Lenovo chiefs chortle over decision to buy IBM's PC biz
Fat numbers from reorg'd Big Blue boxes
IBM may think it was a grand plan to exit the PC game by flogging its biz to Lenovo, but the Chinese vendor does not concur, as its Q1 sales rises show.
The concerted turnaround efforts continued for the seventh consecutive quarter since Lenovo dumped former CEO Bill Amelio, with sales up 15 per cent to $5.9bn and operating profits rising 51 per cent to $123m.
It seems there is life yet in the traditional boxes. It's true that the margins are small in comparison to those of IBM – which explains Big Blue's decision to offload the PC division – but Lenovo execs clearly feel vindicated by the numbers.
"Since we adjusted our leadership team in early 2009, our business continues to climb and everything has been executed well according to our original plans," said Lenovo chairman Liu Chuanzhi.
There are reasons for the self-congratulation though. Lenovo pushed up PC shipments more than 23 per cent during the quarter as the global market moved up 2.7 per cent – the ninth consecutive quarter it outgrew the market.
Big Blue last week celebrated the 30-year anniversary of the PC but one of its engineers behind the original design reckoned systems have seen their best days and are "going the way of the vacuum tube, typewriter, vinyl record..."
Chuanzhi disagrees: "Our results show that Lenovo's acquisition of the IBM PC business has become a success. In future quarters, you will see clearly that we will take what we've learned from this acquisition and apply that knowledge towards our joint venture with NEC in Japan and our acquisition of Medion in Germany."
Part of the reasons for Lenovo's surge is that it learned to love the channel, restructured to minimise direct sales conflict with resellers, and upped rebates to feature more on dealers' balance sheets.
China represented $2.8bn worth of sales for Lenovo in Q1, up 23.4 per cent; in the emerging market sales were $1bn; and it achieved $2.1bn in sales in mature markets, despite a 9.4 per cent slide in shipments during the quarter.
But the firm still has one eye fixed on the ongoing economic uncertainty despite the return to growth of the global PC market, and did not provide a Q2 forecast.
"Challenges to worldwide PC demand remain - such as the pace of global economic recovery and the ongoing debt crisis in Western Europe," Lenovo said. ®
Understand your purpose
The slightly sneering tone of the initial sentence of the article, and some of the subsequent comments, misunderstand what IBM has done. That someone else can claim success with a business you've sold might be construed as proof of the validity of your decision, not evidence that you could have achieved the same thing. IBM is no Apple, and this is a high volume, low margin business that added little to the company's capabilities. Ultimately, it is a testament to IBM's understanding of its purpose as a company that it felt able to decide that this business was not part of its future.
IBM were stupid to sell, Thinkpads are the business laptop of choice, they dont even have to try to sell them...
Revenue is vanity, profit is sanity
IBM pocketed almost $2bn from selling off a business unit which made comparably little profit. IIRC IBM's revenue to profit ratio is better than 10:1, Lenovo's PC business is around 50:1 - after 6 years in the market. I'm not saying Lenovo isn't profitable, but it is comparatively marginal.
I'd rather invest in the business which nets me a 10% margin than a 2% one. Did IBM make the right choice? Absolutely.