Lenovo delivers accelerated Q2 growth – focus on innovation and hybrid AI strengthens market differentiation and leadership

Last quarter, Lenovo delivered accelerated revenue year-on-year growth for the fourth consecutive quarter, with all of our businesses achieving strong double-digit growth. The group’s net income increase is even more significant. This is driven by strong execution of our clear strategy, leading innovations in hybrid AI, operational excellence, and global footprint. And we are optimistic that this momentum will sustain for the remainder of the fiscal year.

Group: Accelerated growth, Profit increase, Hybrid AI investment paying off

Last quarter our group revenue grew almost 24% year-on-year. Net income increased 48% year on year on a non-HKFRS basis. Our diversified growth engines further accelerated with non-PC revenue mix increasing more than 5 pts year-on-year to nearly 46%.

At our Tech World event last month, the hybrid AI trend that we put forward at the same time last year has gained industry-wide consensus, as it creates real growth opportunities across devices, infrastructure and services. Lenovo has long been a pioneer of the hybrid AI vision and now our continuous investment over the years and expanding innovations have started to pay off. For Personal AI, the first batch of our five-feature AI PC that launched in May in China has already reached almost 14% of our total notebook shipment in the China market. Thereafter, we have also launched AI PC with AI Now agent for global markets, which we believe will follow a similar growth track. For Enterprise AI, we are leveraging our full-stack hybrid infrastructure, as well as Lenovo Hybrid AI Advantage to capture the opportunities.

At this early yet critical stage of the hybrid AI era, Lenovo will continue to ?proactively establish our market differentiation and industry leadership through relentless innovation. Last quarter, we enhanced our innovations around both Personal AI and Enterprise AI with a 10% year-on-year increase in R&D investment. We remain committed to our vision of delivering AI for every individual and every enterprise.

IDG: Significant growth & leading profitability, accelerating in personal AI

Our Intelligent Devices Group, or IDG delivered 17% year-on-year revenue growth. For PC, we expanded our market leadership to almost 24% market share, enlarging the gap with the 2nd player to more than 4pts, while maintaining the industry leading profitability. Our smartphone business and tablet business both delivered high double-digit YTY revenue growth by 43% and 19% respectively. Particularly in smartphones, we saw hypergrowth ranging from 20% to triple-digit in North America, EMEA and Asia Pacific markets.

Looking ahead, we expect the PC market to steadily recover and enter a new refresh cycle driven by AI PCs, which will gradually grow to represent around 80% of the PC industry landscape by 2027. The new development of AI technology is also expected to drive the refreshment of the smartphone market. We will continue to leverage our five-feature AI personalized computers and the newest lineup of next-generation Copilot+ AI PC to establish leadership in the AI PC market, while at the same time build a richer AI device portfolio.

ISG: Hypergrowth, building hybrid infrastructure

Next, our Infrastructure Solutions Group, or ISG. Last quarter, driven by the hypergrowth of our Cloud Services Provider business, ISG delivered a 65% year-on-year growth in revenue, breaking record for the 2nd time in a row. Operating losses continued to narrow, heading to breakeven soon. The combined revenue from Storage, Software and Services achieved a 35% year-on-year growth to record high. Revenue from our Neptune liquid-cooled servers increased by 48% year on year.

Looking ahead, we will continue to strengthen in Enterprise/SMB business model, including simplifying portfolios and improving operations, as well as diversify Cloud Service Provider customers. We will continue to build differentiation with our industry-leading liquid cooling technology, to meet the increasing performance and energy efficiency demands of AI workloads. And we will continue to grow key strategic partnerships to develop smart infrastructure solutions.

SSG: High margin & double-digit growth, unleashing Hybrid AI Advantage

Our SSG, Solutions & Services Group, has extended its double-digit growth streak to 14 quarters, with operating margin of 20%. We further expanded Managed Services and Project & Solutions services, the revenue mix has grown 3pts year on year to account for almost 60% of total SSG’s business, a historic high. Our hero offerings, such as Digital Workplace Solutions, Hybrid Cloud and Sustainability solutions also delivered strong growth.

Over the next three years, the global IT services market is expected to see double-digit steady growth, and AI services will grow more than twice as fast as the market in general to become one of the key drivers. We will continue to embed AI in our key hero offerings, while at the same time developing more AI-native services for our customers to adopt AI use cases and capture the hybrid AI opportunities.

Outlook and conclusion

Looking ahead, we expect to drive continued innovation in hybrid AI and deliver accelerated growth and profitability increases. The strategic partnership with Alat will bring us the intended strategic benefit in our intelligent transformation, MEA market expansion and global supply chain enhancement once the deal is completed. We are confident that our leading innovation, operational excellence, ecosystem partnerships and globalization capabilities will not only continue to help us navigate macro and micro challenges and opportunities, but more importantly, enable us to realize our vision of Smarter AI for all.

*Read our earnings press release here.