Lenovo Channel Chief Q&A: Chris Frey On Q3 Earnings, 2015 Partner Imperatives

Frey On The Hot Seat

Lenovo Monday reported quarterly revenue of $14.1 billion, up 31 percent from the prior year, with Chairman and CEO Yang Yuanqing stating that his company was at the "starting line of a new race."

For Chris Frey, recently promoted to vice president and general manager of Lenovo's North America commercial business, the pressure is on to drive new sales, grow its partner community and, at the same time, take Lenovo's SMB and large accounts to the next level.

We caught up with Frey hours after Lenovo reported its third-quarter earnings to parse the Wall Street gains and discuss how its success will translate into partner gains.

With System x on its way to being fully integrated into Lenovo, how much will you move the needle on your enterprise business and how fast?

We are going to move aggressively to grow in the enterprise space by working in the channel. By working with the channel, we are going to scale this business together. We think that by bringing the entire product stack to our customers, we are going to be able to do it fast.

The way we are going to do it is by making sure we are very aggressive on programs and very aggressive on price. We are going to be very aggressive about addressing the 2003 refresh cycle that's coming up. We are also going to be working very closely with the channel so they see revenue and scaling in line with what Lenovo is going to do.

Are HP and Dell your biggest targets right now as you look to leverage both the System x and Motorola parts of your portfolio? How fast do you want to move the needle on growing new business?

We focus on what we do and don't comment on the competition. If we do our job, we will continue to acquire new customers. Our focus is on doing the right thing for our customers and to continue to bring the best technology to them.

The goal is to be No. 1 in PCs and servers. But we don't have any announced timelines to achieve that goal. We are going to continue to make sure we are doing what's right for our customers and what's right for our partners. Our channel strategy does not change. As a matter of fact, we are giving the channel more products to offer their customers and they can expect that to continue as we integrate our business together and meet our goals and principles, which are to keep things simple, consistent, predictable and profitable for our partners.

In Lenovo's Q3 filings you discus how enterprise is more profitable. How does that change your strategic imperative between PCs and your server business?

We bought IBM's server business not only to bring that business to customers, but also because there is more margin than in the PC business. By being one Lenovo, we will be able to leverage the P&Ls of both product lines and drive scale in both places.

But clearly, the server business is super strategic and critical to our success. We are going to be very aggressive in the market to grow that business quickly.

Can you give us an update on the integration of System x within Lenovo?

The integration is going very well. What we have been talking to the channel about is being one Lenovo, one channel. What that means is we don't want our channel partners or our customers to look at us and say we are a PC company on one side of the house and a server company on the other side. We want to be considered as Lenovo, bringing the entire product portfolio together as one company.

The integration as it relates the channel is about 75 percent of the way done. By April, which is our new fiscal year, we will be 100 percent integrated across all platforms. What I mean by that is people, programs and partners will be 100 percent integrated on April 1.

As you look toward 100 percent integration, is there going to be redundancy?

We don't want to differentiate the product lines and they will eventually become one product line as refresh products. So technology-wise, we will make sure we are addressing all parts of the market whether it be System x or ThinkServer and try to eliminate redundancy as it relates to the product lines.

We are also integrating partner programs. We are doing it in a way that partners understand. We want partners to be able to navigate Lenovo so they don't need to do it by server, product lines and PCs.

According to Lenovo's CEO, Lenovo will be focusing on bringing the Motorola brand to the Chinese market. What are your plans with Motorola here in the U.S.?

We are still developing what that business model looks like. We have talked to multiple commercial partners and distributors about our interest in entering the North American market through one of those commercial channels.

When we do, we need to make sure the business model is sound and not confusing to customers and the experience is solid. We are building out those plans right now. As soon as we think those plans are solidified and we have the right business model, we will move forward.

Lenovo is seeing growth in a number of geographic areas. Closer to home, what are the challenges and goals for Lenovo here in North America?

