Re-balanced Lenovo delivering a PC Plus strategy

Lenovo has moved away from the days when it relied on PC sales to provide the bulk of its income as it starts to enjoy the fruits of its Motorola and x86 acquisitions

Lenovo has been talking about its 'PC Plus' strategy for the last few years as it develops its products portfolio to make sure that it is not just relying on its dominant position in the desktop market for future revenues.

When it first muted the idea the desktop world was in the doldrums and even though Lenovo had moved up to take top position in the market there were plenty of headlines around proclaiming that the PC was dead.

Since then there has been a rallying in the market thanks to users upgrading following the demise of Windows XP but it has not diminished the need for Lenovo to look to the future and a post PC world.

The firm made two purchases last year as part of the PC Plus strategy and although it is too early to get a feeling for how the decision to buy IBM's x86 server business has gone because it only closed in the UK last month, there are signs that the other deal to buy Motorola's handsets business, which started delivering revenue is starting to pay-off.

Demand for smartphones that don't come with an iPhone price tag has helped Lenovo beat analyst expectations for the last three months of 2014, the firm's fiscal third quarter, with $253m net income and $14.1bn in revenue.

The firm also revealed that its M&A activity had re-balanced the business, with 65% of revenue now coming from PCs compared to 81% a year earlier. Mobile now brings in 24% of the turnover and enterprise 9%.

In the last three months of the year Lenovo shipped 16m PCs, a 4.9% improvement year-on-year, and that side of the business delivered sales of $9.2bn and pre-tax income of $494m. The firm also highlighted the achievement of taking 20% share of the market.

As well as a PC Plus strategy perhaps the other mantra that could be applied to Lenovo is for the firm to develop a 'not just China' approach to the market and the latest results indicate that it is managing to grow share outside of its home market.

The firm gets around 60% of its mobile revenues from outside China and is heading in the opposite direction to some of its rivals that have recently moved into the Chinese market looking for growth.

The firm has also had to deal with fairly intense competition since it announced plans to acquire IBM's x86 server business and the results does mention "intense competitive fire", which it now believed had weathered with the business stablising.

Despite all of the talk over the last couple of years of changing its strategy there is a sense that it is from now, with a firm seeing its reliance on PCs decrease, that Lenovo can really start to talk about a different future.

"This qu arter, we are at the starting line of a new race, but the results show that we have the right strategy, we made the right acquisitions and we executed well globally, so I am confident we are ready to win,” said Yuanqing Yang, chairman and CEO of Lenovo.

“Our core PC business maintained its leading position and further improved profitability. The two newly acquired businesses are achieving great momentum in their first quarter of integration.
They are definitely becoming our growth engines. Motorola is already a global strength: for the first time it sold more than 10 million units in the quarter and it is now re-entering the China market," he added.

In addition to mobile and PCs the year ahead should also see improvements in the volume of business brought in by the enterprise side of the business as the x86 integration starts to get underway in earnest.

"We have a strong start with the System x integration, even while we further refine and develop it, leveraging Lenovo’s operational excellence and efficiency to be even more competitive. I remain fully confident we will meet all of our financial commitments this year, and also that we are on the right track to win in the long term," added Yang.

So far the strategy appears to be delivering the right kind of results and Lenovo is in the enviable position of being able to hold on to the top spot in the PC market and push deeper into mobile and enterprise. 

It's little wonder given the state of some of its main rivals, which are undergoing five year turnaround plans and heading to the Chinese market Lenovo has used as a springboard for growth, that the CEO sounds so confident about its prospects as it takes to the "starting line of a new race".

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