Lenovo Q1 Earnings: A Reality Check for Partners

Lenovo Group's Q1 results, announced in the U.S. late on Aug. 17, beat Wall Street's expectations.

The VAR Guy

August 18, 2011

4 Min Read
Lenovo Q1 Earnings: A Reality Check for Partners

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Lenovo Group‘s Q1 results, announced in the U.S. late on Aug. 17, beat Wall Street’s expectations. Take a closer look at Lenovo’s earnings and you’ll see the company’s business strategy is opposite that of Dell, which reported earnings earlier this week. Here’s the update, and a reality check for Lenovo’s channel partners.

The update…

1. Big Picture:

  • Lenovo said: For the seventh consecutive quarter, Lenovo grew faster than any of the top five PC makers, helping the company to become the world’s third largest PC vendor in total shipments. During Q1, Lenovo’s worldwide PC shipments grew 23.1 percent year-over-year. Comparatively, industry PC shipments increased just 2.7 percent worldwide for the same period, marking the ninth quarter in a row that Lenovo has grown faster than the industry.

  • The VAR Guy said: Those figures are impressive. But revenue growth isn’t all that important if you can’t grow profits. And in this case, Lenovo certainly is growing profits. For Q1, Lenovo’s net income was US$108 million, up 98% from Q1 last year. Impressive.

2. Strategic Moves:

  • Lenovo said: In June 2011, Lenovo acquired MEDION AG of Germany, doubling Lenovo’s market share in Germany. Lenovo also formed a joint venture with NEC, creating the largest PC group in Japan.

  • The VAR Guy said: Lenovo has $3.6 billion in net cash reserves. The VAR Guy wonders: Will Lenovo use that cash for additional strategic acquisitions? Hmmm…

3. Regional Results:

  • Lenovo said: In China, revenues were $2.8 billion, PC shipments rose 23.4 percent, and market share rose 2.3 points to 31.7 percent. In emerging markets (including but not limited to India), revenues were $1 billion and shipments rose 46.5 percent. In mature markets (including but not limited to North America), revenues were $2.1 billion and Lenovo’s PC shipments rose 8.5 percent — even as overall industry PC shipments fell 9.4 percent in the region.

  • The VAR Guy said: Hmmm… sure sounds like the IBM PC Company acquisition has treated Lenovo well in North America. But there are reports today that Apple’s overall revenues in China now exceed Lenovo’s revenues in China.

Product Portfolio:

  • Lenovo said: Laptops generated nearly 60 percent of Lenovo’s Q1 revenues, including a warm welcome for the ThinkPad X1. Desktop PC sales rose 18 percent in Q1, including the rollout of the ThinkCentre 91z all-in-one (AIO) desktop PC. Mobile Internet Digital Home (MIDH) saw handset shipments rise 34 percent, with smartphone and LePad tablets succeeding in China, and IdeaPad and ThinkPad Tablets pushing into international markets.

  • The VAR Guy said: Lenovo seems to be doubling down on its core strengths — mobile computing R&D, extending the Think and Idea brands beyond laptops to tablets. And watch that smartphone business closely. However, Lenovo did not mention its fledgling server business in the earnings announcement. Hmmm… Can Lenovo really grab hold of the SMB server market? Or should Lenovo simply hitch its mobile devices to a cloud strategy?

Bottom Line for Channel Partners:

  • Lenovo said: The company’s “protect and attack” strategy is working, and the board is “very satisfied” with Lenovo’s Q1 results.

  • The VAR Guy said: Despite Lenovo’s strong showing, shares in the company are down about 6.5 percent in mid-day U.S.  trading on August 18. But the dip could be tied to the fact that Wall Street, as a whole, is down sharply today. Look beyond Lenovo’s share price and partners will find a rather interesting Lenovo story taking shape. While Dell strives to push beyond PCs into enterprise servers, storage, networking, IT services and cloud services, Lenovo is heading in a completely opposite direction. Lenovo says it will never acquire a big IT services organization. Instead, Lenovo continues to expand its product line for partners to include tablets, all-in-one devices and smartphones in some regions. Lenovo isn’t saying much about servers right now, which is unfortunate, but the company is generating profitable revenue and market share growth in the desktop and mobile industries. That’s impressive.

Next up, Hewlett-Packard is expected to announce quarterly results later today (Aug. 18). The VAR Guy will be back with a reality check once HP discloses results.

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