Ann Berry (00:00):
Welcome back to After Earnings. I'm your host Ann Barry, and today we had the pleasure of talking to Lenovo's Ryan McCurdy, president of North America. The North American market accounts for about a quarter of Lenovo's, roughly $60 billion of global annual revenue, and Ryan joined the business in September, 2023 after a more than 20 year career at Intel. We asked Ryan how new marketing campaigns with the likes of FIFA F1 and shout outs from Paris Hilton have measurably enhanced Lenovo's brand awareness, his outlook for the PC replacement cycle, and specific ways that Lenovo is deploying AI both within its products and its operations. Let's get into it. So Ryan, I feel like we've got to start with the tough stuff because we're at such a critical moment in time where there is a lot of change going on in the macroeconomic setting here in the US and in North America. Now, you joined Lenovo as president of the North American business in September of 2023, right at a time when US security policy has been hyper-focused on concerns about Chinese access to US data coming to a Hong Kong listed company. How much time are you spending focused on this security and policy issue and privacy?
Ryan McCurdy (01:04):
Yeah, I mean we're spending a good amount of time on it. It's important. Security and privacy I think is top of every one of our customers lists, and I think we have partnerships across the industry that go back 20 years to our origin here in North America with the acquisition of the X 86 IBM PC business in 2005 and the X 86 server business in 2014. So we have a long history of working with customers and partners who care about security and privacy, and I think in the era of ai, it's all that more important. So I think it's very important to Lenovo, it's very important to our customers and it's something that we spend a lot of time on making sure we're best in class in this area.
Ann Berry (01:48):
And how has that sort of dynamic shifted with recent announcements that it feels as though the US is about to enter a period of renewed tariff activity at Lenovo? You have an incredibly global supply chain. What are your thoughts on how the next couple of years are going to play out for you? How do you feel about possible pricing implications for your clients here in North America?
Ryan McCurdy (02:11):
Yeah, it's a good question. It's honestly something that we're talking about with customers and partners. I think the way I view it is we've gone through multiple administrations, we've seen various tariff activities eight years ago, four years ago, and the good news is we've navigated all of them pretty expertly. I think when you're operating in 180 markets and you have a truly global supply chain, we're really built for this and I think once we understand some of the specifics that may come, we know don't have those specifics, but we know that we've been really good at adapting to that over the last four and eight years and we'll be great at navigating it going forward. I think it's really a competitive advantage for us and we'll continue to lean into that. As far as the specifics around pricing, we don't have anything yet that would suggest we know that that will be an outcome, but we're scenario planning really daily and weekly on the best way to optimize our factory network and our supply chain to service our customers with the most limited disruption possible.
Ann Berry (03:28):
Let's talk about some of the fun stuff. Ryan and I couldn't help but notice since you joined about 14 months ago, it feels as though there's been an uptick in some really high profile North American marketing partnerships. Maybe that's all thanks to you. Maybe that was in process before you arrived, but I've been seeing marketing partnerships announced in Madison Square Garden and some really prestigious New York based sports teams with fifa, with the F1. Talk to us about what's going on in terms of your focus on raising brand awareness.
Ryan McCurdy (03:56):
Yeah, it's a great question. I'm glad you asked it. It's one of the highlights of my year, year and a half here at Lenovo, really going big with a bunch of key partnerships. You mentioned a few of them, I can touch on them. Really, the banner in which we create these partnerships is around raising our brand awareness and our ability to showcase our portfolio. We call it our pocket in the smartphone all the way to the cloud, smartphone, A IPC, data center, server storage, cloud edge, that whole portfolio. What's the best way that we can showcase that in the case of some of these partnerships in a fan facing way, but ultimately to show what the Lenovo portfolio looks like? You mentioned the Lenovo Center. This one's very personal for us. It's in our backyard. It's one of the most impactful announcements in our two decade history in North America.
(04:58)
We're coming up on our 20th year anniversary in May, and we just signed this 10 year arena naming rights agreement with the Carolina hurricane, so super exciting. We have a lot of, not only do the hurricanes play at the Lenovo Center, but also the NC State Men's basketball. We have a lot of NC State alumni that work here at Lenovo. We have a lot of COCs, which is the name of the superfans for the hurricanes, and this is a decade long partnership that allows us to continue to invest and give back in the community. It also allows us to raise our brand awareness and showcase that product portfolio. So very exciting.
