Lenovo To Make Key Channel Investments As Part Of Plan To Drive Growth After Q1 Sales Drops

Lenovo will refocus its PC business, concentrate on higher-priced smartphones and expand its presence in the market for hyper-convergence as it struggles with revenue declines and fierce competition, the company said Thursday.

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, and all the while, competitors such as Dell and Cisco are expanding in that market.

Competitive pressure will force Lenovo to make adjustments to its go-to-market strategies and accelerate sales with ’large-scale, transformation-centric’ customers, said Krista Macomber, an analyst with Technology Business Research.

[Related: 5 Things We Love About Lenovo's Yoga 900S (And One We Don't)]

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.

Still, Lou Giovanetti, co-founder of CPU Sales, a Waltham, Mass.-based reseller that works with Lenovo, said 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 is the margin-maker.’

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.’

In its first quarter, Lenovo’s sales challenges were global. The company reported revenue of about $10 billion, a 6 percent year-over-year decline compared to the same quarter a year earlier.

Sales in the Americas declined 6.6 percent to about $3 billion. In China, sales fell 9.8 percent to $2.9 billion.

The company saw a 7 percent year-over-year decrease in PC sales; a 6 percent decline in its mobile business; and a 1 percent increase in its data center business.

The PC group booked an operating profit of $370 million, a 2.4 percent year-over-year increase. But the data center group saw its operating losses deepen to $64 million from $40 million a year ago, while the mobile business’ operating loss widened 12 percent, to $206 million.

Overall, Lenovo reported a profit of $173 million, up 64 percent 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 percent to $1.3 billion, and pocketed $132 million on the sale of an office property in Beijing.