Lenovo PC Revenue Surges As SMB Push Pays Off

Investments by Lenovo in its channel efforts and in product lines such as workstations are driving strong growth, Matthew Zielinski, president of Lenovo’s North America Intelligent Devices Group, tells CRN.

Lenovo's channel efforts in North America are paying major dividends as the company saw accelerated growth in small- and midsize-business sales, and in products such as workstations, in its latest quarter, the head of Lenovo's North America PC business told CRN.

Channel partners were critical to driving 23 percent year-over-year growth in Lenovo's North America PC and Smart Devices business during the quarter, said Matthew Zielinski, president of Lenovo’s North America Intelligent Devices Group. The results were for the company's first quarter of fiscal 2020, ended June 30.

[Related: Lenovo Ramps Up Strategy To Continue Its 'Hyper-Growth' In PC]

The SMB business grew 50 percent, yielding a market share of 22.3 percent, Zielinski said, citing figures from research firm IDC. It was the first time Lenovo saw a share of greater than 20 percent in the SMB market in North America, and the results put the company within range of the No. 2 player in SMB PC sales, HP Inc., which had 23.5 percent market share.

"There is no doubt that SMB continues to see exponential growth," Zielinski said. "That really is full stop thanks to our channel."

Lenovo has been seeking to drive PC growth in areas such as SMB through major investments in product innovation, key verticals and improved enablement of partners.

In May, Lenovo unveiled a new product line of sleek notebooks aimed at SMBs, the ThinkBook. While the notebooks have seen a limited launch so far, they will ramp up in availability in the fourth calendar quarter of 2019, Zielinski said. That means the company’s SMB growth so far largely does not include ThinkBook, and the wider rollout of the product later this year will propel further growth in SMB, he said.

Lenovo, Zielinski noted, has also seen an "astounding" number of partners moving up into higher tiers in its channel program, which provides greater incentives in exchange for hitting higher revenue levels.

Meanwhile, earlier this year, Lenovo introduced a new incentive aimed at boosting sales of premium devices, workstations and services. The incentive, dubbed the "trifecta," provides improved back-end rebates for partners that reach certain sales levels in each of the three areas.

"The program modifications we made around trifecta are certainly driving some of our workstation growth. And I would say the same for services," Zielinski said. "In our trifecta program, we have a premium component of that that also remains very healthy. So I do believe the program modifications are certainly at the center of what's helping drive some of this growth."

Lenovo's workstation business is "just completely off the charts," he added.

"We're significantly outgrowing the market and outgrowing our competitors [in workstations]. Shipments were up 50 percent, year to year, along with revenue. And we're seeing our highest market share ever there, just around 18 percent," Zielinski said.

In addition, Lenovo's recent investments aimed at boosting growth in areas such as public sector—including state and local government as well as higher education—have also paid off, he said.

"I can tell you that we experienced our highest state and local government quarter ever with revenue up about 23 percent, year to year. And I'm really proud to say that higher education is also well under way as well," Zielinski said. "We're very bullish on some of the bets that we've placed."

All in all, Lenovo's share of the North American PC market reached 17.3 percent, up from 14.8 percent during the same period a year earlier, Zielinski said, citing the IDC figures.

Global Results

The North America PC growth was pivotal to driving Lenovo's global growth in PCs and Smart Devices for the company's fiscal first quarter, with that business growing 12 percent to reach $9.63 billion globally.

Lenovo's Intelligent Devices Group overall, which also includes the Mobile Business Group, rose 8.5 percent to revenue of $11.16 billion for the quarter.

Revenue in Lenovo's Data Center Group fell 17 percent during the quarter, dropping to $1.36 billion.

"The broader data center sector is suffering from industrywide sluggish demand. The primary challenge is the excessive inventory build-up by selective and sizable hyper-scale users after last year’s aggressive growth," Lenovo said in its announcement of the quarterly results. "Another key sector challenge is the severe commodity price decline. After outperforming the sector in growth for several quarters, the [Data Center Group] business was finally affected by this sectorwide demand correction."

Still, Lenovo’s storage revenue grew by 80 percent during the quarter, year over year, and software-defined infrastructure "continued to grow at a double-digit rate year on year," the company said.

Lenovo's Data Center Group also narrowed its loss for the quarter to $52 million, from $63 million during the same quarter the year before.

Globally, revenue rose 5 percent to reach $12.51 billion in Lenovo's fiscal first quarter, while gross profit reached $2.05 billion, compared with $1.63 billion a year earlier.