Ann Berry (05:40):
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Ryan McCurdy (06:47):
Yeah, and I think it's a good question. I think one thing I'll highlight to kind of differentiate from your SoFi comment is each of these partnerships are not new. So I'll just say from an F1 standpoint, formula One, we've been an investor and a partner for many years with the Lenovo Center. We've had a partnership with the hurricanes for 10 years, so in a lot of these Madison Square Garden would be the same, where we grow our partnership and we start somewhat smaller and the logical progression is to advance to kind of a larger decade long partnership. So your specific question on the products, one of the ones that's kind of most exciting if you're a fan of the sport is some of the analytics player and puck tracking. That's so much more common in sports now the player GMs are using these technologies to kind of look past the eye test and really let AI and some of these machine learning analytics tools allow you to see where the competitive advantages would be had in the sport.
(07:56)
We also, it's a large opportunity for us to host clients and partners. As I said, North Carolina has been home for 20 years to Lenovo and our ability to bring customers to our executive briefing center, show 'em all the technology that's created right here in our headquarters. Some examples of that would be our ThinkPad, the iconic ThinkPad brand is designed here in our North Carolina headquarters, so a lot of that design happens here. Our warm water cooling server technology is done right here. Our workstation products are done right here, so it's also an opportunity for us to bring customers and clients and partners to our headquarters, host them at the Lenovo Center, host them at Madison Square Garden, host them at an F1 event, and see some of that technology in play at these sports teams that they often love and follow as well.
Ann Berry (08:56):
Let's translate that into understanding a bit better. Ryan, your intelligent devices groups, that's PCs, smartphones, tablets. I looked at your earnings report, your most recent earnings. This particular group had 17% year over year increase in revenue globally, and there was a real shout out in your earnings report, two North America saying that the smartphone had experienced hypergrowth in North America up 20%. Where did that hypergrowth come from?
Ryan McCurdy (09:23):
Well, really in North America you mentioned overall the global result was very strong. The North America business, which I have responsibility for, was up 22%. We account for about a quarter of the global revenue here in North America. One of the things we're really proud of in the PC space is we've grown our market share to 17.8%, but it's the sixth straight quarter in which we've had a premium to market. Premium to market just means whatever the market is, we're beating it and for the last four quarters we've had double digit premium to market. So the overall PC market is kind of returning to growth after the Covid refresh. We're poised for that next large installed base refresh, a combination of Windows 11 PCs, a combination of these new AI PCs, and then you mentioned the smartphone business, 20% year over year growth. We're actually 12% of the overall North America smartphone market and we're close to 35% of the Android market, so a lot of enthusiasm. I mentioned our pocket to cloud portfolio we're actually 50% share in the emerging flip phone category, which is growing quite fast for us and allowing us to move up the stack into more premium devices.
Ann Berry (10:49):
Let's stay on the smartphone for a second and talk about the motor razor ad. It really had this viral moment earlier this year. A number of influencers came out and talked about Paris. Hilton became very strongly affiliated with the ad campaign that you launched and it was using a lot of AI generated campaign collateral, which was a fascinating way to go to market. You referenced the growth that you've had, that 20% plus and smartphone at a moment in time where it feels as though Apple gets all the attention around AI upgrades to mobile devices. What specific features do your Motorola and smartphone products have that are differentiated in the market?
Ryan McCurdy (11:29):
Yeah, I mean, so I think just AI in general is going to be a precursor to massive refresh across the portfolio of devices. You're mentioning phone here, which I think is ripe for refresh. There's an enormous installed base. When we look at differentiating, I talk about that form factor. I think everybody to stand out and you look at the flip form factor and you look at influencers trying to be different, and I think a lot of our advertising alludes to that Modo Razor brand and the differentiated form factor. I think it's exciting when you look at some of the AI features, the personal assistant is really probably the most popular one. There's a lot of personal content on your phone. It's really the most personal device that we all have, and I think at Lenovo we're very, we have this vision of ai, smarter AI for all, and it's really a hybrid AI strategy.
