Record quarter, as strategy and investments in innovation continue to drive sustainable profitability growth

Once again, despite the challenges of the pandemic and supply shortage, Lenovo has delivered another record-breaking quarter. Our clear focus on profitability and innovation, supported by strong execution has driven historic results across our businesses. We are also pleased last week that Lenovo has been added to the Hang Seng Index, providing market recognition of our continued strong results.

The accelerated digital and intelligent transformations in the new normal continue to generate significant opportunities. Investments in digital transformation are expected to increase over 16% annually over next three years. Lenovo’s “New IT” technology architecture of “Client-Edge-Cloud-Network-Intelligence” prepares us well to capture these opportunities.

Last quarter, Lenovo delivered another quarter of record profit and revenue. Our net income reached an all-time record of $640 million US dollars, up 62% year-on-year. This is the 6th consecutive quarter of over 50% year-on-year net income growth. Net margin also increased by almost 1 point year-on-year, well on track to doubling within 3 years. With 17% year-on-year growth, our quarterly revenue achieved 20 billion US dollars for the first time, thanks to double digit growth in all key businesses and balanced growth across all geographies.

Going forward, we will continue to double R&D investments along the “New IT” architecture; enhance our digital foundation to support business growth; compete as One Lenovo with pocket-to-cloud offerings, global footprint, and organizational efficiency; and continue to deliver our ESG commitments.?

Now let’s look at each of our businesses.

Solutions & Services Group: Higher margin, strong growth

Let’s start with the Solutions & Services Group, or SSG. The trillion-dollar global IT service market through 2025 presents big opportunities for growth.?Almost half of global workers are currently working remotely, driving demand for premier support and customized fulfillment.?As-a-Service penetration in PC and data center is only 2%, providing substantial room for growth. ?And enterprise spending is expected to grow fast in cloud and digital services.

Last quarter, Lenovo SSG continued to deliver high growth with higher profitability. Its operating margin exceeded 22%, a nearly 3-point increase year-on-year.?Revenue continued strong growth of over 25% year-on-year. Support services 21%; Managed Services 50%, driven by our TruScale, as-a-Service offerings; Project Services & Solutions 23% with breakthrough in Smart Retail.

Looking forward, SSG will capture the remote work trend and leverage our global service footprint, to provide accessibility and flexibility to our customers.?SSG will also invest in TruScale offerings, hybrid cloud solution and other software and services with our own IP, and expand sustainability offerings.?

Infrastructure Solutions Group: Profitable with strong premium-to-market growth

Our Infrastructure Solutions Group, or ISG, continues to benefit from the ICT infrastructure upgrade, a 250-billion-dollar market globally through 2025. ?By 2025, the edge infrastructure market alone is expected to grow quickly to 41 billion US dollars.

Last quarter marked an important milestone – our ISG became profitable for the first time since the IBM x86 acquisition in 2014. Meanwhile, our revenue grew at a double-digit premium to market for the fourth consecutive quarter. Our Cloud Service Provider and Enterprise/SMB revenue grew by 38% and 7%, respectively, year-on-year.

Over the years, ISG has invested in building a full stack datacenter portfolio as well as in-house design and manufacturing capabilities. We can now cover customers of all scales, from tier-1 CSP to tier-2, Enterprise, and SMB. In the long term, this customer coverage will give us unique advantages to balance scale and profitability, as well as customer’s demand for security/ reliability and agility/flexibility. We will meet all kinds of customer requirements from on-prem, Infrastructure-as-a-Service, all the way to Private/Public/Hybrid Cloud.

Intelligent Devices Group: Strong Growth, Stronger Profitability

For the Intelligent Devices Group, or IDG, smart device markets continued to benefit from the new normal’s hybrid working model. The PC market is forecasted to remain strong and stable, shifting to commercial and premium segments. In smartphone, the market reshuffling will bring more growth opportunity to Lenovo. At the same time, the penetration of 5G and the development of “Edge-Cloud-Network-Intelligence” will provide more growth potential for the emerging smart devices like embedded computing/IoT, AR/VR driven by Metaverse, as well as Smart Home and Smart Collaboration solutions.

Last quarter, IDG delivered another record quarter in profit and revenue. Its revenue grew 16% year-on-year, and profit grew even faster, up 21%. In PCs, premium segments delivered high growth. In non-PCs, smartphone business has had healthy profit for seven consecutive quarters. Last quarter, its revenue grew strongly at 46% year-on-year and was the fastest growing major vendor.

Meanwhile, we saw some emerging smart devices like smart collaboration solutions revenue nearly doubled year-on-year.

Going forward, in PCs, we will continue investing in innovation, premium segments, and core components. In Mobile, we will strengthen our smartphone portfolio and invest in expanding new markets in Europe and Asia Pacific. We will also continue to invest in IoT, Metaverse driven AR/VR, Smart Home and Smart Collaboration solutions to capture the emerging opportunities.

Confidence in Future Profitability and Growth

In summary, our market coverage is expanding, potential is growing, our capabilities are developing, and our performance is stronger than ever. ?We are on track to doubling both R&D investment and net margin by the end of fiscal year 2023/2024. We are confident in delivering strong, sustainable, profitable growth, while also meeting our ESG commitments.

*Read our earnings press release here .