LENOVO GROUP (00992) Q2 Financial Performance: Recovery Cycle Begins, AI PC Welcomes Disruptive Innovation Moment.

November 16, 2023 - Global digital economy leader LENOVO GROUP (HKSE: 992) (ADR: LNVGY) announced its financial results for the second quarter of the 2023/24 fiscal year ending September 30, 2023: overall revenue reached 104.4 billion RMB, showing consecutive quarterly growth. With excellent operations and innovative technology products and services, the group's gross profit margin increased to 17.5% year-on-year, reaching a historical high for the second quarter. The non-PC business accounted for over 40% of the revenue, an increase of nearly 3 percentage points compared to the same period last year. The signal of recovery in the PC market was fully confirmed in the group's performance. In this fiscal quarter, the group's PC business maintained its global leadership position with a market share of nearly 24%, and revenue increased by 13.6% compared to the previous quarter. With the eruption of generative artificial intelligence, the entire PC industry is experiencing the most disruptive and innovative moment in the past 40 years, as it is the most important productivity tool. The AI PC prototype showcased by the group at the 2023 Tech World event has gained widespread market attention. Contrasting with the barely stabilizing trend in the global smartphone market, the group's mobile device business performed exceptionally well in this fiscal quarter: driven by strong execution of growth plans, smartphone shipments increased by nearly 11% year-on-year, and activations increased by 12%, with high-end products accounting for 23% of the total. The hybrid artificial intelligence system, which combines public and private models, has created new demand in the infrastructure and solutions market. The SSG solution services achieved revenue of 13.9 billion RMB, with an operating profit of 2.78 billion RMB, both hitting historical highs again; the operation and maintenance services and project and solution services continued to increase their proportion in the overall SSG revenue, reaching 56%. Key general solutions, including digital office space, hybrid cloud, and sustainable development service solutions, achieved double-digit year-on-year growth and made breakthroughs in multiple markets such as Japan and the United States. The slow progress of platform migration and shortages of key components continue to restrain the overall performance of the ISG business. However, cumulative revenue from storage, software, and services reached a historical high, with a year-on-year increase of 36%. The storage business market share continued to rise to third place globally. Edge computing and high-performance computing also performed strongly, with the latter's revenue growth exceeding 12%, which is twice the industry average. Looking forward, the wave of AI reshaping various industries will only grow stronger, and LENOVO GROUP is fully prepared for this. Through years of continuous investment in AI, the group has built a panoramic AI capability from pocket to cloud, making it one of the most comprehensive vendors in building enterprise hybrid artificial intelligence. "It is precisely because of our firm commitment to the intelligent transformation strategy over the years that Lenovo has already had a panoramic roadmap for AI products, including a variety of smart terminals such as AI computers, smartphones, and tablets, as well as a combination of AI-oriented and optimized infrastructure, solutions, and services," said Yang Yuanqing, Chairman and CEO of LENOVO GROUP. "This is Lenovo's unique advantage and enables Lenovo to establish the strongest partnerships to grasp the immense opportunities created by the AI revolution." Performance Highlights: - Revenue for the second quarter again exceeded 100 billion RMB, reaching 104.4 billion RMB, with a net profit of nearly 2 billion RMB, showing consecutive quarterly growth. - The proportion of non-PC business exceeded 40%, showing an increase of nearly 3 percentage points year-on-year. - IDG's PC shipments maintained a market share of nearly 24% and revenue increased by 13.6% compared to the previous quarter; smartphone shipments increased by nearly 11% year-on-year, with high-end products accounting for 23%. - SSG achieved revenue of 13.9 billion RMB, with an operating profit of 2.78 billion RMB, both hitting historical highs. - ISG's storage business market share rose to third place globally. High-performance computing revenue increased by 12% year-on-year, exceeding industry growth rates. IDG: Consolidating Global Leadership Position Business Opportunities: Research firm Gartner predicts that the PC market has hit bottom and will start to recover in the fourth quarter of this year, with a 4.9% year-on-year increase in global PC shipments in 2024, including growth in the business and consumer sectors. Canalys predicts moderate growth in the global smartphone market in 2024. Performance: Revenue was 83.43 billion RMB, with resilient profitability and an operating profit margin remaining at the industry-leading level of 7.4%. In the second quarter, PC shipments maintained a global market share of nearly 24%, remaining the global leader, with revenue increasing by 13.6% compared to the previous quarter. Sustainable Growth: The AI PC showcased by the group at the 2023 Tech World event can create personalized local knowledge bases, run personal large-scale models using model compression technology, and achieve natural interaction with artificial intelligence, which has gained widespread market attention. It is expected that 2024 will be the year of AI PCs, and AI PCs will become mainstream PC product types in the next five years. SSG: Record Revenue and Operating Profit Business Opportunities: Gartner predicts that the IT services market will have a compound annual growth rate of 11.4% from 2023 to 2026. At the same time, sustainable development services will become the core driving force for IT demand. Performance: Revenue reached 13.9 billion RMB, with a year-on-year growth of 11.4%, and an operating profit of 2.78 billion RMB. Sustainable Growth: Artificial intelligence will become a fundamental driver, and the hybrid artificial intelligence professional services Lenovo is striving to build will provide strong support for the implementation of hybrid infrastructure and artificial intelligence applications in enterprises. Currently launched services and solutions include the Care of One platform, the AI Sustainable Development Solutions Advisor (LISSA), and AI Rapid Deployment Professional Services. ISG: Resisting Market Headwinds, Strong Performance in High-Value Businesses Business Opportunities: By 2025, the global data volume will double compared to 2020, and server and storage workloads will continue to diversify from edge to cloud. Performance: Influenced by multiple factors, ISG's revenue decreased year-on-year to 141.4 billion RMB. Sustainable Growth: Lenovo's comprehensive deployment across servers, storage, and networking has strengthened its market presence and driven revenue growth in key areas. In particular, storage business revenue increased by 36% year-on-year, reaching a historical high, and the market share continued to rise to third place globally. High-performance computing revenue increased by 12% year-on-year, exceeding industry growth rates.500 million RMB. Accumulated revenue from storage, software, and services reached a new historical high, with a year-on-year growth of 36%.Sustainable Growth: With the diversified development of the global ICT infrastructure market, public cloud, private cloud, and on-premises data centers, cloud computing and edge computing, AI computing power and traditional computing power will gradually balance. ISG has the most abundant infrastructure products and solutions and has unique advantages in providing generative AI full-lifecycle services. The latest release is the edge AI product, Think Edge SE455 V3 server, introducing a new mid-range all-flash product.