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Lenovo stops the worst of the bleeding in data centre and mobile

And would you believe all its profits come from PCs?

Lenovo’s announced its third quarter results for 2017/18 and said its mobile and data centre businesses are responding well to turnaround efforts.

The company’s top line figures were US$12.9bn of revenue and a $150m pre-tax profit. A $400m payment of deferred taxes, a one-off thing caused by new US tax laws, made for a $259m loss in the quarter.

The company’s PC business did the heavy lifting, bringing in US$9,250 and recording a US$416 pre-tax profit.

There was no black ink in the data centre business, but the loss was kept to $56m, a nice dip from last quarter’s $94m. The mobile business lost $92m, down from last quarter’s $112m.

The bright spot in the data centre is hyperscale buyers. On the company’s earnings call CEO Yang Yuanqing and CFO Wong Wai Ming both said Lenovo’s investment in design capabilities for custom hyperscale rigs, with designs including whole racks of kit, have been well-received. Both also said the company is on track to dominate the Top 500 list of the world’s mightiest supercomputers. New sales in that field have come around the world, not just in China.

Execs were also bullish on hyperconverged and software-defined systems, which grew by over 100 per cent year on year. The company said it’s Nutanix’s fastest growing OEM and has seen strong growth for systems underpinning Azure Stack and VMware’s VSAN. But execs admitted it has lost market share in North America, despite 770 new customer, but cited an uptick in services attach rate there as something to celebrate. They also said that the data centre sales team is now in its hoped-for shape, and the enterprise group has its new org chart in place.

Both Yang Yuanqing and Wai Ming expressed optimism that the group’s best days lie ahead.

The outlook was more cautious for the mobile business, as its brand is weak, it’s yet to establish itself as a premium handset player in Europe or the Americas, mid-range competition is fierce everywhere and component prices have risen. Execs nonetheless said a return to profitability is within reach.

On PCs, the company was excited to report the market for such machines has stabilised and pleased to say that its revenue growth rate exceeded that of rivals. Improved products were given the credit for continued strong performance.

Execs were also clearly pleased to announce $400m of revenue for the company’s new connected devices business, which has given the world a Star-Wars-themed augmented reality devices.

It’s the data centre that matters most to The Register, however. In that field Lenovo must be pleased to have a roaring hyperscale business, especially given that’s a growth that will go some way to replacing traditional server sales. Seeing off HPE, which quit the cloud server business in October 2017, must also have pleased execs.

But the company’s news of hyperconverged growth ring hollow as it’s a new field and everyone’s growing. The company also made no mention of gains for traditional servers and remains a very minor player in networking and storage. It now seems clear that Lenovo’s server business probably won’t ever reach the revenue IBM achieved. And that wasn’t the company’s ambition when it acquired IBM’s x86s.

But seeing as this is the company's best quarter in two years, Lenovo's probably looking forwards rather than in the rear-view mirror. ®

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