Right now in North America we continue to grow. We are at a record share in 10.4 percent for PCs. We expect our PC business will continue to drive share and scale. That is going to require Lenovo to continue to be strong across multiple customer segments.

To accomplish those goals, we are taking a multipronged approach to the market. We have to continue to grow the lines of business: consumer, retail and business. We have done that. But we have to continue the focus on SMB and large account business and public sector business, in which we have had strong and good results in the past.

So we are not dependent on one customer segment, Lenovo is going to continue to grow in all three of those customer segments. We are also going to continue to focus on our core business -- our ThinkPads, mobile business and our desktop business. We are also going to succeed by participating in price bands that the market has dictated it wants and where Lenovo may not have historically participated.

Can you talk about the partnerships you have today with VMware, EMC and IBM and what those partnerships will look like a year from today?

I would say the thing we are most proud of now is that Lenovo is an open server company. What that means is we are in the hardware business and that's the business we are focused on and we will stay focused on.

As our relationship with vendors relates to partners, what we want to let partners do business with us or any other manufacturers that they are comfortable with. We want partners to do business with whoever is meeting their technology needs. We will not dictate who they should use.

For example, we are not in the software business, so we have strategic relationships with VMware. On the storage front, we have relationships with IBM and EMC as well having our own storage solutions.

How does Lenovo's PC business complement its server business? Where do you see the synergies for partners?

The synergy between our PC business and our server business revolves around one thing. We bring the best innovation to market and we have our own R&D internally. We do not outsource it and we will continue to bring the best products that create the best experiences. We are known for that. It's key to our business. IBM was known for innovation and technology. You can expect the same if not more across the PC and server product lines.

What are Lenovo's plans to move up the stack and offer more complex IT solutions?

As far as road map, we are in the converged business. We are in the data center business with System x.

But we want to make sure we are addressing where the market is today and where the most volume is. Today that type of velocity is taking place especially in the 1P and 2P [server platform] area. So yes, we are going to continue to bring solutions high in the stack. But we are going to aggressively go after the volume space which our portfolio -- in the past -- was limited. But now that we have it, we are going to be very aggressive there.

As you end this third quarter and shift focus to your fourth quarter, what is your message to the channel?

Eighty-five percent of Lenovo's business in North America goes through the channel. We increased the number of partners that resell our product by 22 percent year-on-year.

We are going to continue to reward our partners for selling into SMB. But we are also going to continue to reward the channel for growing our large account space.

As you step into your new role, what can partners expect from Chris Frey next quarter?

With the consolidation of the SMB business with the large account business underneath me, the channel can continue to expect Lenovo to focus on driving business through the channel and driving profit dollars through the channel and rewarding them for not only the SMB business, but all the business that goes through the channel.

Lenovo will continue to see 50 percent growth year-on-year across desktops, notebooks and servers, which is exactly what we saw last quarter.

As Lenovo looks to supercharge the partner base, what can we expect to see from a program perspective to incent the base?

One program that has been one of our most successful in Lenovo is the "new customer bonus program." Starting Feb. 1, it's open to everyone.

The new customer bonus now extends from PCs to our System x business. The program allows partners to determine if they want their rebate [or margin] on the front end or the back end. By giving them the opportunity to choose -- and to do it across all product lines -- we are getting great feedback from the partner community. They are excited about not having to use two partner incentive systems across two different product lines to implement the program.

Can you give me a thumbnail outline of the rebate incentives?

Up to 20% [limited time] for top-seller ThinkServer Systems; up to 9% for corporate ThinkServer systems, ThinkServer options, System x systems, System x options, storage products and enterprise services; up to 8% for ThinkStations, Think peripherals and services; and up to 5% for commercial notebooks and desktops, visuals and top-seller consumer notebooks

What's your message to the channel?

Lenovo and the channel partner community need to acquire new customers to create new opportunities, new revenue streams, so we can both reach new profit horizons. Partners can expect Lenovo will be addressing these goals across all product segments and markets. We are looking forward to working with and through the channel moving forward.