Lenovo Profit, Growth Fall Short; Execs Promise Cuts - InformationWeek
05:00 AM
Ransomware: Latest Developments & How to Defend Against Them
Nov 01, 2017
Ransomware is one of the fastest growing types of malware, and new breeds that escalate quickly ar ...Read More>>

Lenovo Profit, Growth Fall Short; Execs Promise Cuts

Sluggish sales in Japan, and an effort to grow SMB revenue worldwide, were among the areas that took a bite out of Lenovo's profits, executives said.

Lenovo turned in a profit and growth for its most recent quarter that fell short of expectations, and its top executives Thursday promised aggressive cost-cutting and new product introductions to try to turn the trend around.

The Purchase, N.Y.-based PC maker reported a profit of $47 million for its quarter that ended in December, and 12 percent profit growth compared to the same quarter a year earlier. However, some analysts had publicly predicted the company would see as much as a 40-percent growth in profits.

Sluggish sales in Japan, and an effort to grow SMB revenue worldwide, were among the areas that took a bite out of Lenovo's profits, executives said. However, it was the third quarter of profitability since Lenovo completed acquisition of IBM's former PC business last year.

Overall, Lenovo turned in sales of 31.1 billion Hong Kong dollars, or $4 billion U.S., for the quarter that ended Dec. 31. The company reported its financial results during a meeting with analysts in Hong Kong, which was webcast.

"We need to raise the game with respect to our competitive standard," said William Amelio, Lenovo's CEO. It was his first financial report since being tapped last month to replace former CEO Stephen Ward, and Amelio repeatedly emphasized Lenovo's new focus on slashing costs and adding products.

"In this industry, it's required for us to be best of breed when it comes to operational efficiency," Amelio said. "We have to be able to support our business partners and customers in all areas of the world."

Lenovo Chairman Yang Yuanqing also noted the company's new priority on efficiency.

"We can also see the decline of the group's growth margin and profit margin, which on the one hand reflects increased market competition, on the other hand, shows we have not adjusted our cost and expense structure to (that) of a world class company," the chairman said.

The executives, though, did not specify where cost cuts would be targeted.

During the quarter, almost 29 percent of Lenovo's revenue came from the U.S., while almost 40 percent of the company's sales were gained in China. Amelio said the company would look to expand its Chinese operation and sales models into other geographies. Lenovo executives were still sparing in their comments about the company's channel operations, revealing little about channel inventories or strategies.

The PC maker has split its business model into two categories, "relationship" sales to large, enterprise customers, and "transactional sales" to retail and small and mid-sized business markets. Most of its transactional business in the U.S. goes through solution providers.

While Lenovo has historically done well with transactional sales in China, on the low end of the market, and while the former IBM PC Co. was focused largely on the enterprise, the combined company has been experiencing growing pains in the SMB space.

"Our sales team was focusing more of its energy on penetrating the SMB market in order to achieve growth," Amelio said. However, the company had few new products during the last quarter to show in the SMB space – a factor that held it back, he said. "For the SMB sector of the market, it wouldn't due to have only old products," Amelio said. "And that's why we must have a broader product range."

Bright spots for the company included what it said were record ThinkPad shipments in the U.S. during the quarter, and continued quick integration of the former IBM properties into the combined company.

Comment  | 
Print  | 
More Insights
Newest First  |  Oldest First  |  Threaded View
How Enterprises Are Attacking the IT Security Enterprise
How Enterprises Are Attacking the IT Security Enterprise
To learn more about what organizations are doing to tackle attacks and threats we surveyed a group of 300 IT and infosec professionals to find out what their biggest IT security challenges are and what they're doing to defend against today's threats. Download the report to see what they're saying.
Register for InformationWeek Newsletters
White Papers
Current Issue
2017 State of IT Report
In today's technology-driven world, "innovation" has become a basic expectation. IT leaders are tasked with making technical magic, improving customer experience, and boosting the bottom line -- yet often without any increase to the IT budget. How are organizations striking the balance between new initiatives and cost control? Download our report to learn about the biggest challenges and how savvy IT executives are overcoming them.
Twitter Feed
Sponsored Live Streaming Video
Everything You've Been Told About Mobility Is Wrong
Attend this video symposium with Sean Wisdom, Global Director of Mobility Solutions, and learn about how you can harness powerful new products to mobilize your business potential.
Flash Poll