We’ve all heard talk of how the post-PC era is supposedly looming on the horizon, but perhaps it would be wiser to ignore the proclamations of those who insist that the roof is about to cave in. Despite Apple’s Tim Cook insisting that people would “rather play on his iPad than their old PCs”, Lenovo has gone from strength to strength, proving that there’s plenty of life left in the old workhorses yet, so long as you know how to market them – something that the Chinese firm positively excels at.
Lenovo’s latest fiscal quarter results have smashed all expectations, with the company shipping a record breaking 14.1 million PCs last quarter – more than it’s ever shipped in any single quarter. This performance helped to boost Lenovo’s total market share to 15.9%, a second record in what the company claims is its “best ever quarter”.
Further records were broken too, with Lenovo registering $205 million in earnings, 34% up from the year before, while its gross profits totaled some $1.1 billion, a 15% increase on last year. Meanwhile, Lenovo’s net operating profit came to $243 million, up 26% year-on-year.
Yang Yuanqing, chairman and CEO, Lenovo Group, offered up these comments:
“With the strong execution of our ‘Protect and Attack’ strategy, Lenovo has not only achieved record revenue, profit and global PC market share last quarter, but also our smartphone and tablet businesses have delivered hyper growth. Even more, our worldwide tablet and China smartphone businesses have become profitable.”
“As we continue into the PC Plus era, Lenovo has already laid a solid foundation. Our new organization will provide the structure to elevate our diversified business and drive it to the next level. We are confident that we can win through differentiation and will be the innovation leader in the PC Plus era.”
Protect and Attack
Few will disagree that Lenovo’s growth is little short of remarkable, but this isn’t so surprising when we consider how it differently it operates. Unlike with many American firms, Lenovo has a clear and stable leadership, and it cautiously avoids racking up debts with questionable acquisitions, instead focusing on the solid execution of its carefully planned strategy.
To understand Lenovo’s success we need to understand this strategy, which is beautiful for its incredible simplicity. “Protect and Attack” are labels that refer to two different aspects of its business segments – it’s ‘protecting businesses’ and its ‘attacking businesses’.
Lenovo derives its main source of revenue from its ‘protecting businesses’, namely its PC markets, which can be sub-divided into China and the rest of the world. Meanwhile, Lenovo’s ‘attack businesses’ refer to its policy of penetrating emerging markets and its fledgling smartphone, tablet and Smart TV divisions, which are focused on those same emerging markets, and its home turf.
And boy are they attacking – this last quarter, attack businesses generated 50% of the company’s revenues, up from 32% when Lenovo first began this strategy four years ago.
Lenovo’s plan of ‘attacking’ emerging markets has flourished in three regions specifically – Europe, the Middle East and Africa (EMEA), where it saw 25.5% growth in PC shipments, emerging as the region’s second largest PC maker with an 11% share.
Lenovo’s second mode of attack – its Mobile Internet and Digital Home segment – also saw remarkable growth, with sales of smartphones, tablets and Smart TVs (what Lenovo calls its PC Plus products) growing by 77% over the past year, accounting for 11% of its total revenues.
Lenovo’s runaway success in the global PC market has raised eyebrows across the board, but this calls into question claims by others that their growth is being harmed by the rise in popularity of tablets and smartphones. Lenovo’s PC business is positively thriving, with its 8.2% growth putting to shame an industry that declined by 7.8% over the same period. Out of the world’s top five PC makers – Acer, Asus, Dell, HP and Lenovo – only Lenovo and Asus managed to record positive growth, leaving us to speculate where Dell and HP are going wrong.
No doubt Microsoft will wondering the same thing. Interestingly, its Windows division has just posted 24% growth, scooping up $5.88 billion in revenues since the launch of Windows 8, figures that prove its new operating system isn’t so disliked after all – perhaps it’s more the case that consumers just don’t like certain brands (wake up, Dell, HP) anymore? In any case, it’ll be interesting to see if Microsoft looks to forge closer ties with what is undoubtedly the industry’s rising star.
Should Apple and Samsung be Worried?
Lenovo’s smartphone business also deserves a mention, having just registered a profit for the first time in its existence. By taking advantage of Lenovo’s huge popularity at home, its smartphone business has just gobbled up a 14.8% market share in China, placing the company above Apple as China’s second-most popular smartphone brand, behind Samsung.
It’ll be interesting to see what comes of rumors that suggest Lenovo is looking at acquiring Research in Motion, the maker of Blackberry phones. Lenovo, while acting coy on the subject, hasn’t denied its interest in the phone maker, and if a deal does come off this would fit into its “attack strategy” of expansion into foreign markets, since Blackberry (for all its problems) still has some popularity with enterprise users.
Intriguingly, this raises the unlikely prospect of Lenovo emerging as a genuine challenger to Samsung and Apple’s dominance of global smartphone markets. People might scoff at the notion now, but if Lenovo can surpass all expectations in what many view as a declining market, just imagine what kind of damage it could do if it decides to focus on a market that’s displaying such massive growth.