The Six Five team discusses Lenovo Q2 FY 2024 Earnings.
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Transcript:
Daniel Newman: So here’s a long and short story, Pat. Lenovo, ISG, pretty good. SSG, really good. IDG, not so good. Okay, what’s the long take here? PCs are just starting to come back. Good news, we’ve heard from Intel, Pat, we’ve heard from Pat Gelsinger, we’ve heard from Lisa Su, we’ve heard from Huawei, we’ve heard from Enrique Lores.
The bottom for PCs is more or less in, that is the consensus. Is that factual? We’ll see. Shipment’s way down. The Gartner numbers showed way down. Those other guys showed a number that was way down. I’ll see what the future of intelligence data says when we start to record that later next year. But the numbers are still soft. But coming out, what’s the trend line for PCs? The trend line is the AI PC. This is the sort of inflection moment in which we’re going to see another supercycle that’s going to be based upon these new generative AI workloads that will not perform optimally on current hardware. This is going to force enterprises and consumers to be looking at upgrading and it’s going to move upgrade cycles on PCs to something that could end up looking a little bit more like phones, at least on the cutting edge where people are going to want to get more generation to generation.
The numbers vary across averages, but people don’t update their PCs as often as their phones. It’s just not as frequently. And so we’re going to see that more. Pat, I was very bullish on the 40% non PC revenue. The company has moved away from having as much dependency and the more they move towards parity between the infrastructure, the services and the PC better, they’re seeing strong expansion of their SSG business. The managed services revenue mix is up and they’re seeing growth in the margins. They’re investing billions in AI. The AI investments, the solution building Pat is going to be really important because if you’re just coming to sell hardware, if you’re just trying to sell GPU boxes, that’s going to be competitive. It’s a race to the bottom. But if you’re able to sit, stand up solutions, deliver services, deploy software, you’ll see growth, you’ll see scale.
The overall Pat, the company had record storage revenue, which was a good number. I don’t think people realize it, it’s the number three storage company in the world. That’s really impressive. So shout to Kirk Skagen and to Ken Wong that run those two businesses. You’re on a really good trajectory over there. Moral of the story, Pat, as I walk out of this one, I couldn’t go as fast as I wanted to, but the moral of the story here on Lenovo is the world needs to realize that this isn’t just a PC company anymore. I read a whole bunch of media pieces, it was eight paragraphs about the PC business and then this much of a blurb about the rest of the company. 40% of the company is not PC anymore. It’s time that the world takes notice that this is an infrastructure company, a service company, and that is going to be what rescues it from these vicious highs and lows.
Patrick Moorhead: Yeah, so I like to gauge earnings in a couple ways and one of them, if revenue is down is, is it self-inflicted or is it primarily market inflicted? The PC market is absolutely down. Lenovo is still the number one unit market share. And there’s a claim in here that I need to go and double click that says they have the highest profit for a PC company, and I need to do the double click on that one. And the only reason that I think they’re printing money with ThinkPad and commercial, but they have a very robust consumer business. So I think it’s mostly, again, the market as opposed to what Lenovo is doing.
I think you captured it pretty well on ISG, particularly when it comes to storage. I need to do the double click with Kirk on the server part, but you can’t take anything away on the storage side with record revenue, just an eye watering 46% year over year and like you said, Dan, number three, software up 3%, not great. But I think that those are inextricably tied to the amount of servers that they sell as well. High performance computing, their number one market share, the revenue is up up 12% there.
I want to talk a little bit about the future, which is I think the company does have the ability to take advantage of AI. They’re making some big investments and in a way they’re Switzerland for software. So companies like VMware, companies like Red Hat and data protection companies like Veeam and Cohesity and Commvault and folks like that. Lenovo offers a certain version of data protection, but I don’t feel like they’re going after them. I would like to see Lenovo amp up their partnerships with other types of data companies like the Clouderas, the Snowflakes, the Rubriks, and folks like that because at the end of the day when Enterprise fully realizes the value of AI, it’s going to be about commingling data. Even though the current POCs and the way they’re looking at it is very narrowed on a certain type of data, maybe on CRM as an example, that’s going to move outside and this data conversation is going to be more important. So Lenovo, you did actually better than I thought you would. A couple of things I need to drill down on.
Daniel Newman: Yeah, I think they’ve got a good turn when the PC headwinds clear because the other parts of the business should be a little less cyclical and will be healthy.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
