Lenovo chairman and chief executive Yang Yuanqing calls this a "defence + attack double fist strategy” that will see Lenovo “maintaining gains and continue to achieve new breakthroughs".

The Lenovo Business Group will offer "mainstream consumer and commercial desktop computers, laptop and [a] tablet computer business" and "global expansion" for the Lenovo's smartphone and other connected devices like Smart TVs, which are also starting to run Android.

But it's already an aggressive market - this is the market Gartner reckons is being driven down on price, thanks to Android.

But the Think Business Group is in with a chance to grab a bit of that high-end loot. TBG is home to IBM's best recognised PC brand: the Think Pad.

The problem for Lenovo is the same problem that has afflicted every company that has launched a product aimed at the iPad market. It's the problem that has already hit Research in Motion, Motorola and HP - all of which believed it was sufficient simply to launch their own tablets and hope that the dollars would follow. But the dollars didn't follow and each company was left embarrassed. The problem is: you can't just turn up and expect people will be dumb enough to forget Apple.

Over on phones it has been a different story, as Samsung has learned... The South Korean company has buried the iPhone with the Galaxy. This is the model Lenovo must follow. Samsung, like Apple before it, succeeded because it delivered compelling and polished products that changed the market while being reliable and dependable.

The question is whether a PC maker like Lenovo, like any OEM over in Silicon Valley, has the creative mind and the flexible design and manufacturing processes to break out of the PC assembly line business. No redrawing of the corporate reporting lines will provide these. ®

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