Improving performance and accelerating AI

Last quarter, despite macro challenges, we saw clear signs of recovery across the technology sector. Our strong execution to our strategy, operational excellence, and continuous investment in innovations enabled Lenovo to achieve quarter to quarter improvements in our performance, once again showcasing our business resilience. We are confident in our ability to resume year-on-year growth very soon. Meanwhile, by leveraging our continued investment and growing portfolio of A.I. technologies over the years, we received wide recognition for our ‘AI for All’ vision and capabilities demonstrated at our annual Tech World event last month. Furthermore, we strengthened our A.I. ecosystem and partnerships, positioning ourselves well to capture the exponential growth in the A.I. era.

Group: Market Recovery and Business Resilience

Last quarter, group revenue achieved quarter to quarter improvement for the second time in a row, indicating an encouraging trajectory to recover. Leveraging our innovative technologies and products, our gross profit margin improved year on year to a record high for FQ2. Our non-HKFRS net income also improved quarter to quarter. Our diversified growth engines continued to deliver strong performance, with non-PC revenue mix growing nearly 3 pts year on year to account for more than 40% of group revenue.

As predicted in the last two quarters, while the macro context continued to bring uncertainties, the PC market has bottomed out, with another round of potential growth brought by AI PC on the horizon. A.I. will also be the most important growth driver for infrastructure and solutions, as hybrid A.I. that leverages both public and private foundation models will create new demands for computing infrastructure and services, presenting huge growth opportunities.

For Lenovo, A.I. has long been a key focus of our digital and intelligent transformation strategy. Following the announcement last quarter of an additional $1 billion investment in A.I. innovation over the next three years, we unveiled our vision for a full-stack A.I. portfolio from pocket to cloud at Tech World at the end of last month, including AI-ready, AI-optimized and AI-enabled devices, infrastructure and solutions. We are committed to furthering our investment in innovation so that “AI for all” can be realized for every enterprise and every individual, ultimately driving sustainable growth for our business.

SSG: Record Revenue and Operating Profit, Accumulating A.I. Solution & Services

Let’s start with SSG, Solutions & Services Group. Last quarter, SSG revenue and operating profit both reached historic highs again. We protected Support Services and Software as our core profit engine and further expanded Managed Services and Project & Solutions Services, the revenue mix of which has grown 3 pts year-on-year to account for 56% of SSG total business.

Leveraging the strong momentum of our hero offerings, such as Digital Workplace Solution, Hybrid Cloud and Sustainability, we have been integrating these horizontal building blocks into smart vertical solutions and services for different industries, winning breakthrough customer deals in multiple markets. Lenovo’s new hybrid A.I. Professional Services Practice is also enabling enterprises to use Hybrid infrastructure & A.I. to transform their business.

ISG: Tackling Market Headwinds, Building Hybrid AI Infrastructure

Next, our Infrastructure Solutions Group, or ISG. Last quarter, facing headwinds from global economy slowdown, platform migration, as well as supply shortage for key components, ISG’s overall revenue and profitability were inevitably impacted. But we achieved strong performance in Storage, Software, Services, Edge, and High Performance Computing. In particular, storage achieved an all-time revenue record, which made us the third largest total storage provider in the world.

Looking ahead, we expect the development of Hybrid A.I. to drive the future growth and diversification of the global ICT infrastructure market. It will gradually find a balance between public cloud, private cloud and local datacenters, between cloud and edge, as well as between A.I. computing and traditional computing with A.I. being more balanced between training and inferencing. At Lenovo, we are well positioned to address this trend with our richest infrastructure products and solutions. We will continue to strengthen our portfolio and competitiveness, as well as operational excellence. We remain confident to resume growth and profitability as soon as possible.

IDG: Solidifying Market Leadership, Capturing AI Device Opportunities

For Intelligent Devices Group, or IDG, despite tremendous market challenges, last quarter, we maintained our global No.1 position in PC shipments and activations. Even though our overall revenue experienced year-on-year decline, we maintained our profitability resilience with an industry leading operating margin by taking concrete actions to further strengthen our operational excellence. Meanwhile, our smartphone business achieved double-digit shipment growth year-on-year even though the market was flat. We further enhanced the competitiveness of our products and optimized our portfolio with higher mix of premium products.

We will fully leverage Generative A.I. to accelerate the launch of our next generation of A.I. devices, including AI PC as scheduled next year. And we remain committed to investing in technology innovations for growth and to build long-term competitiveness.

Outlook and Closing

Before I close, I want to emphasize that Rome wasn’t built in a day. While the leap in A.I. applications driven by Generative A.I. and Large Language Models might seem recent, Lenovo has in fact been persistently executing on our intelligent transformation strategy for many years. This has given us a distinctive head start in building a comprehensive A.I. product roadmap that includes a rich smart device portfolio, such as AI-enabled PC, smartphone and tablet, as well as AI-ready and AI-optimized infrastructure, solutions and services. This unique advantage also enables us to build the strongest partnership in the industry. Together, we are well positioned to capture the huge opportunities brought by this wave of A.I. revolution.

*Read our earnings press release here.