Shulou(Shulou.com)11/24 Report--

On February 17, CTOnews.com, Lenovo announced its financial results for the third quarter of fiscal year 2022. In the current quarter, Lenovo had revenue of 108.6 billion yuan and a net profit of 3.1 billion yuan, with all its main businesses making profits for the fifth consecutive quarter.

Lenovo said its diversified growth engine businesses other than personal computers accounted for more than 40 per cent of total revenue, with revenue from SSG solutions services up 22.6 per cent and ISG infrastructure solutions revenues up 48 per cent, both reaching record highs.

According to reports, in the third fiscal quarter of Lenovo, the revenue and operating profit of the smart device business group, which is composed of personal computers, tablets, smartphones and other smart devices, fell by 34% and 37% respectively compared with the same period last year.

Lenovo has a 23 per cent global market share by shipments. Compared with the same period last year, the smart device business group is further ahead in the competition for market share with its two biggest competitors, and in the PC sector, three of the four regional markets have the largest share.

It is said that with improved sales mix, strict cost management and excellent operation to reduce the pressure of weak market demand and destocking, despite a year-on-year drop of 36 basis points, the operating profit rate of the smart device business group is still higher than the level before COVID-19, it is 7.3%.

In the third quarter, ISG achieved revenue of 20.3 billion yuan, up 48% from the same period last year, reaching a record high for the third consecutive quarter. The revenue of SSG Solutions Services Business Group reached 13.1 billion yuan, up 23% from the same period last year, operating profit increased by 12% year-on-year, and operating profit margin reached 20.2%.

In the business segment, Lenovo Server became the third largest server provider in the world, with quarterly revenue up 35% from a year earlier. Revenue from the software business with high profits and high R & D density increased by 52% compared with the same period last year, while revenue from the storage business grew by 345%.

In the current financial quarter, Lenovo's IDG business has maintained its position as the market leader and profitability in the face of a harsh market environment. The smartphone business has been profitable for 11 consecutive quarters, with the activation rate of the high-end product Moto Edge up 74 per cent year-on-year and the proportion of 5G products in the portfolio increasing to 35 per cent.

"despite the challenges, the medium-term goal of doubling net profit margins remains our commitment," Yang Yuanqing said.

Bright spot

For the quarter ended December 31, 2022, Lenovo's operating performance was affected by weak demand for personal computers, mainly by macro headwinds, including rising interest rates. Group revenue fell 24 per cent year-on-year to $15.3 billion, of which currency exchange alone had a negative impact of 6 per cent.

Gross profit margin and operating profit margin in the third quarter rose 44 and 28 basis points respectively from a year earlier to record highs. The profit margin still improved significantly in times of market turmoil, proving that the Group has excellent operations and strong growth areas, reducing some of the impact of reduced operation size and rising financial costs on profitability. Profit attributable to equity holders fell 32 per cent to $437 million.

Despite various market challenges, the Group has made key progress in its long-term growth strategy for non-PC investment by accelerating the growth of infrastructure solutions groups and programme services groups. Non-personal computers, as a pillar business, account for 41% of the group's total revenue. The revenues of the programme services business group and the infrastructure solutions business group both reached record highs, growing by 23% and 48% respectively over the same period last year, and setting an all-time high of operating profits in their respective divisions. The resilient global digital transformation cycle, the emergence of new IT demand and the Group's investment in innovation, including innovation in ESG (Environmental, Social and Governance) initiatives, are the key to achieving a breakthrough in the Group's performance. Smart device Business Group continues to maintain a strong industry leadership position, effectively reducing the channel inventory of each division. However, currency headwinds and weak market demand led to a 34 per cent year-on-year drop in income.

The group is full of confidence in its long-term growth plan and development trajectory, with R & D spending increasing by 5% year-on-year to promote growth engines and support business transformation and ESG initiatives, so that the group can better cope with demand fluctuations and meet customers' long-term needs other than technology hardware. In terms of other operating expenses, as the group actively rebalanced expenditure, non-R & D operating expenses decreased by 31% as a whole.

Net cash remained strong at $581 million, up $500 million from a year earlier. The Group's cash flow cycle was shortened by 13 days compared with the same period last year, mainly due to an increase in the number of days of Group accounts payable. Inventory reduction was also carried out steadily, with quarter-end balances falling by more than $900 million on a quarterly and year-on-year basis. This is the result of the Group's optimization of operations to improve flexibility even in the face of macro challenges. Lenovo's ESG performance has been recognized and won many awards, including a gold award in the "Best Sustainable Company ╱ Institution" category of the Hong Kong Society of Certified Public Accountants "Best Corporate Governance and ESG Award". Lenovo ranks 24th on the BCG list of the "most innovative companies" from more than 1500 companies around the world. In addition, the Group was selected for the fourth year in a row in the Bloomberg gender Equality Index and was named a leader in climate change and water security by CDP.

