Lenovo reports record setting Q3 performance

Before I discuss our third quarter results, I want to share my heartfelt sympathy to those affected by the Novel coronavirus. I also would like to express my deepest appreciation to all medical professionals for their dedication in fighting the diseases.

Lenovo also responded immediately to the outbreak. We have donated and installed all IT equipment necessary to construct the two new hospitals in Wuhan. Donation from Lenovo employees and Lenovo Foundation has arrived at places in need. We have also given away 100-day activation keys of our remote office and online meeting solutions to hospitals and small and medium-sized businesses which are heavily impacted by the epidemic.

Although the outbreak happened around Chinese New Year, Lenovo reacted right away, and worked day and night throughout the holiday to implement series of measures to protect the safety and well-being of our employees.

Thanks to our global manufacturing footprint, while our factories in China are some of the first ones to resume production in the industry, our factories outside of China continued to operate. While the demand in China is impacted temporarily, the demand from the rest of the world remains strong, which will help accelerate the recovery of our capacity in China. We have also been working closely with our supply chain partners to ensure normal operation.

Now let me turn to our quarterly earnings. Last quarter, despite the geopolitical uncertainties and industry-wide supply shortages, we demonstrated our world-class operational and strategic execution capability in delivering a record-setting performance.

Both group revenue and pre-tax income reached all-time highs. Our group revenue was 14.1 billion US$. Pre-tax income grew by double-digits year-on-year and reached 390 million US$. Net income also improved by double-digits year-on-year to 258 million US$.

These results would not be possible without our operational excellence, which allowed us to overcome the severe industry-wide CPU shortage. We have quickly adjusted our product portfolio; converted every available supply to a product that meets our customers’ requirement; and greatly reduced our finished goods inventory. These efforts enabled our PC & Smart Devices business to deliver all-time records in revenue, pre-tax income and profit margin.

In PC, we not only extended our clear #1 position with record high shipments, but also outperformed the market year-on-year. Our strategy to focus on high-growth and premium segments continues to deliver results. The volume in Gaming, Thin & Light, Visuals, Workstations and Chromebooks continued to grow at high double-digits and significantly outgrow the market by double digits year-on-year.

Innovation provides us another important growth driver. At the recent, Consumer Electronics Show, we demonstrated our leading technology in 5G and foldable with innovative products such as world’s first 5G PC, and the Lenovo ThinkPad X1 Fold, which was named one of TIME’s 2019 Best Inventions. The ThinkBook Plus notebook PC with e-ink display on top also received very positive feedback.

Looking forward, while macro-challenges may continue, with our proven operational excellence and breakthrough innovation, we are confident that we will continue to drive premium-to-market growth and industry-leading profitability.

Our mobile business delivered its fifth consecutive profitable quarter. In our stronghold, Latin America, our volume outgrew the market by 19 points, while improving profitability.

Going forward, our mobile business will continue to strengthen profitability while driving growth in new markets. Our new Motorola razr foldable has received great responses from customers, media and tech opinion leaders. We will build on this excitement to re-enter the premium segment.

In Data Center, our server volume grew by 18% year-on-year, though Data Center revenue remained flat year-on-year, as sharp component price reductions resulted in erosion of average sales price. Profitability continued to improve year-on-year. Our non-hyperscale business had its highest revenue in four years and grew nearly 16%, especially in China, it was up almost 46% year-on-year. We continue to see strong over 40% year-on-year revenue growth in Software Defined Infrastructure and Storage.

Looking forward, we will resume revenue growth in DCG. In our Hyperscale business we will expand our business with existing customers and continue to acquire new customers. In our non-Hyperscale business, we will continue to drive premium to market growth in servers, software defined infrastructure, High Performance Computing, storage, software and services with increasing customer diversity and broader indirect channels.

Our intelligent transformation continued to show strong momentum. In Smart IoT, revenue almost quadrupled year-on-year driven by strong growth in AR/VR, Smart Home and Smart Office. Smart Infrastructure also grew more than 50% year-on-year driven by Software Defined and Network Function Virtualization. Smart Vertical revenue doubled thanks to triple-digit revenue growth in Data Intelligence Business Group, smart healthcare and smart education solutions. We have noticed accelerated demand in China for our remote office, online education, online healthcare and other online service solutions due to the impact of the on-going epidemic.

Last but not least, as we mentioned last quarter, our Software & Services revenue continued its hypergrowth and reached one billion US$ in a quarter for the first time, up 41% year-on-year.

Looking forward, since there is still much uncertainty around the Novel coronavirus, we will actively manage this evolving situation through our geographical balance, operational excellence and solid strategy execution.

We are confident in overcoming this challenge and of quickly returning to normal.

*Read our earnings press release here.