Lenovo expects data centre profits in two years, if it can fix China

For now the company is just happy with growth for the first time since buying IBM's servers

Lenovo has reported flat quarter-on-quarter revenue, but is content to have achieved that as it reflects stabilisation in its data centre and mobile businesses.

CEO and chairman Yuanqing Yang today declared himself broadly satisfied with a Q1 2018 result that saw the company achieve revenue of US$10,015m, flat year-over-year but up 4.5 percent quarter-to-quarter. That's because “PC and Smart Devices” revenues held, a decent achievement in a market facing long-term-decline.

The company is also pleased that its mobile device business hit first-year sales target of three million for the flagship Moto Z and made “significant gains in both Western Europe and Latin America” where sales rose 137 per cent and 56 per cent respectively year-over-year. Revenue also ticked up a couple of points.

Lenovo results Q1 FY2018

Lenovo results Q1 FY2018. Click here to embiggen

Even the data centre business looked healthier, even though it is still making losses. The company used the title “Solid execution shows progress” as the title on the slide describing the division's performance, an upgrade from the phrase “showing some signs of stabilization” used on the company's last earnings call.

Yuanqing was effusive when reporting that the division had grown for the first time since acquiring IBM's x86 server line and sounded very pleased to report market share and revenue growth in the USA and EMEA. The CEO also sounded very pleased that it's shipping Purley-Xeon-packing servers in volume, because it thinks rivals may not be able to match its numbers.

That ability to ship product and score growth is important because Yuanqing said Lenovo lost former IBM server customers and needs to rebuild a band of loyal users if it is to meet the forecast he made today of profits in the division in two years.

Lenovo Data Centre division revenue Q1 FY2018

Lenovo Data Centre division revenue Q1 FY2018. Click here to embiggen

A key change if that forecast is to be realised will be a turnaround in the company's hyperscale business. Yuanqing said Lenovo walked away from some hyperscale deals in China and “lost a lot of money in that business.” The company therefore decided to mitigate its losses and is now rebuilding its hyperscale offering by revisiting product and support offerings.

“Generally speaking now we can handle the data centre business better than we did two years ago,” he told the call. “We have more experiences. I think we are in a good direction with a good strategy.”

That strategy includes a big fries-with-that effort, as Yuanqing said the company hopes to achieve a higher “attach rate” of networking and storage products when it sells servers in future. ®

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