Lenovo Investing Billions In Services As PC Market Changes
Chinese technology Company Lenovo, who delivered a billion-dollar turnover across their Australian and New Zealand operations during the past 12 months is deploying what has been described as a $12 billion dollar war chest in an effort to expand artificial-intelligence-based solutions services in an effort to be less reliant on hardware sales that don’t deliver as much profit as services.
In a speech last night Lenovo Chairman and CEO Yang Yuanqing says his company will expand AI services in an effort to make it one of the Companies key growth pillars going forward there was no mention of the problems that Chinese businesses are facing dealing with the US and various Governments around the world including Australia.
Although services accounted for less than 7% of all global revenue during the April-June quarter, the profit margin is roughly triple that of the PC segment.
“Services will play a central role in Lenovo’s future growth,” Yang said.
In Australia services grew from $49M in 2020, to $52M to 2021.
Last year the Australian, New Zealand operation grew sales of their Chromebooks as parents moved to home schooling because of lockdowns also surging was tablets sales while demand for notebooks was down.
“We are committed to doubling investment over the next three years to fuel our ‘Smarter Technology for All’ vision,” Yang said overnight.
Lenovo spent $1.45 billion on R&D in the fiscal year ended March 31.
The company “will spend twice as much each year over the next three years,” said Yang.
The work from home boom has been a boon to the PC industry and Lenovo locally, according to local CEO Matt Codrington who claims that their new Lenovo Pro site which we revealed this week “Is a very small part” of the local Companies operation.
Global shipments topped 300 million for the first time in six years in 2020.
Lenovo is the No. 1 player in the PC market, with a 24% market share, predicting that shipments will remain above 350 million units for the next two years.
The company will leverage strong earnings to make its next move, pushing the “everything as a service” business model, Yang said.
Similar to what Lenovo has done with the Lenovo Pro site in Australia Lenovo globally is building closer relationships with their clients allowing them to deliver a combination of cloud-based services and hardware.
Much of the money will go toward core AI technologies.
Lenovo has developed the AI platform called the Lenovo Brain and uses it in-house to optimize efficiency in manufacturing and sales.
Yang plans to refine the platform and provide it to business clients as a service through both their channel partners and direct.
In Australia the bulk of Lenovo’s business is via their channel partners according to Codrington.
Lenovo will also target “the health care, education and retail sectors,” Yang said.
Lenovo Brain will analyse the voluminous data from transactions with clients and suppliers to provide services that will optimize the efficiency of client services and supply chains.
The new growth strategy goes beyond enterprise systems.
Lenovo plans to provide all products used by company employees, including PCs, tablets and smartphones, in packages bundled with software and platforms. Lenovo envisions a service that will charge fees based on the usage for such package customers.
Net profit jumped 77% to a record $1.17 billion last fiscal year. In the quarter ended this past June, the black ink more than doubled on the year.
Lenovo has maintained its lead in PCs since 2018 and is plotting to break further away from runner-up HP.
Yang had been pushing for a service-based business model before the coronavirus crisis. In 2019, Lenovo started off by introducing the TruScale platform, which lets businesses access Lenovo’s servers for a pay-as-you-go fee.
Some uncertainties stand before Lenovo’s growth strategy.
Mounting tensions with the U.S. led China to put a data security law into effect this month, to be followed by a personal information privacy law in November.
These restrictions will make it difficult for companies to transfer data across borders.
“Chinese regulations are neither an advantage nor a disadvantage for Lenovo’s business activities,” Yang said. “The company consistently follows all legal requirements around the world,” he said, including data privacy rules rolled out in Europe or in the U.S. state of California.
When the U.S. and China enjoyed rosier ties in 2005, Lenovo bought IBM’s PC business and instantly rose as a major computer vendor. Some analysts believe that the high ratio of overseas sales will cloud Lenovo’s future prospects.
The Americas contributed the most revenue in the April-June quarter, at 33%. Europe, Middle East and Africa together accounted for 25%, while China generated only 27%.
The company recognizes that the record earnings owe largely to the fallout from the pandemic.
“We aim to double net profit in three years,” Yang said. To reach this goal, growing the solutions business is paramount. His business acumen will face a test.