Lenovo's Positive AI PC Momentum: Key Considerations for ITADs

By David Daoud. Published 16 August 2024 at https://ComplianceStandards.com

Summary: I am impressed with 联想 's latest earnings results as it seems to be leading the charge in the #AI PC sector (#AIPC), showcasing strong performance. Dell Technologies and HP are expected to release their earnings results at the end of the month and we should see whether the Lenovo story is a broad-based market trend or unique to the Chinese company.

Lenovo’s latest earnings report highlights strong growth, with the vendor likely taking advantage of consumer curiosity and interest about AI in #China, suggesting a robust future for AI PCs. #ITAD companies should pay attention to Lenovo’s results and anticipate a rise in AI-enabled devices, probably within two to three years, and the need for specialized #datasecurity and asset #disposition processes. Additionally, Lenovo’s expansion into the Middle East and Africa could present new opportunities for Asia and Europe-based ITADs. US-based ITAD companies with scale and resources could also be part of that expansion. Lenovo's current and future partners should align with its strategic moves and ensure they have strong sustainability policies to stay relevant.

Analysis:

I believe Lenovo is the first company to signal positive momentum in the AI PC sector on the front end. Most of the positive news about AI PCs has come from companies that are behind the scenes, like AMD , 英伟达 , and others, who are primarily involved in building the technology inside the PC and on the cloud. In fact, 英特尔 spoiled the party with its latest earnings showing negative performance after making so much noise that the AI PC is going to be everywhere this year.? And so on the PC side, Lenovo seems to be the first one to show some really good news.

My understanding of their earnings presentation [I could not find their earnings transcript anywhere, so I had to go through a full hour of financial presentation without soda and popcorn, a bit tedious], suggests that the first contingent of AI PCs that saw positive acceptance happened in China. It is likely that the Chinese market was the main driver of Lenovo’s solid performance, confirming what component vendors like 艾睿电子 and 安富利 reported about Asia being strong (Link: The Component Market Is Still Weak & Mid-Term Outlook Could Worsen Before Getting Better).

It looks like Lenovo’s AI PC has a number of cool features, in particular what it calls a “personal intelligent agent,” which I assume is a bit like what 微软 is doing with Microsoft Copilot . That specific tool is using natural language user interface, a mini-LLM (large language model) built to fit locally inside the PC and not on the cloud, and some other technology that takes advantage of the capabilities of the new CPU/GPU/NPU. Of course, they also talked about greater privacy and security protection.

Hearing the earnings presentation, the tone of the Lenovo bosses was one of excitement and great optimism, and that bodes well for ITADs too. They expect AI PCs to account for more than 50% of PC shipments by 2027, an assessment I fully endorse, as it is a lot more pragmatic and realistic compared to what I heard from Intel, for example.

On the dollar front, the company has some great news to share. Its fiscal quarter 1Q (calendar 2Q calendar 2024) saw sales jump 20% year over year to $15.4 billion. What’s even more impressive is the 65% surge in its net income to $315 million. Its executives say they experienced strong growth across all business segments. While I paid a lot more attention to the PC segment, I note that smartphone and tablet revenues also increased substantially by 28% and 33%, respectively.

Have there been any weak areas? Certainly, but the weak point would not diminish the strong performance the company delivered. On the weak side, we note a decline in the operating margin and a rise in operating expenses, which are obviously necessary to maintain growth. The company’s Infrastructure Solutions Group (ISG) experienced operating losses, despite the impressive revenue growth. And longer inventory days resulted in the lengthening by 11 days of the cash conversion cycle. These negatives obviously pale in comparison to what the company has achieved in this past quarter.

So now is Lenovo’s performance a story that Dell and HP will confirm or is it specific to Lenovo and how it executed in the quarter, in particular in Asia?? We will find out soon enough because HP is scheduled to release its quarterly results on the 28th of August and Dell three days later.

Where ITADs Need to Pay Attention:

Even if Dell and HP do not produce as strong performance as Lenovo did, given that the latter’s strength is in China, its home market, where the AI PC is showing strong consumer interest, there are a number of factors that ITAD companies must pay attention to, in regard to the trends and outlook as expressed by Lenovo executives.

First are the continued investments being committed by Lenovo in AI and hybrid infrastructure. Given Lenovo’s strong global market share and its solid position in the commercial sector, its activities now suggest that ITAD companies will experience a substantial rise in volume of AI-enabled devices within the next two to three years. What this means is that this new class of devices will probably require specialized processes for data security and asset disposition. This next generation of devices boasts advanced computing capabilities and integrated AI technologies, and so we will face a different technology environment soon enough, requiring different ITAD processes.

ITAD companies also need to assess what Lenovo’s expansion into the Middle East and Africa (MEA) region means to them.? The company spoke about strategic investments that may present new opportunities for ITAD companies, in particular the ones based in Europe where the MEA market tends to be part of the geographical reach. This is even more the case as Lenovo pushes its AI and hybrid infrastructure solutions. Whomever is currently partnering with Lenovo’s Asset Recovery Services (ARS) must stay close to the company’s strategic moves to assess how it can accompany such expansion.

Finally, there are also the non-market factors of interest to Lenovo that could have some impact on ITADs. For instance, the company emphasized its focus on ESG, particularly in recycling and reusing products. This could align with ITAD companies’ own sustainability efforts.? But if you are an ITAD partner of Lenovo or want to become one, having your sustainability policy in place is a must.