China’s Lenovo Group has struggled in its first quarter, as what is evident on its revenue reports. Out of its three arms, only the PC-focused one seemed to have excelled. The company shipped 13.2 million notebooks and desktops globally in the first quarter and brought in revenues of $7 billion for PCs and tablets, with a global market share of 21.1%. Its mobile business and data center arm are lagging behind, though.
Lenovo said in a statement that its data center group would make strategic investments in its channel programs, sales force, and marketing to drive growth and improve its financial footing. Lou Giovanetti, co-founder of CPU Sales, who works with the PC giant, said that Lenovo servers remain a tough sell and continue to struggle for traction in a market in which Dell and Hewlett Packard Enterprise dominate.
“Our Lenovo server business has been flat, as in zero,” Giovanetti said. “Dell and HPE have such a strong foothold in the corporate world that I see it as hard to displace. We are selling a lot of Lenovo notebooks, but the margin is slim and we have to use every program Lenovo has available to make up margin. Added services are the margin-maker.”
On the other hand, the company’s mobile arm lost money as well as a $3billiob bet on buying Motorola in 2014 to reduce exposure to a shrinking global PC market has yet to pay off. Global smartphone shipments plunged 31% in the quarter from a year ago. The company said the mobile division—housing Motorola and other operations—won’t make a profit before the fiscal half beginning October 2017.
Lenovo previously said it expected a turnaround by this quarter in Motorola’s mobile operations. On Thursday, Yang said Motorola “has made a lot of progress,” though the company declined to give numbers for the operations, saying they are now merged into its overall mobile business. According to researcher TrendForce, Lenovo had a 4.5% share of the global smartphone market in April-June, seventh after top players Samsung’s 24% and Apple’s 15%.
In a statement, Lenovo Chairman and CEO Yuanqing Yang said the company would refine its focus in key markets to spur growth. “In PCs we will focus on high-growth segments and leverage industry consolidation to resume growth,” Yang said. “In smartphones, we will leverage innovative, differentiated products and continue to shift to higher-price bands to drive growth and turn around this business. In data centers, we will continue to expand in hyper-converged technology, and improve profitability in the hyper-scale business.”
Lenovo Quarterly Results
The China-based PC giant is a go-to brand in its home territory, but sales declined there in its fiscal first quarter, which ended June 30. All the while, competitors such as Dell and Cisco are expanding in that market, prompting Krista Macomber, an analyst with Technology Business Research, to say that competitive pressure will force Lenovo to make adjustments to its go-to-market strategies and accelerate sales with large-scale, transform-centric customers.
The world’s biggest PC maker released its first quarter revenues of the year and its sales challenges were global. Revenue is about $10 billion, a 6% YoY decline compared to the same quarter a year earlier. Sales in America has also decline 6.6% to about $3 billion while in China sales fell 9.8% to $2.9 billion. PC sales saw a 7% YoY decrease, a 6% decline in mobile business, and a 1% increase in its data center business.
Lenovo had an operating profit of $370 million, a 2.4% YoY increase. But the data center group’s operating losses deepened to $64 million from $40 million a year ago, while the mobile business’ operating loss widened 12% to $206 million.
In totality, the PC group announced a profit of $173 million, up 64% from the same period a year ago, when profits were impacted by restructuring costs. In the most recent quarter, the company drove down operating expenses 17% to $1.3 billion, and saved $132 million from a one-off asset sale of an office property in Beijing.
Lenovo’s shares have dropped over the past 18 months, and they lost two-thirds of their value between a peak in April 2015 and a low in June this year. Since then they have had a bit of rally and are up around 18% from that low.
"We can completely turn the business around," Chairman and Chief Executive Officer Yang Yuanqing told Reuters in an interview. Lenovo is eyeing the more lucrative premium smartphone sector, he said, while ramping up marketing expenses.
That may encourage some ivestros who believe in the company and its new mobile strategy, but a lot are skeptical and will need to see more positive results before they can declare that Lenovo is back on solid ground.
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