(12:31)
And really quickly what that means is personal ai, enterprise AI and public ai. And what that means simply is that the value of artificial intelligence will be multiplied when you can actually take all of the public models, all of the data that scrapes the world's information and marry that with your personal data. And that's what we see probably the most prominent use case in the smartphone arena is taking your personal data and marrying that with some of the public models. And then we mentioned this enterprise model, and that's really enterprises wanting to use their proprietary data. They don't want to give it away. They want to keep it secure, but they also want it to be part of the AI strategy, which is marrying the enormous models in the public space with the proprietary enterprise models that are your own data. And then also from a personal perspective, people want to keep that data secure and private, and I think we believe strongly that the hybrid model will win out. There's limited value when you take any of those by themselves, but when you marry 'em across that hybrid spectrum, it's a ton of value from an AI perspective.
Ann Berry (13:45):
Lenovo's talked a lot recently, Ryan, about Lenovo powering Lenovo about how hybrid AI is being used for your own purposes internally. Give us some specific examples of how you and the North American part of the business are using hybrid AI to drive efficiency or to drive innovation.
Ryan McCurdy (14:02):
Yeah, I mean the AI revolution is radically changing everything. I started my career in the late nineties, early 2000 during the dot-com boom, and you saw this incrementalism as the internet was built out in the mobile era. It's a really exciting time to be in the industry. We're actually seeing things change so quickly. A couple of stats that I like to throw out as it relates to our usage of AI is a couple years ago there was an adoption index survey that said about 40% of organizations were exploring ai and about a third of them were using AI tools already in just the next few years. By 27, we're talking about a $400 billion opportunity. This isn't do I want to participate in this? This is a must be heavily involved to be competitive. And I think from your specific questions in my business, the number one place we're using AI is in some of our sales tools, the opportunity to better understand customers wants and needs and understand their previous and current buying behaviors. We're integrating AI across a lot of our tools and we look at our opportunity identification and our progression of deals and our ability to service our customers. So it's probably the biggest installment of AI that I have in my businesses from our sales side.
Ann Berry (15:29):
Let's marry what you just said, Ryan, with what you said up front about these big buzzy new marketing campaigns. It feels as though AI really used in the scientific sense there for your sales channel, for your go to market. That's something you can measure. You can get data that's generated and collected by ai. You can look at efficacy. When you look at your marketing campaigns, are you using AI also to try and measure return on your marketing spend in a similarly scientific fashion or is that still more art than science?
Ryan McCurdy (15:57):
No, I think it's absolutely science and had some meetings just this morning going through some of the analytics on these partnerships, so it's a well timed question. I think the kumbaya moment for our partnerships and AI will be as we look at what we're doing at the Lenovo Center and we six straight years in the Stanley Cup playoffs and we start looking at our FIFA partnerships with the World Cup in 2026 for the men and 2027 for the women. We look at what we're doing with F1, the ability to put our brand in the middle of these conversations. When you have passionate people talking about hockey Formula One soccer, I mean, there's probably not a more passionate group on the planet. And so our ability to both reach customers enterprises when they're in the buying process and also reach fans with relevant products that have an affinity for their team or their sport is huge and the ability to do it at scale and the ability to do it the most cost effective way is what we're doing in a lot of our marketing and we're doing them through these partnerships and absolutely, AI is a big part of the analytics that happens in this space as well.
Ann Berry (17:19):
Let's switch gears a little bit, Ryan, and talk about the very meaningful server business that Lenovo has, the infrastructure solutions group. Talk to us about some of your core products here. I feel as though this is a part of the Lenovo business that is growing but doesn't necessarily get as much attention as some of your consumer products right now.
Ryan McCurdy (17:37):
Yeah, great question. I mentioned earlier that we highlight in our earnings that 46% of our total revenue came from non PC As this heritage PC company, I think we've quietly diversified our business in a significant way when we think about nearly half of the business being non pc. That is our data center business that you asked about. It's our services business and it's our Motorola smartphone business, so that ISG business, that infrastructure solutions group. The revenue this quarter that we just reported was up 65% year over year, and our liquid cooling servers were up 48% year over year. This is a huge part of the business that's growing very fast. And when you think about what is interesting in this market, I would point you to our Lenovo Tech world event that we had a couple weeks ago now, and we just saw some of the partnerships that we announced there with our smarter AI for all vision.
(18:42)
One in particular was the Lenovo hybrid AI advantage with Nvidia, and if you were at the show or you saw some of the highlights, you saw that we had the CEOs from Intel A MD, Qualcomm, Nvidia Meta, and others on stage with us. So these partnerships run deep and this NVIDIA partnership combines Lenovo's full stack capabilities, our AI libraries with NVIDIA software and accelerated computing and networking to help businesses, so enterprises deploy AI infrastructure solutions. This is probably the biggest near term opportunity. A lot of the AI growth to date has been in these large language models in the tier one cloud and huge hypergrowth in the tier two cloud, these smaller cloud service providers. But the next stage of the growth will be implementing this in enterprise use cases and this partnership with NVIDIA is huge for that.
