Lenovo: Motorola, IBM x86 Server Deals Already Paying Off

Lenovo executives were rewarded with fast returns on the $5 billion the company spent last year, after solid quarterly numbers for both smartphones and servers.

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A year after spending almost $5 billion to buy IBM's x86 server business and Motorola Mobility from Google, Lenovo’s bets are paying off.

This week, Lenovo reported third quarter revenues of $14.1 billion, a 31 percent jump over the same period in 2013. The revenue figure shows the impact of the acquisitions, which were part of a larger plan -- called PC Plus by company executives -- to become a leader in multiple computing markets.

In the previous quarter a year earlier, PCs accounted for 81 percent of Lenovo's revenues compared to 65 percent in the most recent reported quarter. Another 24 percent of revenue came from the mobile business, and 9 percent from the enterprise business.

Also, Lenovo shipped more than 10 million Motorola smartphones in the quarter that ended Dec. 31, double what Motorola shipped the year before.

At the time Lenovo bought the server and smartphone businesses in 2014, the Chinese tech company already was the world's largest PC maker, having surpassed Hewlett-Packard. Its aim was to gain ground in the server and smartphone markets.

Both deals closed last fall, and the quarterly financial earnings that executives announced this week were the first to include the two new businesses acquired from IBM and Google.

It was good news for the company. With the acquisitions, Lenovo immediately became the world's third-largest vendor of both smartphones and servers, though some industry observers worried that the new businesses—particularly Motorola—would hurt the company financially, at least initially.

However, CEO Yang Yuanqing said that, "for the Motorola business, we are very satisfied with the progress," according to the Wall Street Journal.

Yang later told the news organization that he expects that within a year, the smartphone business will account for 30 percent of the company's revenues. Lenovo officials also said they expect the Motorola subsidiary to be profitable within four to six quarters after the close of the deal in October 2014.

With Motorola as a subsidiary, Lenovo reportedly also saw a sharp shift in where it's selling smartphones. Before the acquisition, the company had sold 80 percent of its smartphones into the booming Chinese market. In the last quarter, only about 40 percent were sold in China, with the other 60 percent being sold outside of the country.

However, at the end of January, the Motorola brand was reintroduced into China as Lenovo looked to protect its share of the home market and compete with rivals from both inside of China—such as fast-growing Xiaomi—and outside, in the form of Apple and others. In a statement announcing the quarterly earnings, Lenovo officials noted that "fierce competition in the China mobile phone business was a drag on the performance of Lenovo-brand smartphones."

In the Enterprise Business Group, the company saw x86 server sales hit $986 million, and is on track to be a $5 billion business for the company with better profit margins that the PC business in one year. Combined, the new System x business and Lenovo's ThinkServer business grabbed 10.4 percent of the global server market in the quarter, making it number three behind HP and Dell. It's also number one in China, Lenovo officials said.