With the AI data center buildout causing unprecedented component shortages, Lenovo and other OEMs are trying to find the balance between protecting themselves and helping partners navigate an issue that threatens to erode their profit margins in multiple ways.
Lenovo said that last quarter was the best in the company’s history, fueled in part by ongoing AI demand that has constrained component supplies and prompted hardware price increases amid other ripple effects in the channel.
The Chinese tech giant Thursday reported a 43 percent year-over-year increase to a record $26.9 billion in revenue for its first fiscal quarter, which ended in June. This was aided by all three of Lenovo’s businesses—in client devices, data center products and services—each of which saw record revenue and operating profit for the period.
[Related: Lenovo Increases Prices For PCs, Laptops And Device Custom Builds; Partners Weigh In]
The strong momentum allowed the company to surpass $1 billion in adjusted net income for the first time, representing a 176 percent increase from the same quarter last year.
With the AI data center buildout causing unprecedented component shortages—mainly in memory chips and, increasingly, CPUs—Lenovo and other OEMs are trying to find the balance between protecting themselves and helping partners navigate an issue that threatens to erode their profit margins in multiple ways.
Chris Bogan, vice president of alliances at Houston-based systems integrator Mark III Systems, told CRN that Lenovo has “done a good job of communicating” policy changes, price increases and other dynamics that have been impacted by supply shortages.
“We’ve been able to get what we need to [for customers]. [Lenovo has] been willing to take risks where it was a very wise and calculated risk on behalf of customers. And from that perspective, it’s been really good,” he said.
Prashant Singh, vice president of revenue operations and partner alliances at Phoenix-based solution provider powerhouse Insight, said Lenovo is “phenomenal” and “right at the top” in terms of channel friendliness.
“They listen to us when we have a specific ask. They get along with us for the end customer, so that we can solve their needs in a more creative manner,” he said. “So now they have started really showing up in terms of what they bring in the numbers and their earnings, [which] I know they are going to bring to the table with their customer focus [and] their partner focus.”
How Lenovo’s Client Device Business Withstood Supply Disruptions
All three of Lenovo’s businesses experienced double-digit increases in revenue for the first quarter, with its client device business, the Intelligent Devices Group, reporting a 27 percent year-over-year increase to a record $17.1 billion.
The client business also managed to keep its operating margin stable at 7.1 percent “despite rising commodity costs and heightened market competition.” For this, it credited Lenovo’s “continued operational excellence, supply chain resilience and innovation.”
“While component supply-demand imbalances may continue to create near-term headwinds and market volatility, [Lenovo] is confident that its well-balanced geographical footprint, increasingly optimized portfolio and industry-leading supply chain will enable it to navigate this environment, continue to outperform market growth and protect profit margins,” the company wrote.
It’s Not Just AI That Nearly Doubled Lenovo’s Data Center Business
Lenovo’s data center business, the Infrastructure Solutions Group, saw the fastest growth, reporting a 98 percent year-over-year increase to a record $8.5 billion in revenue for the first quarter. The group’s operating margin reached an all-time high of 9.1 percent as operating profit reached $777 million.
One major driver for the business was the AI server category, for which revenue grew by a triple-digit percentage over last year’s first quarter. The company also said its customer pipeline for such products was up 157 percent year over year to $54 billion, representing the total value of deals that have not yet been completed.
The company also noted how revenue from cloud service providers as well as enterprise and SMB customers nearly doubled year over year, “driven by accelerating AI infrastructure momentum, a rapidly expanding customer base, and enhanced go-to-market capabilities focused on efficiency, speed and execution.”
There were two other significant sources of growth for Lenovo’s data center business: traditional compute and storage products.
Lenovo’s AI Services Revenue Is Growing Really Fast
Within Lenovo’s Solutions and Services Group, quarterly revenue reached a record of $2.9 billion, up 28 percent from the same period last year. It also achieved a record operating margin of 24.2 percent as its operating profit grew 39 percent year over year to $697 million.
The company reported success across multiple segments, saying that bookings for its TruScale Infrastructure-as-a-Service offerings “delivered hypergrowth” thanks to cloud and enterprise customers going with AI factory deployments.
Lenovo also noted how projects and solutions revenue accelerated thanks to “a robust multi-quarter booking backlog and AI library adoption.”
These things contributed to managed services and projects and solutions reaching a record 62.4 percent of the business unit’s total revenue.
The company said AI is significantly expanding the total addressable market for the Solutions and Services Group, adding an extra opportunity of more than $200 billion for the current fiscal year. It added that AI-led opportunities “are growing significantly faster than the broader market and are expected to nearly double” in three years.
