Lenovo delivers strong FY Q1 performance - improves profitability across all businesses, capturing hybrid AI opportunities

Today we are pleased to report a great start to our fiscal year 2024/2025 driven by our clear strategy and strong execution, our persistent innovation and operational excellence, as well as our globalization advantages.

We delivered a solid performance in our first quarter, with all of our businesses improving profitability and growing faster than the market. As the trend of hybrid AI is becoming more clear, we also made important progress in strengthening our capabilities to capture this major opportunity. This performance and progress, together with a recovering global IT market, significantly boost our confidence to accelerate our transformation and further improve our performance in the coming quarters.

Group: Strong growth & profit increase, pioneering hybrid AI vision

Last quarter, we delivered a strong year-on-year revenue growth of 20%. Profit improvement was even more robust. On a non-HKFRS basis, our net income increased by 65% year on year to $315M. Our diversified growth engines continued to accelerate with non-PC revenue mix up 5 pts year-on-year to a historic high of almost 47%.

Regarding AI, now more clearly than ever, we are seeing that public AI alone cannot address the increasing needs of either individuals or enterprises. Hybrid AI, which is formed by personal AI, enterprise AI, together with public AI, is indeed the way forward. As the outlook becomes more evident, major ecosystem players are accelerating the development and application of personal AI agent and enterprise AI agent, which is creating enormous growth opportunities across devices, infrastructure, solutions and services. ?

By pioneering our hybrid AI vision and continually investing in AI and Computing across personal and enterprise AI agents, Lenovo has already built a full-stack AI portfolio and capability. This features our AI devices like AI PC, our AI servers that support all major architectures, as well as our rich AI native and AI embedded solutions and services. Last quarter, our R&D investment further increased year on year. We will continue to innovate to deliver AI for every individual and every enterprise.

Now I will talk about each of our businesses.

IDG: Double-digit growth & leading profitability, accelerating personal AI

Let’s start with our Intelligent Devices Group, or IDG. We delivered a strong quarter with double-digit revenue growth and almost 1 point improvement in operating margin year on year. For PC, we maintained our market leadership in both shipments and activations with premium to the market. We also succeeded in maintaining our industry leading profitability. Moreover, we are very encouraged by the positive user feedback on our five-feature AI PC, which was launched first for the China market in May. We will?launch more AI PC products for the global market at IFA and Tech World, and we are confident with leading market share in next-gen AI PCs. Our smartphone business and tablet business both delivered strong revenue YTY growth of around 30%, with particular hypergrowth in smartphone in Asia Pacific, EMEA and North America markets.

Looking ahead, we expect the PC market to enter a new refresh cycle driven by AI PCs, which will gradually grow to represent more than 50% of the PC industry landscape by 2027. We will continue to deliver groundbreaking innovations to achieve the full potential of personal AI agent, while leveraging on deepened strategic partnerships to build a more diversified portfolio and a richer ecosystem.

ISG: Strong growth & improved profitability, driving hybrid infrastructure

Next, our Infrastructure Solutions Group, or ISG. Last quarter, driven by the strong growth of our Cloud Services Provider business, ISG delivered a 65% year-on-year growth in revenue, a historic high. Profitability saw improvement both quarter to quarter and year on year. The combined revenue from Storage, Software and Services achieved significant growth of almost 60% year on year and set a new record. Moreover, revenue from our Neptune liquid cooled servers with unique sustainability benefits grew more than 50% year on year to a record high.

Looking ahead, we will continue to drive the recovery of profitability for this business through optimizing the business model for E/SMB business, including simplifying portfolios and improving operations. We will continue to leverage our industry-leading liquid cooling technology to meet increasing demands for AI workloads, while at the same time capture the growth opportunities in AI servers and storage markets. And we will continue to grow key strategic partnerships and build infrastructure platforms that support hybrid AI solutions.

SSG: High margin & double-digit growth, building enterprise AI

Our SSG, Solutions & Services Group, has delivered the 13th consecutive quarter of double-digit year-on-year revenue growth since?its establishment, with operating margin of 20% or above, further strengthening its position as our growth engine and profit contributor. We expanded Managed Services and Project & Solutions services, the revenue mix has grown 3pts year on year to account for 55% of SSG’s business.

Over the next three years, the global IT services market is expected to grow steadily, and AI services will grow almost twice as fast as the market in general to become the primary driver. Lenovo will continue to embed AI in our key hero offerings, such as Digital Workplace Solutions, Hybrid Cloud and Sustainability solutions, while at the same time developing more AI native services to drive the adoption of AI for our customers and accelerate their transformation journey.

Outlook and conclusion

Before I close, I would like to share that the hybrid AI era has only just begun. As the ecosystem evolves along with the changing industry landscape, Lenovo is uniquely positioned and well prepared to lead with our full-stack AI capabilities. Meanwhile, our globalization advantages consistently help us seize opportunities and mitigate potential macro risks. Two months ago, we announced a strategic partnership with Alat. This collaboration will greatly benefit our efforts to go deep with our intelligent transformation, leverage the growth momentum in the Middle East, and further strengthen our supply chain. Looking ahead, we are confident that, through capturing the hybrid AI opportunities and leveraging our globalization advantages, we will continue to achieve sustainable growth and profitability increases.

*Read our earnings press release here.