COVID-19 has done what Microsoft and Intel couldn't – given people a reason for a PC upgrade

Lenovo says online sales soared in Q1 and has new hyper-plan for its data center unit

Lenovo's long-suffering data centre group has posted considerably increased revenue and a modest loss, thanks to increased engagements with hyperscale clients.

The tech titan today announced [PDF] fiscal Q1 20/21 revenue of $13.3bn, up 7 per cent year-on-year. Revenue growth would have topped 10 per cent were it not for exchange rate movements.

Net income rose 38 per cent year-on-year to $332m.

While struggles getting enough Chromebooks onto shelves didn't help, the company's PC group soared to $10.6bn of revenue and year-on-year growth of 45 percent among consumers, with revenue up 30 per cent in EMEA and 18 per cent in China. Direct online sales jumped 50 per cent, reflecting online purchases during lockdown and probably delivering fat margins.

Execs said this quarter's PC sales were often upgrades, as those forced to work or study from home and spending hours a day at the keyboard tired of struggling with old machines and decided on an upgrade. COVID-19 may be doing what countless Windows and Intel updates could not.

Software and services revenue hit $1bn for the quarter, thanks to products like managed services and solutions for vertical industries. Such deals often include device-as-a-service, which proved to be among Lenovo's most profitable products. Execs said the pipeline for device-as-a-service is strong.

The data center unit, which has endured years of strategy revisions and seldom topped the performance of the IBM server unit on which it is based, may have turned a corner.

The business won $1.6bn of revenue, up 20 per cent year on year, and sales to hyperscale operators sales surged by 30 per cent as Lenovo cashed in on clouds' need for sudden infrastructure upgrades during lockdowns. Hyperscale revenue beat enterprise and SME sales and Lenovo expects that to continue.

Lenovo said it is now selling to seven of the top 10 hyperscalers, that adding AMD models to its range has helped to win customers, and that its multi-socket servers are in high demand from the big clouds. The company has brought server design in-house, which means the company can now build servers to customers' requirements around the world rather than just in China. However Chinese hyperscalers are growing faster than rivals and therefore attracting more of Lenovo's attention.

Double-digit growth was predicted among hyperscalers for the year, before a return to strong-but-lumpy growth.

Sales of kit for enterprises and smaller businesses rose nine percent, despite what Lenovo described as "conservative spending by enterprises globally".

Execs said that the company plans new servers, storage products and hybrid cloud offerings. Investors who dialled in to the company's earnings call were told the company is "excited about the growth outlook for this market segment" and plans to cross-sell more services. But the company also said it has further cost control exercises planned.

Alliances with software vendors and NetApp were predicted to help the business unit to grow.

It's hoped that 5G puts some momentum behind the company's mobile device business.

The company's senior executives were rather pleased with the quarter, suggesting that Lenovo had put pandemic-related problems behind it and is now poised to grow. Investors were told that PC sales should remain steady and that data center kit has plenty of upside.

We've heard that before about the data center group, which previously made a big bet on software-defined infrastructure. That tech wasn't mentioned this quarter. And smartphones were mentioned in passing rather than explained in detail. ®