By Charles King, Pund-IT, Inc. February 7, 2018
Consistency may be, as Emerson noted, the “hobgoblin of little minds,” but for performance-focused analysts and investors it can qualify as the difference between a company “walking the talk” and one muttering incoherently in an alleyway.
Why is that the case? Partly because it helps clarify central points for market-watchers who hope future events can be prognosticated from today’s tea leaves. In other words, the more often and regularly a business achieves its goals, the more likely they are to repeat themselves.
Plus, reaching or exceeding those touchstones also signals that a company and its leadership knows what they are about organizationally and in market terms. Those are good points to consider when examining Lenovo’s latest 2017/18 Fiscal Year Q3 earnings report and the light it casts on the company’s overall performance and market prospects.
Riding a triple wave
So what did Lenovo report for Q3? First and foremost, that it achieved positive overall revenue growth, with a 6.3% increase year over year (YoY) and a 10% sequential increase (over the previous quarter). That included significant gains in its PC and smart devices (PCSD) organization and Data Center Group (DCG), and as-expected performance from its Mobile Business Group (MBG, the home of its Moto Z solutions). That delivered a strong uptick in pre-tax income growth to $150M, 4X better than Q2 and 50%+ YoY.
Lenovo’s leadership, including CEO Yang Yuanqing, attributed this success to Lenovo’s “three wave strategy” which emphasizes,
- Leadership in PC and Smart Devices by balancing industry-leading profitability with an emphasis on consumer, commercial and SMB customer segments. Each segment has full end-to-end accountability and ownership of its business.
- Growing and diversifying the Mobility Business and Data Center groups into new profit centers. These efforts include simplifying the MBG portfolio and focusing on key growth markets. The DCG business has been restructured around five fast-growing segments: hyperscale infrastructure; Software Defined Data Center (SDDC); High Performance Computing (HPC) and Artificial Intelligence (AI); solutions-based data center infrastructure; and services.
- Capitalizing on promising existing/emerging opportunities, such as “Device + Cloud” and “Infrastructure + Cloud” segments powered by Artificial Intelligence (AI). These include the likes of Lenovo Connect (an MVNO-based E-SIM card that enables users to remain constantly connected/online) and the Lenovo Smart Home Assistant lunched at CES in January
No transformation in stasis
Analysts and market watchers who track Lenovo know that the company’s achievements rest on a foundation of organically-developed and externally acquired innovation, including its acquisitions of IBM’s PC and Intel-based server businesses (respectively in 2005 and 2014). But it’s important to note that while those deals both provided Lenovo immediate shots in the arm in terms of enterprise market exposure and solutions, the company did anything but sit on its laurels.
The fact is that delay and dissembling are seldom rewarded in IT markets, especially those dependent on commodity components. That reality was and is no mystery to Lenovo. Instead of faltering or fading from the scene, the company instead intelligently leveraged those acquisitions, first to achieve global PC market leadership.
That success has been complemented by increasing financial and technical success by Lenovo DCG which has also enabled the company to prove its mettle as a maker of enterprise-class desktop-to-data center solutions. This latest earnings report found the group delivering its best quarterly revenues in two years ($1.2B, up 16.7% YoY and up 25.5% sequentially) with all geographies achieving double-digit growth and margin improvements.
That was complemented by the company extending its #1 position in TBR’s customer satisfaction rankings and adding 98 new world record workload benchmarks to its leadership standing, 4+ more than its closest competitor.
This all points to the fact that while Lenovo continues to pursue, as CEO Yang Yuanqing noted, “Its transformation to become a world leader across every part” of its business, achieving those ambitions is not coming at a cost to clients. In fact, Lenovo’s continuing success suggests that the company’s current programs and its future-focused efforts are well-aligned with the direction of local and global markets, and its customers’ needs and anticipated plans.
In essence, Lenovo’s “three wave strategy”, along with its unwavering focus on customers has resulted in a remarkably consistent, upward trajectory. As is true of any other business, whether that will continue is difficult to predict. However, past performance suggests that Lenovo is well-positioned to thrive both expected and unexpected cross-currents, rip tides and undertows.
© 2018 Pund-IT, Inc. All rights reserved.