Even though the PC market has seen record declines, high-flying Lenovo just reported record revenue and a 90 percent increase in profits compared to a year ago. Has the Chinese-based company figured out how to turn Windows 8 into gold?
The company's latest earnings statement certainly makes it sound as if it's figured out how to do that. For the quarter that ended March 31, it had a net profit of $127 million, up 90 percent compared to a year ago, and its highest revenue ever, $7.8 billion, which was up 4 percent from the same period a year ago.
The PC maker has managed to do that even as the rest of the PC market takes a nose dive. IDC reports that in the first quarter of the year, PC sales had their biggest worldwide drop ever, plummeting 13.9 percent. And Gartner recently found that sales of PCs in Western Europe fell 20.5 percent in the first quarter.
Both Gartner and IDC attribute at least part of the decline to Windows 8. Bob O'Donnell, IDC Program Vice President, Clients and Displays, said this about the effect of Windows 8 on sales:
"At this point, unfortunately, it seems clear that the Windows 8 launch not only failed to provide a positive boost to the PC market, but appears to have slowed the market."
So how has Lenovo succeeded? With its increasing sales, it's now close to the market leader, HP, with a 15.3 percent market share to HP's 15.7 percent market share.
At least one commenter believes that Lenovo's success is due to its willingness to invest in innovative Windows 8 hardware, including PC/tablet hybrids and its Yoga line that twists in various ways so that the hardware accomodates itself to users, rather than the other way around.
ZDNet's James Kendrick says that Lenovo's earnings report shows that the company's "approach of building as many innovative PC forms as possible is apparently working."
That sounds as if Lenovo really has found a way to use Windows 8 to spark increased sales. But as the Gershwin song goes, it ain't necessarily so. Computerworld reports that a significant reason for high earnings is the company's PC sales in China, saying that Lenovo:
"...has managed to weather the slowdown by taking advantage of the Chinese PC market, where it has an over 30% market share. Close to half of the company's revenue comes from the country, now the world's largest PC market."
So it's not necessarily innovative hardware that's driving growth, but instead Lenovo focusing on its home market, which happens to be the world's largest. In addition, Computerworld reports that Lenovo smartphone sales are up dramatically, helping boost the bottom line. Smartphone shipments increased a whopping 206% compared to a year previous.
I applaud Lenovo for experimenting with new form factors and PC types. The company has been at the forefront of innovative PC design for the mass market. Other vendors should follow its lead.
But it doesn't look as if innovative design of Windows 8 products are driving the company's growth. Instead, it seems to be a focus on its home market and selling more smartphones that's mainly doing the trick.