Ann Berry (19:44):
In terms of the strategy there and the partnership with Nvidia, very much the darling right now, the semiconductor industry of the AI specialist chip industry, there are noises that competitor chips are on the come and that hyperscalers are choosing to develop them themselves. Do you see a day in which Lenovo is trying to move to vertically integrate that supply chain and move towards chip design and towards chip manufacturing partnerships?
Ryan McCurdy (20:10):
I don't think so. I think if you look at our strategy, it's to be a full service provider across the ecosystem. And kind of going back to the tech world, when you look at that and you say, what was the theme of tech world? I mean the larger theme is smarter AI for all, but the sub theme is the partnerships. And I think that really is our advantage when it comes to our product portfolio, when it comes to our supply chain and when it comes to our AI leadership, it is not a vertical solution. It is a full stack solution. I talk a lot about the advantages at Lenovo when it comes to our product portfolio. Well, you're like, well, why does that matter? Well, it matters for a couple reasons. One is the scale that you get from a supply chain perspective, which is hugely important and a competitive advantage, but from an AI perspective, we're using it and we're partnering with different AI solutions in the phone space versus the PC space versus the enterprise data center space versus the services space. So we look at these partnerships when I think of a MD and Intel and Qualcomm and Nvidia and Meta and Google and Microsoft, that partnerships are to take the best of breed and sometimes multiple elements across that full pocket to cloud portfolio, and I think that's going to be our advantage, and that's where we're going to continue to lean in
Ann Berry (21:32):
Your IT services business. Ryan's also one I feel has been a little buried in terms of attention with respect to Lenovo's portfolio, what is your IT services business doing? What kinds of clients do you have primarily at this point in time?
Ryan McCurdy (21:46):
Well, a lot of it mirrors what we're doing in our other parts of our business. When you look at our intelligent devices business, we have an enormous global accounts business, this large enterprise commercial business, we have a public sector, small medium business. So when we look at those segments that we go after, it's not really any different. When we look at our enterprise data center business or our software or our solutions and services business, we have had double digit revenue growth for 14 consecutive quarters. So if that's boring, I'm happy for that to be boring and quiet and really the relationships that we have across the channel in our established more legacy businesses, if you will, our prime. They love doing business with us. They love how we partner out in the channel through partners, and they want to do it just the same in our solutions and services business. I would say to answer your question kind of on a double click, 60% of our revenue now is coming from managed services and project and solution services, so that business is diversifying as well.
Ann Berry (23:00):
I'm going to wrap Ryan by asking you a more personal question. I was fascinated to read that before you joined Lenovo, you spent 23 years at Intel, which is a pretty long time to spend at one business, particularly in an age where you see people moving roles and moving employer with more frequency than we used to see in the past. What has it been like? What's been the biggest challenge going from a long time at one organization to suddenly being in a fresh seat in a new place?
Ryan McCurdy (23:24):
Well, in some ways it's similar. It is the similar industry, and I had a lot of relationships here from my time at Intel, which was just amazing, multiple decades. The change has been awesome. I think the biggest challenge has been the people. When you grow up in an organization, you basically know everybody and you have strategic established relationships, and then you come. And I like to say that when I got to Lenovo after a couple weeks or months, business is business in a lot of ways and there are some differences, but it was like watching a movie you've seen before with actors that you don't recognize. So I think one of the challenges, and also probably the best part of being here for the last year and a half has been meeting all of the new people. And that's been a challenge as well as one of the greatest benefits of changing, just meeting a lot of new people, establishing new relationships. The good news is a lot of the industry relationships were already established over my 20 years at Intel, and we still work very, very closely with Intel. They're one of our most important partners.
Ann Berry (24:33):
Ryan McCarty, president of Lenovo North America, thank you for joining. Come back, want to hear more as next year unfolds.
Ryan McCurdy (24:41):
Thank you for having me.
Ann Berry (24:42):
I'm Anne Berry. Thanks for tuning into After earnings, the show that brings you up close and personal with the executives behind the world's most interesting publicly traded companies. If you learn something today, don't forget to like, subscribe, and share with your friends, and I'll see you next time.
