Lenovo’s latest earnings were impressive. The infrastructure solutions group (ISG) overall saw record revenue and record profits. Further, each contributor to ISG (server, storage, software) achieved record revenues in its own right.
It’s worth taking a look at how impressive the quarter was for ISG by the numbers.
In addition to the record revenue, Lenovo is seeing record operating profits and margins. In other words, the company isn’t gaining market share simply by cutting prices and damaging its margins. In fact, its margin contribution tells me that these servers and storage boxes are richly configured, and the company is employing a strong pricing discipline.
Something that jumps out in the above graph is the growth that Lenovo experienced in its storage business. 345% year-to-year (YTY) growth! Even when considering the low revenue numbers for the year prior, this is an incredible achievement.
While the growth across the board is impressive, there are still a lot of questions. Where is Lenovo winning? Is this success sustainable over the long term? And how, exactly, has the company been able to ramp so quickly? I’m going to try to cover all this and more below.
Digging deeper into Lenovo’s numbers
It’s important to couch the Lenovo quarterly numbers in the right context. To take an obvious example, the company only recently started to compete in storage, so that 345% YTY number must be considered in the context of a low starting point. With that said, Lenovo has clearly been killing it in storage. In lower-end storage, which makes up about 60% of the market, Lenovo has already established itself as the number one storage player—with growth that is exponentially outpacing the market.
Moving up the stack in terms of performance and cost, Lenovo has seen similar success, doubling its storage growth in the midrange and again greatly outpacing the market in the margin-rich all flash array (AFA) space.
I believe Lenovo’s President of ISG, Kirk Skaugen and his team are taking the same approach to ramping the storage business that they did in servers: play where you can win, don’t play where you can’t win and build gravity. As market gravity is built, then you expand reach.
And it’s working. As mentioned, Lenovo is cleaning up in that lower end, transaction-driven storage space. I expect to see strong momentum in the upcoming quarters as it continues to build its footprint. Think about it like this: an enterprise adopts Lenovo for the lower end of its storage needs and finds a compelling price-performance advantage. Six months later, the enterprise needs higher-end storage arrays to support a new project. Which company is going to be considered first? Lenovo, of course.
Lenovo has done a good job of assembling a storage portfolio that meets the broad range of deployment and usage scenarios an organization may have, from traditional JBOD to HCI and the higher end of the market. This is achieved through development of its own platforms, as well as partnerships with industry leaders.
A good example of this partnering is the recently announced collaboration with WEKA. By integrating the WEKA data platform on Lenovo’s SDS-ready nodes, customers have a highly performant environment for HPC and AI. And because these ready nodes are validated by Lenovo, the process of provisioning is far simpler and much quicker than deploying piecemeal.
I think if Lenovo can continue to focus on doing the things it does best (design and manufacturing) while relying on trusted partners like WEKA to add their unique contributions, there is a lot of upside for the company.
Recent additions to the Lenovo portfolio
While it’s fun to talk about Lenovo’s success over the past year in terms of sales, the company also recently announced a couple of additions to its portfolio. The first addition is the D4390 High Density JBOD configuration. This disk array is designed for the software-defined storage space; it delivers significant performance gains while reducing both power consumption (up to 62%) and OpEx (because it requires as much as 60% less datacenter space). This is a good play from Lenovo to attract enterprises looking to achieve higher throughput for workloads while driving toward sustainability goals. (If the balance of performance and sustainability is important to you, take a look at my recent analysis of immersion-cooling solutions from Mears Advanced Technology Group.)
Also announced was Lenovo’s ThinkSystem DM Series software update (version 9.12). Security and zero trust were the focus of this upgrade, including autonomous ransomware protection, tamper-proof snapshots, advanced authentication and enhanced auditing. I see this as driving greater levels of enterprise-grade data management to accompany a hardware portfolio that has quickly evolved to support the full range of enterprise storage needs.
The key to Lenovo’s success: One Lenovo
It’s no surprise that ISG—in both servers and storage—is surging as Lenovo learns to leverage its channel strength through its One Lenovo strategy. Simply put, this strategy removes barriers between Lenovo’s sales motions for PCs and the datacenter. Resellers who were once focused on selling only PCs are now trained and incentivized for selling servers and storage—and vice versa.
It may seem like an obvious play—enable all players to sell everything. But anybody who has worked in channel sales knows how difficult such a program is to successfully implement. Compensation, marketing funds, joint campaigns, alignment between different business units with different revenue and margin goals . . . all these details take time and effort to sort out, and it’s no easy feat. But again, Skaugen and team did the right thing, in this case by bringing in the right person to drive this program: SVP and President, Vladimir Rozanovich who has a lot of experience driving programs like this at AMD across client and server, consumer and enterprise segments.
Lenovo’s strength in the channel shouldn’t be discounted. Even the largest of enterprise organizations rely on partners to recommend, sell and assist in deploying infrastructure. A good channel partner is an IT executive’s best friend and most trusted advisor.
Beyond that, a good channel partner is also an IT solutions provider’s most important ally. But even a good portfolio that’s priced competitively doesn’t build the alliance between a vendor and a channel partner by itself. Rather, there must be a strong working relationship and a high level of trust established across the organization. This applies to everyone from executives sitting in quarterly business reviews to the sales reps making calls, to the solutions architects tailoring bespoke deployments for customers. And this is where Lenovo seems to have found its groove.
What’s next for Lenovo ISG
Where does Lenovo go from here? It’s hard to imagine the company can improve on its current run:
- 48% overall revenue growth for ISG
- 35% revenue growth in servers
- 345% revenue growth in storage, achieving the No. 1 spot for the largest revenue segment
- 600% revenue growth for TruScale (as-a-service)
As impressive as these numbers are, I think the company still has a lot more it can do. While Lenovo has done quite well in the hyperscale and HPC markets, I believe its enterprise run is just beginning. And as it continues to drive Lenovo One as a methodology for engaging and activating the channel, it can do even more in terms of enterprise outreach. I would like to see the company amplify its voice relative to the other big players in this space. If the company can drive greater consideration among enterprise IT buyers, especially earlier in buying cycles, the sky could be the limit for both Lenovo and its partners.
Also, I believe the company’s solutions and services group (SSG) can be a highly effective tool in driving increased revenues and margins. Enterprise IT doesn’t want to buy point solutions that then have to be deployed, integrated and optimized. These organizations want to be able to rely on their partners and vendors to do this heavy lifting so that solutions can return value on day one. And this is where Lenovo can leverage its SSG organization even more.
With the above said, Lenovo ISG has obviously found its groove. And while there is always more a company can do to drive business, it’s hard to argue with the results they have seen. Now let’s see how the next few quarters play out.