The Lenovo Group recently announced record results for its third fiscal quarter ended December 31, 2013. While the company attributes its record sales "to a strong global execution, an innovative product portfolio and an increasing mix of PC Plus revenues," the underlying driver continues to be its guiding philosophy of "protect and attack" implemented about five years ago when the company's chairman, Yang Yuanqing, returned as CEO.
This strategy continues to work for Lenovo with a few tweaks over the years. Case-in-point: Lenovo's third quarter revenue was $10.8 billion, a 15 percent increase year-over-year, and the first time it passed the $10 billion milestone. In addition, third quarter profit grew even faster with pre-tax income increasing 30 percent year-over-year to $321 million, while earnings also grew 30 percent year-over-year to $265 million. The company's gross profit for the third fiscal quarter increased 15 percent year-over-year to $1.36 billion, with gross margin at 12.6 percent.
The strategy "protect and attack" sounds like a simplistic strategy, said Chris Frey, Lenovo's channel chief. "It means we have to continue to protect our business that we acquired from IBM -- our large account business -- and we need to continue to protect our business in China where today we have over 30 percent share. That business is very important to us and we must protect that base from our competitors."
China accounted for 37 percent of the company's revenue in the third fiscal quarter totaling $4 billion. During this period, Lenovo's PC market share in China was 37.9 percent, while the company ranked number two in smartphones and number three in tablets.
In the Asia Pacific geography, Lenovo's revenue totaled $1.6 billion for the third quarter, or 15 percent of the company’s worldwide revenue. Revenue in Middle East/Africa (EMEA) reached $2.9 billion, representing 27 percent of its worldwide revenue. The Americas revenue was $2.3 billion for the third fiscal quarter, representing 21 percent of the company’s worldwide revenue.
At the same time, Lenovo had to attack different markets around the globe, said Frey. Those include emerging markets where the company has made significant traction over the past five years, such as small and midsized business (SMB) customers which Lenovo defines as companies with 1,000 employees or less, driven through a channel strategy. It also includes penetrating the retail channel, and continuing to grow its share and presence in all the geographies, he added.
"Last quarter, based on our master strategy we set records around the globe," said Frey. "We also grew our market share over the number two competitor in the PC space by 2.4 percent year-on-year, which gave us a record setting 18.5 percent market share."
"For the second quarter in a row, we sold more devices than we did PCs," said Frey. "We sold 15 million PCs last quarter and 17 million devices so not only has protect and attack allowed us to protect and attack regions, segments, channels, and routes, it is now allowing us to balance the portfolio of products. With our recent acquisition news [Motorola Mobility and IBM's server business], we think that is going to make us stronger."
At Mobile World Congress 2014, Yuanqing, Lenovo's chairman and CEO, told Bloomberg News that he plans to make Motorola Mobility "profitable within four to six quarters without eliminating jobs." The article also noted that the acquisitions of Motorola and IBM's low-end server business will help the company "move beyond the shrinking personal-computer market to become a broader technology company."
This is already happening with consolidated sales of Lenovo’s Mobile Internet and Digital Home (MIDH) products increasing 73 percent year-over-year during the third fiscal quarter to reach $1.7 billion. This represents 16 percent of the company’s total revenue during the quarter, up from 11 percent one year ago and seven percent two years ago, with steadily improving profitability, according to Lenovo.
Part of this growth is attributed to Lenovo's "sub-strategy," which focuses on its PC Plus products. The PC Plus strategy is a two-pronged approach to the market, addressing the device market, including tablets and smartphones, and the commercial markets around the Think client line [ThinkCentre, ThinkPad and ThinkServer], said Frey.
Lenovo reported record high share in EMEA, Asia Pacific and China with number one positions in five of the seven largest PC markets globally. This was also the 19th quarter in a row that Lenovo outperformed the industry, growing at a 14 point premium to the market.