Lenovo Sees Signs of Improvement Across Technology Sector – Delivering Quarter-on-Quarter Performance Improvements and Further Accelerating AI Leadership

November 16, 2023 Lenovo Group Limited (HKSE: 992) (ADR: LNVGY) together with its subsidiaries (the “Group”) today announced second quarter results reporting consolidated revenue of US$14.4 billion and net income of US$273 million pursuant to a non- Hong Kong Financial Reporting Standards (HKFRS)[1] basis. Gross margin improved year-on-year to 17.5%, a second-quarter high. The Group’s diversified growth engines continued to deliver strong results, with revenue from non-PC businesses accounting for 40% of Group revenue, up three points year-on-year.

The group sees clear signs of improvement across the technology sector, noting the strong execution of its strategy, operational excellence and continuous investment in innovation as key contributors to its quarter-on-quarter performance improvements. Looking ahead, Lenovo will further leverage the opportunities created by AI, where it is uniquely positioned to succeed due to its hybrid AI model, pocket-to-cloud portfolio, strong ecosystem and partnerships, and growing portfolio of AI technologies and capacities. Its ongoing investment in innovation, and AI in particular, will further strengthen Lenovo’s ability to capture the exponential growth from AI and drive sustainable growth and profitability for the business. The Group is confident of its ability to resume year-on-year growth very soon.

Financial highlights:

Lenovo’s board of directors declared an interim dividend of 8.0 HK cents per share. stock.

Chairman and CEO quote – Yuanqing Yang:

“Last quarter, despite macro challenges, we saw clear signs of recovery across the technology sector. Thanks to our strong execution, operational excellence and continuous investment in innovation, we delivered consecutive quarter-on-quarter performance improvements, indicating an encouraging path to recovery. With continuous execution of our intelligent transformation strategy and with our AI ecosystem and partnership further strengthened, we will leverage our full-stack AI capabilities from pocket to cloud to enable hybrid AI applications for every business and every individual, ultimately driving sustainable growth for our business.”

Accelerating AI leadership

AI is not new to Lenovo and has long been a focus of its digital and intelligent transformation strategy. The company outlined its vision of ‘AI for All’ at its annual Tech World innovation event in October, focusing in particular on its model for hybrid AI, where public, private and personal foundational models coexist to enable AI for All, while security and privacy are respected. Lenovo’s vision included a rich portfolio of smart devices, including AI-enabled PCs, smartphones and tablets, as well as AI-ready and AI-optimized infrastructure, solutions and services. Lenovo is uniquely positioned to capture the exponential growth from AI due to its pocket-to-cloud portfolio, strong ecosystems and partnerships (including an expansion of the company’s partnership with NVIDIA), and growing portfolio of AI technologies and capabilities.

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Lenovo Chairman and CEO Yuanqing Yang was joined on stage at Tech World by executives from Lenovo’s global partners, including NVIDIA founder, president and CEO Jensen Huang; AMD’s chairman and CEO, Dr. Lisa Su, and Formula 1® President and CEO, Stefano Domenicali. Microsoft Chairman and CEO Satya Nadella, Qualcomm CEO and President Cristiano Amon, and Intel CEO Pat Gelsinger joined Tech World via video link.

As announced last quarter, Lenovo is committing an additional $1 billion in investment to AI-powered innovation that will not only ensure it can realize its vision of ‘AI for All’, but that it can drive sustainable growth for the entire company.

Solutions and Services Group (SSG): Record revenue and operating profit, accumulates AI solutions and services

Q2 FY23/24 performance:

  • SSG broke records in the second quarter for both revenue and earnings, with revenue of $1.9 billion and an operating margin of 20%.
  • Support services and software were the core profit driver for the SSG group.
  • Managed services and project and solution services expanded further in the second quarter and together now account for 56% of SSG’s revenue, up three points year-over-year.

Opportunities and sustainable growth:

  • SSG has strong momentum for its hero offerings, including Digital Workplaces Solutions (DWS), Hybrid Cloud and sustainability solutions and services.
  • SSG focused its hero offerings on supporting specific vertical industries with smart solutions and services, winning breakthrough customer deals in multiple markets.
  • Lenovo’s new hybrid AI Professional Services Practice also enables companies to use hybrid infrastructure and AI to transform their business.

Infrastructure Solutions Group (ISG): Tackling market headwinds, building hybrid AI infrastructure

Q2 FY23/24 performance:

  • ISG’s revenue fell year-over-year to $2 billion, an inevitable effect of broader macroeconomic industry headwinds, economic slowdown and platform migration.
  • ISG delivered strong performance in storage, software and services and drove growth in High Performance Computing (HPC) and Edge.
  • The storage business hit an all-time revenue record, making Lenovo the third largest storage provider in the world.
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Opportunities and sustainable growth:

  • As hybrid AI develops further, it will drive the future growth and diversification of the global ICT infrastructure market, which Lenovo is well positioned to address due to its rich portfolio of infrastructure products and solutions.
  • ISG will continue to strengthen its portfolio’s competitiveness as well as operational excellence and is confident of resuming growth and profitability as soon as possible.

Intelligent Devices Group (IDG): Strengthens market leadership, captures opportunities for AI devices

Q2 FY23/24 performance:

  • IDG maintained its global No. 1 position in the second quarter for both PC shipments and activations despite market challenges.
  • Revenue fell year-over-year to $11.5 billion, but profitability resilience was maintained with an industry-leading operating margin of 7.4%.
  • The smartphone business achieved a double-digit premium to market shipment growth year-on-year, although the market was flat overall. The business improved its overall competitiveness of products and optimized its portfolio with a higher mix of premium products with a record high mix of premium products driven by sales of razr.

Opportunities and sustainable growth:

  • Looking ahead, IDG will fully utilize generative AI to accelerate the launch of next-generation AI devices, including the launch of an AI PC next year.
  • Lenovo will further invest in technology innovation for growth and long-term competitiveness.

ESG highlights

Lenovo has been recognized for several ESG achievements in the past quarter, including:

  • Being included in the 2023 Hang Seng Corporate Sustainability Index, where it achieved the strongest score in the IT industry for environmental and social performance.
  • The group was also awarded ‘Champion’ status in Canalys’ Global Sustainability Ecosystems Leadership matrix.
  • The group was named an EPEAT Climate Champion, with more than 400 products registered as part of the first EPEAT Climate+ designated product list. EPEAT is the leading global environmental label for electronics and technology products.
  • In September, Lenovo joined the UN Global Compact Forward Faster initiative to accelerate the private sector’s efforts towards the UN’s 17 Sustainable Development Goals to meet the 2030 Agenda.

[1] non-HKFRS measures were adjusted by excluding changes in net fair value of financial assets to fair value through profit or loss, amortization of intangible assets resulting from mergers and acquisitions, mergers and acquisition-related costs; and the corresponding income tax effects, if any.