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Lenovo says it was that close to a good quarter and a good year until that virus struck

Record pre-tax profits, but data center group still struggling as HCI commodifies

Lenovo has reported mixed success in its full-year 19/20 results and Q4 numbers.

Q4 revenue was US$10.7 billion, down $900m thanks largely to the COVID-19 pandemic, but the company said it saw improvement in March despite supply chain constraints. Net income was $43m, down $75m year-on-year.

Annual revenue landed on $50.7bn, down $322m year-on-year but up two percent after adjusting for exchange rate movements.

The company chose to highlight record annual pre-tax profit, which rose 19 percent year-on-year to reach $1.018bn.

While the company is pleased with its margins and execution, especially in the face of pandemic-caused supply chain woe, the company did not have an easy time.

Revenue at the data centre group dropped by nine percent year-on-year, with the fall blamed on difficulty selling hyperconverged kit. Lenovo attributed that to “customers’ inventory digestion and average selling price erosion caused by commodity price compression.” Which sounds like customers paid for kit they didn’t install in a hurry and a crowded and maturing market allowing buyers to turn the screws on price. Take note, Nutanix, Datrium, HPE and others! At least storage grew decently and sales of software-defined kit picked up.

The PC and smart devices group did very well. Revenue rose four percent to $39.9bn, profitability increased by almost 20 percent and margin reached 5.9 percent. Acquiring Fujitsu’s PC business was said to help things along and showed “clear evidence of Group synergy.”

The artist formerly known as Motorola, aka the mobile group, was on track to deliver a profit until Coronavirus blew that away. Lenovo told investors the group was “On track for a breakthrough year until Q4” but ended up recording a $43m pre-tax loss. That was at least $96m better than in FY 18/19 and the company feels its revived razr range had it poised for good times in the Americas.

Investors were told that management’s FY20/21 plan is to “… promptly act on industry growth opportunities, including the surge of work-from-home and study-at-home tailwinds as a result of the paradigm shift of COVID-19.”

“The management believes that these long-term structural trends could enlarge the addressable market for [the PC group] and cloud infrastructure demand, as well as accelerate development of 5G services. Meanwhile, the Group will exercise disciplined expense control to optimize its liquidity and financial health.”

In the cloud, the company thinks it can target global and tier-2 hyperscalers, while other business buyers will be offered more professional services and “solution-based expertise” and a continued drive to sell more enterprise hardware.

No big strategic initiatives accompanied the results, which said Lenovo will keep doing what it’s already doing, investing in the IoT and smart devices, and hope the times suit it. If they suit anyone. ®

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