Group financial performance

In the face of various market challenges, the Infrastructure Solutions Business Group and the Programme Services Business Group continued to seize market share, reaching record sales highs during the period under review, and consolidated profits increased by 19 per cent year-on-year. Although revenue fell 34 per cent year-on-year, the operating profitability of the smart device business group remained healthy, and the business group focused on maintaining operational excellence, consolidating its industry position.

Prospect

During the period under review, external challenges continue to affect global markets and are likely to continue for some time to come. For example, given the group's global business layout and the fact that more than half of the group's income is denominated in non-dollar currencies, the strong dollar has exacerbated the translation impact, many of which have depreciated against the dollar year-on-year in the past two quarters. The strong dollar had an impact of 6% on the group's income.

At the same time, the IT expenditure mix has changed significantly and is becoming more and more digital, which will bring strategic opportunities for digitization, cloud infrastructure and service-led transformation. These catalysts, coupled with the group's investment in innovation and its global footprint, are key to reducing external challenges and achieving the medium-term goal of doubling net profits. In the future, the Group will continue to invest in innovative and high value-added products and components to promote the development of the "new IT" architecture within the "end-edge-cloud-network-intelligence" framework. The Group's new series of products and solutions launched at the Consumer Electronics Show (CES) in January 2023 won a total of 129 product awards, of which Yoga Book 9i won 47 awards.

In the PC world, the market is likely to stabilize sooner than many expected in 2023, while smart device business groups continue to promote lean operational efficiency, maintain healthy cash flow and invest in innovation. The Smart device Business Group will lead the global competition for device innovation by enhancing the capabilities of hybrid office, gaming, entertainment and ESG designs. Scenario solutions such as smart collaboration and smart home devices continue to grow steadily. At the same time, the total availability market of the global PC market may return to the pre-epidemic level in the short term, but with the increasing popularity of digital life around personal computers, the long-term structure is likely to remain higher than the pre-epidemic level. The business upgrade cycle and high-end trends will help smart device business groups grow beyond the market. Its smartphone business will focus on portfolio expansion and differentiation to take advantage of the accelerated adoption of 5G. The smart device business will further invest in non-personal computers to win, including fast-growing accessories and office collaboration solutions. The Group strives to consolidate its leading position in the PC field and maintain its leading profitability to accelerate growth in non-personal computers and neighboring regions through innovation.

The Infrastructure Solutions Business Group has built industry-leading end-to-end infrastructure solutions and expanded to full-stack products including servers, storage and software. Small and medium-sized business IT infrastructure departments will also take advantage of the growth opportunities of artificial intelligence-driven edge, hybrid cloud, high-performance computing and telecom ╱ communications industry solutions. In the area of cloud services IT infrastructure, Infrastructure Solutions Business Group has a unique ODM + business model to meet the growing demand for vertically integrated supply chains. The business will continue to diversify its customer base and win new customers by winning the design bid for the technology platform. This approach will strike the best balance between general-purpose and customized products, while ensuring appropriate scale and effective cost structure, increasing revenue and profitability.

In terms of programme services business groups, new opportunities are brought about by global economic challenges and the dynamic transformation of market demand. Digital and structural changes in the workplace unleash the need for high-end, TruScale-as-a-service, sustainable and vertical solutions. Rising global interest rates have increased the cost of capital, making corporate customers more cautious about their spending and reducing cash spending by extending the life of their technology assets. This trend may delay the transaction conversion cycle in the short term, but will increase the long-term demand for maintenance services to increase asset availability. Corporate users also have more incentive to explore asset recovery services in order to obtain the value of assets at the end of the life cycle, or even profit. The general lack of IT talents in enterprises will translate into additional demand for outsourced services, providing opportunities for professional consultants, deployment and operation and maintenance services. Operation and maintenance services are in a favorable position to grasp the demand of "as-a-service". The Programme Services Operations Group continues to expand its range of services in different service areas while strengthening channel tools and cooperation with operational partners to further increase its penetration.

According to statistics from Counterpoint, IDC and other institutions, Lenovo's market share remained at 23.7% in the fourth quarter of 2022; its shipments fell 17% year-on-year in 2022, and its market share remained number one at 23.7%, as previously reported by CTOnews.com.

Expand reading: "Canalys:2022 global PC shipments fell 16% to 285 million units, Lenovo still takes the lead."

"Counterpoint:2022 shipped 286 million units of PC per year, down 15% from the same period last year."

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