5 Things Partners Should Know About Lenovo's Q1 Results

Mixed Bag For Lenovo

Contending with sales declines and mounting competitive pressure as it tries to fight its way into a hardware battle with the likes of Hewlett Packard Enterprise, Dell and Cisco, Chinese PC powerhouse Lenovo says it will refocus.

Despite a profit upswing, sales declines prompted Lenovo Chairman and CEO Yang Yuanqing (pictured) to pledge a new focus on high-growth markets for PCs, a shift toward higher-priced smartphones and a continued push into the market for hyper-converged infrastructure.

Competitive pressure is forcing Lenovo to take on its largest competitors, like Dell, HPE and Cisco, in large accounts that are looking to make large-scale purchases as they transform their IT infrastructure, according to Krista Macomber, an analyst with Technology Business Research.

Meanwhile, Dell and Cisco are making inroads in Lenovo's home market in China, ratcheting up the competition there, as well.

Click through for five takeaways from Lenovo's Q1 earnings.

The Data Center Group's Channel Program Will Get An Investment Boost

The data center is a key battleground for IT industry heavyweights, and Lenovo said it will make strategic investments in its channel program's sales force capabilities, marketing and portfolio partners. The company said the investments will aim to improve the group's financial footing with better cost-competitiveness and drive an increased attach rate for storage, networking and services.

Sales Declines Were Across Geographies

In its fiscal 2017 first quarter, ended June 30, Lenovo's sales challenges were global. The company reported revenue of about $10 billion, a 6 percent decline compared to the same quarter a year earlier. Sales in the Americas declined 6.6 percent to about $3 billion. In China sales fell 9.8 percent to $2.9 billion. Sales in the Asia-Pacific region were down 1 percent and EMEA sales declined 7.3 percent.

Business Groups Had A Tough Quarter

The company saw a 7 percent year-over-year sales decrease in PC sales; a 6 percent decline in its mobile business; and a 1 percent increase in its data center business, the company said. The PC group booked an operating profit of $370 million, a 2.4 percent year-over-year increase. The data center group saw its operating losses deepen to $64 million from $40 million a year ago and the mobile business's operating loss widened 12 percent to $206 million.

It Was A Tough Quarter For The Market As A Whole

The quarter's challenges came as Lenovo's primary markets slowed or declined. According to the company's estimates the PC market was down 4.1 percent, tablet shipments fell 11 percent, and shipments of servers and smartphones were essentially flat.

Despite Sales Declines, Profits Were Up

Overall, Lenovo reported a profit of $173 million, a 64 percent increase from the same period a year ago. However, one year ago, profits were negatively impacted by restructuring costs. The most recent quarter saw the company drive down operating expenses 17 percent to $1.3 billion and pocket $132 million on the sale of a Beijing office property.