Lenovo nearing full integration of growing server business

In a review of Lenovo’s North American quarter from a channel perspective, Chris Frey also talked channel growth, tablets and PCs, and why we are still waiting on the new North American mobility strategy.

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Chris Frey. VP and GM for Lenovo’s North America Commercial Business.

Lenovo reported strong results for its third quarter, with a 31 per cent quarterly revenue increase that beat analyst expectations. Their server business did exceptionally well, as the integration of the x86 business from IBM began last April. The company also expects that business to improve, as the integration nears its completion.

“In our channel server business, this was our best ThinkServer quarter ever, with 160 per cent growth year on year,” said Chris Frey. VP and GM for Lenovo’s North America Commercial Business. “In terms of our total server business, ThinkServer and System X combined had their highest share ever through the channel. When I break those down into product categories, we were number one in tower sales through the channel, and number two in both rack and combined through the channel.”

Frey emphasized a theme he has stressed several times since the x86 acquisition, that the ThinkServer and x86 businesses will be run as ‘One Lenovo’, part of an approach that will see all servers and PCs treated as the same sales unit for organizational purposes.

“We want our partners to see us selling PCs and servers covered by one team, in one program,” he said. “We will still have same coverage model. We will just become more robust, with more feet on the street in front of customers and partners. We won’t have PC reps and server reps, just ‘One Lenovo,’ and the channel should expect one Lenovo rep calling on them.”

The integration of the server business is nearing completion.

“We are about 70 per cent done on the server integration as it relates to people, programs and partners,” Frey said. “We will be 100 done by the April 1 anniversary, which represents an acceleration of the original road map.”

Frey noted that, as Lenovo has strongly encouraged, more partners have been adding Lenovo servers to their offerings.

“We saw a 30 per cent increase in the number of partners reselling our combined server line, which represents both a nice recruiting effort and partners becoming more comfortable with the product line,” he said.

On the commercial mobility front, while the Motorola Mobility acquisition was finalized months ago, Frey said that the details of how this will work are still being hammered out.

“The delay here is that the mobility market has been changing, Frey said. “We want to create the right business model that does not complicate things for our customers and partners, and making sure this will be in place is still something we are putting together. We are still working on this with our [distribution and retail] partners, and as this matures, we will see what the coverage looks like.”

Frey said that PCs remain the foundation of Lenovo’s business – 65 per cent of their business last quarter globally compared to mobile at 24 per cent and servers at 9 per cent.

“PCs are our foundation, and we retained the number one PC position,” Frey said.

While IDC just reported a decline in tablet shipments, Frey said that had a marginal impact on Lenovo’s commercial business because Lenovo’s prime commercial commitment was to the PC.

“When the tablet frenzy was taking place, we never believed the tablet was going to replace the PC, that it was always just a complementary device,” Frey said. “We never really had a strong presence in the tablet market in the commercial channel, because we believed the PC was the product and that’s where we put our money and our innovation. We think with convertibles you can give people the same experience with one device. We believe this is the year the convertible device will have significant traction – a productivity device that also has a tablet experience.”

Frey indicated that Lenovo’s North American business, particularly its channel business, also posted strong results.

“In North America, we had another great quarter, grew faster than the market again, and now have a record share of 10.4 per cent,” he said. “85 per cent of the North American business is sold through the channel, and that hasn’t changed. We saw a 60 per cent increase in SMB though the channel, and picked up four points of share there. We also saw a 22 per cent increase in the number of partners reselling on a regular basis.”