Lenovo’s Quarterly Financial Report: A Showcase of Best Practices

This week, Lenovo presented its financial report. Given the logistics and pandemic issues being experienced globally, the results showcased an impressive focus on the fundamentals and increasing elements of synergy between the operating units that have historically been difficult to identify. But what really struck me was the process Lenovo used to present the results. It showcased what I think is a series of unique best practices that highlight both repetition as a memory enhancement process and delegation to the collective capabilities of the leadership team.

Let’s talk first about Lenovo’s financial results and then go over the presentation process that appears to be a superior practice to what most other companies do with reports like this.

Lenovo results

Lenovo reported that while its primary PC business declined, increasing revenue diversity and solid business practices resulted in an increase in net income a respectable 11%. The decline in PC shipments was anticipated given the market over-purchased PCs during the pandemic ramp-up to work from home. This led to a saturated market, a short-term problem that should mitigate once these new machines start aging out. This will create a cycle of retirements tied to the pandemic event that will likely recur every three to five years or until the market moves to a replacement for PCs which has not yet been identified. Even so, Lenovo reported that its Total Available Market now is higher than it was pre-pandemic, which anticipates the potential for renewed growth in the segment as we move away (if we move away) from the pandemic impacts.

While the revenue line was soft, Lenovo solidly hit expense control, allowing it to hold expenses flat while increasing research and development by a healthy 10%. Research and Development is what assures a company’s future and the more common practice of cutting this line item during a revenue decline often results in a death spiral for a firm, a spiral Lenovo is avoiding by increasing R&D development and assuring the future health of the company.

Lenovo reports it has diversified around a third of its revenue from PCs, and this diversity also helped provide solid results during the PC slowdown. Other segments, like servers, services and storage, aren’t experiencing this post-pandemic decline, and increasing revenues from these businesses shielded Lenovo from much of the impact of the PC sales decline. It should be noted that even with the decline, IDC still ranks the company #1 in PC sales worldwide with around 24% market share.

Even Lenovo’s smartphone business showcased solid growth and results. This is a historically problematic unit that had been nearly destroyed by its prior ownership and leadership, but it’s clear from these results that Lenovo has largely fixed the unit which should be able now to showcase even greater performance increases in the future.

Best practices for reporting results

Normally, quarterly results are delivered by the CFO with some initial remarks by the CEO to establish that CEO as the head of the company and connecting the audience to that leadership. Lenovo’s CEO presented the financial results in depth and was followed by the CFO who largely repeated what the CEO said. It’s a rote practice that leads to greater retention of the material being shared. I often think that these presentations don’t take enough account of the audience that, during these work-from-home times, is largely remote and distracted. By approaching the presentation this way, Lenovo should better be able to direct the coverage of its financial results by repeating them and enhancing the recall of the audience. It does you very little good to present something important like this and not have the audience remember it.

Another best practice is that Lenovo also had the division heads at the event. Now having each of them present material would have likely lost much of the audience’s interest. Instead, Lenovo had these executives respond to questions. This approach showcased the competence of the executive team, helped that team learn how to do calls like this, and honed skills that will be needed if any one of them in becomes CEO. It also showcased the strength of Lenovo’s executive team which should help analysts and reporters see Lenovo for the power it is.

That power comes down to Lenovo being the only truly multi-national tech company and the only one in its segment able to move between the U.S. and China seamlessly.

Wrapping up: Solid results, impressive presentation

Lenovo’s financial results were impressively good given the pandemic, wars and related logistics problems plaguing the industry. Lenovo showcased a powerful focus on management basics by reducing costs while increasing R&D and simultaneously addressing current cost problems while assuring the company’s future.

However, it was the way Lenovo presented that I think requires some focus. By having the CFO largely repeat the CEO’s presentation, it validated the CEO’s pitch while creating a stronger memory of the results which should, in turn, result in more accurate, and likely positive, coverage of these results.

In addition, the use of the division heads for Q&A showcased the competence of these executives and helped train them on how to do presentations like this, making them more viable as CEO candidates in the future. Impressively done.