Lenovo Group Ltd. hit it out of the park in this week's earning report, which is nothing short of good news for the Lenovo partners. As competing vendors vie to scoop up both customers and partners with the pending acquisition of IBM's x86 server business by Lenovo, the vendor delivered strong growth that signaled noteworthy opportunity for current and would-be partners.
Lenovo reported 18% revenue growth and an increase in earnings by 23% earnings, or $214 million, in the three months ending June 30. Global revenue was $10.4 billion, an 18% increase. The Americas group accounted for 22% of total revenue, representing a significant portion of Lenovo's business.
In a Q&A with Chris Frey, vice president of North America commercial channels and SMB at Lenovo, we discussed Lenovo’s business in North America, in the SMB space and in the enterprise.
Let's start by looking at some numbers in North America.
Chris Freyvice president of North America commercial channels and SMB, Lenovo
Chris Frey: North America made a significant contribution to the Americas business. North America[n] business grew over 20% in revenue … and earnings grew at over 40%. Total market share for North America is at a record share of 11.6%, up from 10.2% the previous quarter. [By comparison, in fiscal year 2010, market share was 3.7%.]
Total revenue through the channel in North America last quarter grew at over 20%. Our total commercial business, including large accounts, state and local government, K12, and SMB -- 85% of our business -- goes through the channel and our partners are benefiting from the revenue growth, [in] new customers as well as profit dollars they make. So, our channel has hit a significant growth number at 20%.
Our business isn't growing in the channel with the same partner set. Our partner set last quarter increased by 22% year-on-year – that's partners selling our products on a regular basis. These figures show that our business is scaling and more partners are selling our products.
[Lenovo reported over 11,000 active partners with a base of 25,000 total.]
Talk about the channel and the SMB market.
Frey: Our SMB business through the channel last quarter grew 60% year-on-year. That's an over 50% premium to the market. By the way, all of these numbers show that we picked up a 4% share in the SMB market through the channel.
To what do you attribute that growth?
Frey: Almost two years ago, we started this theory around hand-to-hand combat with our partners. Basically, it's about field engagement. So, my reps inside and outside [are] talking to partner reps, calling on customers and training them on how to sell our products for us versus needing us in every sales transaction.
My belief if that if I train partners to sell for us and they don't need me in every transaction, it means that the transaction won't slow down, which is an important part of the sales motion for any reseller.
So, I attribute our success to [the fact] that we continue to invest in people to call on partner reps, to train them and earn their trust to sell our products for us.
What products are these Lenovo partners selling?
Frey: In this SMB business model that I talked about, our commercial desktop business grew at over 60%, our commercial notebook business grew over 50%, and our commercial server business grew at over 90%. That's very balanced growth across all three product sets that we have in our channel.
What about Lenovo in the enterprise? Competitors have been known to say that the company is not a formidable competitor in this market segment, despite the pending IBM acquisition.
Frey: First, the IBM transaction is still on track. We as a company realize that as something is being finalized, our business does not stop. So, we will continue to focus on what our business is about today. We will not get distracted by what is in the works and -- by the way -- we won't get distracted by our competitors trying to take advantage of a situation. We think our track record speaks for itself in terms of what we've been able to do in the PC market, in the tablet market, in the smartphone market and, soon, the enterprise market. So we won't address our competitors.
What we are addressing is making sure that we clearly articulate to our commercial channel how they will be able to provide more solutions to their customers from the pants pocket to the data center, meaning that we'll be the only manufacturer in the world that will be able to provide phones, tablets, PCs and servers all the way to the cloud. And, of course, I'm sure that that's creating anxiety out in the marketplace, but one that we're excited about and will leverage to the max when the time comes.
Has the company made any significant announcements since Lenovo Accelerate 2014, your partner conference held in May?
Frey: Yes. One of the top five things I talked about at Accelerate was the partner experience and making sure that, as our business continues to scale in the channel, the operational efficiencies are there to support that growth. One of the things that was clearly articulated to me at many round tables at the conference was around one of our most successful programs, the New Customer Bonus Program that was launched many years ago.
It's a program [in which] we reward partners for selling for us to new customers. They requested some flexibility in that program; it used to be a back-end program.
Yesterday, we announced the flexibility that they were asking for. We took a back-end program and made it a choice program. So, partners will have a choice as to how they want their program dollars -- on the back end or front end -- and they can make that choice per transaction depending on how they're going to market with a particular customer.
Lenovo partners grow in numbers and revenue
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