Lenovo reports ninth consecutive quarter of improved revenue and profitability

Lenovo Group (HKSE: 992) (ADR: LNVGY) today announced strong first quarter results for the Group, improving both revenue and profitability for the ninth consecutive quarter. First quarter net profit rose 11% year-on-year to US$516 million and 35% year-on-year to $556 million on a non-HKFRS basis [1] . Revenue rose to US$17 billion, up 5% year-over-year in constant currency.

Revenues from non-PC businesses reached 37%, demonstrating that the Group’s service-driven transformation strategy and continued investment in diversification have paid off and are leading to future growth opportunities. These new growth opportunities arise from the Group’s solutions and services, infrastructure solutions and smartphones portfolios, which have grown their revenues by double digits year-on-year – contributing to both the Group’s overall growth and its broader commitment to doubling profitability. Committed to doubling investment in Research and Development (R&D), the Group increased R&D spending by 10% year-on-year, while also increasing R&D staff by 29% year-on-year.

Lenovo continues to take advantage of the opportunities arising from accelerating digital/intelligent transformation and hybrid work while successfully addressing a number of challenges affecting the entire industry. Overall, the outlook for the Group remains optimistic about the sector’s long-term growth potential and the opportunities offered by its investments in new growth engines. While it is certain that leveraging its strategy, and guided by the core principles that govern the Group such as innovation, operational excellence and the global/local operating model, it has the flexibility and resilience to successfully cope with any macroeconomic challenges.

Financial results:

President and CEO of Lenovo – Yuanqing Yang:

“We successfully grew our business and improved profitability for the ninth consecutive quarter, while our non-PC revenue mix reached 37%. All of this is the result of our strategic insight, combined with our operational resilience.” said Yuanqing Yang, President and CEO of Lenovo. “While external challenges may persist in the short term, the trend towards digitization continues to accelerate, while the hybrid work model is here to stay. We are confident in seizing these opportunities and will continue to invest, innovate and deliver sustainable growth and profitability improvements”.

Solutions and Services Group (SSG): Strong growth and high margins – leading to higher overall profitability for the Group

The opportunity:

The IT services market, a trillion-dollar market, continues to show strong growth, while the continued growth of hybrid work is driving higher demand for premium services. Similarly, the expansion of digital solutions in the workplace has increased the demand for As-a-Service services for devices, infrastructure and workplace management. While at the same time the market for vertical solutions including smart cities, smart building solutions, smart education and smart retail is expected to grow at a double-digit CAGR rate till 2025.

Q1 FY22/23 performance:

• In the last quarter, SSG’s business unit saw high profitability and high growth, with revenue growing 23% year-over-year. The operating margin remained high, reaching almost 23%.

• There was strong double-digit revenue growth across the board, with revenue from non-hardware managed services and project and solutions now accounting for almost half of SSG’s business.

Sustainable development:

• The SSG business unit continues to invest in software tools, platforms and iterative vertical solutions with Lenovo IP, including the continued expansion of the TruScale as-a-Service portfolio into the broader digital workplace solutions market.

• SSG launched hybrid/multi-cloud solutions and continues to grow its portfolio of sustainability offerings.

• The strategic partnership with PCCW Solutions, announced in June 2022, will further expand SSG’s footprint and opportunities to build its technology solutions business network across the Asia Pacific region.

Infrastructure Solutions Group (ISG): Record FY21/22 revenues and profitable growth continue into new financial year

The opportunity:

The ISG business unit continued to benefit from strong growth in the ICT infrastructure market. The server market alone is expected to grow at a double-digit CAGR rate by 2025. The Edge Infrastructure market will exceed US$41 billion by 2025, and the Storage market will reach US$36 billion within the same time frame.

Q1 FY22/23 performance:

• ISG business unit revenue exceeded US$2 billion for the first time, up 14% year-on-year, and has now been profitable for three consecutive quarters.

• Revenues from the Cloud Services segment, as well as the storage and server segments reached all-time highs, all of which significantly outperformed the market.

• Edge Computing revenue nearly doubled year over year, while in High Performance Computing, ISG’s business unit maintained its #1 position on the Top500 list, adding more Lenovo systems using the unique Neptune liquid cooling technology.

Sustainable development:

• The ISG business unit continues to invest in both an integrated portfolio and innovation, particularly in Edge, Cloud and Services.

• ISG will continue to balance production scale with profitability as it aims to become one of the fastest growing end-to-end infrastructure providers.

Intelligent Devices Group (IDG): market leader driving innovation and differentiation

The opportunity:

While the PC market faces near-term challenges, PCs are still a necessity and an essential productivity tool. The overall PC market is expected to remain in the long term at higher levels than pre-pandemic levels. Alongside computing, the market for scenario-based solutions is also growing rapidly, while the smart collaboration market is expected to exceed US$80 billion by 2025.

Q1 FY22/23 Performance:

• IDG’s business unit maintained industry-leading profitability, with operating profit of over US$1 billion, once again outperforming the market while not only maintaining, but strengthening its position as the #1 PC company in people. This success is due to strong growth in premium products such as gaming products and workstations.

• Smartphone revenue grew more than 20% year-over-year, with growth coming not only from the Latin American and North American markets, but also from the European and Asia Pacific markets.

• Expansion beyond PCs continues, with 22% of IDG’s revenue coming from non-PC smart devices, embedded computing/IoT and scenario based solutions such as smart home and smart collaboration.

Sustainable development:

• Lenovo continues to focus on innovation across its entire product portfolio – from smart devices to smart collaboration and smart spaces.

• In smart devices the focus is on innovative form factors, excellent performance, adaptive intelligence and security. In digital workplaces, the focus is on seamless connection and integration, enabling the best possible combination of physical and virtual collaboration.

Investments for the future

Corporate Investments – Lenovo recently completed an initial public offering of green notes, valued at US$1.25 billion, as part of a broader dual-trance Rule 144A/Regulation S bond offering. The offering is the largest ESG technology bond globally so far in 2022[2] and marks an important milestone in Lenovo’s ESG journey, while supporting its vision to reach Net-Zero by 2050.

This is a key development as the Company continues to actively support its sustainability goals by funding projects and initiatives that build a smarter and more sustainable future for all. More information can be found in the Group’s Green Finance Framework.

Global Supply Chain – In June 2022, Lenovo officially launched its first European manufacturing facility. Headquartered in Ullo, Hungary, the factory focuses primarily on manufacturing high-end server infrastructure, storage and PC Workstations for customers in Europe, the Middle East and Africa, while further expanding Lenovo’s global manufacturing footprint.

In the annual Gartner Global Supply Chain Top 25 list Lenovo achieved its highest position in its history, moving up seven places in the ranking, where it is now in 9th place. The Gartner Supply Chain Top 25 showcases companies that demonstrate excellence in supply chain management amid supply chain disruption.