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

With the promotion of artificial intelligence applications represented by ChatGPT, AI continues to have an increasing influence on the digital transformation of related industries. More and more industry analysts point out that generative artificial intelligence will give rise to a huge demand for computing power, which has become a key productive force and a new momentum to drive the high-quality development of digital economy. Enterprises in the industrial chain are also feeling the opportunities brought by this computing revolution, and are speeding up the scale of investment and deployment.

On August 17, 2023, HKSE:992 (ADR:LNVGY), a global leader in the digital economy, announced its first fiscal quarter results for the fiscal year ended June 30, 2023: revenue of 90.3 billion yuan and net profit of 1.33 billion yuan. The group's service-oriented transformational business continued to grow strongly, with non-PC businesses accounting for 41.4 per cent of the group's overall revenue.

The forward-looking of Lenovo's intelligent transformation strategy has also been fully verified in this quarter:

The revenue of SSG solution services business has maintained strong growth, up 18% from the same period last year, and the operating profit margin has reached 21%. The core profit engine support services have a stable performance, and the fully expanded operation and maintenance services, projects and solution services account for more than 50% of the total revenue of SSG. The slowdown in technology spending by global cloud service vendors affected the revenue and profit performance of the ISG infrastructure solutions business in the current quarter, but the high-value parts of the ISG business, such as storage, software, services, and so on, achieved strong growth. Driven by triple-digit growth, the storage business has reached the fourth place in the world in terms of market share. The emerging AI hardware infrastructure-related business has also achieved triple-digit year-on-year growth, ranking third in the world. Revenue from IDG's smart device business is still dragged down by the industry's destocking cycle. But positive signs have emerged: global PC shipments and activation have converged, which means that channel inventory digestion is nearing completion, and Lenovo's position as the global PC leader remains solid. In the field of mobile devices, Lenovo's mobile phone business achieved its highest level of activity in the first quarter in a decade.

Looking to the future, the advent of the general artificial intelligence (AGI) era will greatly increase the demand for intelligent terminal equipment, computing infrastructure base and AI industry solutions, and accelerate the popularization and penetration of artificial intelligence in thousands of industries. Lenovo Group's 3s strategy is ushering in a "strategic turning point". As the world's largest computing infrastructure and service provider, the Group will fully embrace and seize this huge opportunity to accelerate the intelligent transformation based on the new IT technology architecture and with the strong support of Puhui Computing:

ISG business has a deep accumulation and strategic layout in the field of artificial intelligence infrastructure, can provide a full stack of rich product portfolio, as well as a strong AI server product family, and is a strategic partner of the world's leading AI service providers. IDC data also show that Lenovo is the fastest growing AI hardware infrastructure (server and storage) provider in 2022, up 139% from a year earlier, ranking third in the world.

SSG business uses AI technology extensively in its product portfolio, including AI device intelligence, spanning AI customer service, and AI enhanced vertical industry solutions.

IDG business is leading the revolution in personal computing, and PC is transforming itself into AI PC, a disruptive mix of terminal, edge computing and cloud technologies, fully meeting the needs of new generative AI workloads.

At the same time, Lenovo Group's commitment to double its R & D investment in the medium term remains unchanged, and plans to invest more than 7 billion RMB in the next three years, which will not only increase the R & D and innovation of AI infrastructure, but also accelerate the deployment of artificial intelligence technologies and applications around the world, helping customers and consumers seize the development opportunities of intelligent change and achieve a comprehensive jump in productivity.

With the entry of the AI model into thousands of industries, the computing power it brings will also be reflected in government affairs, industry, transportation, and other important industries, and policies are also being introduced to support the development of computing power. Lenovo has a sharp increase in business growth opportunities through practice and enabling partners to transform intelligently.

Yang Yuanqing, chairman and chief executive of Lenovo, said: "there are always challenges, but innovation is eternal. AI artificial intelligence and computing are Lenovo's two most important 'anchor' technologies, and we will continue to work hard and bring forth the new. At the same time, Lenovo's medium-and long-term commitment to maintaining good profitability remains unchanged." In the future, Lenovo will also "manage costs more effectively, weaken risks, enhance sustainable profitability improvement and growth, and will adhere to intelligent transformation and innovation to create a smarter future."

Overall performance highlights:

In the first quarter, the revenue was 90.3 billion yuan and the net profit was 1.33 billion yuan.

Strong growth in service-oriented transformational business, with non-PC business rising to 41.4%

The revenue of SSG Solutions Services increased 18% year on year, with a profit margin of 21%.

ISG Infrastructure Solutions Business becomes the third AI hardware Infrastructure provider in the World

IDG's smart device business ranks first in the world in PC share.

SSG continues to achieve high profits and high growth

Business opportunities: the digital and intelligent transformation of the industry will continue to accelerate in the next three years, driving the rapid growth of the IT service market. At the same time, the market for vertical solutions such as smart city, smart manufacturing, smart education and smart retail is also expected to grow rapidly by 2026.

Performance: SSG achieved revenue of 12 billion yuan, an increase of 18% over the same period last year. Operating profit reached 2.5 billion yuan, an increase of 10% over the same period last year. The operating profit margin is 21%.

Sustainable growth: SSG is capitalizing on the trend of as-a-service (aaS), increasing the scale of its business, including key common solutions such as digital office space, hybrid cloud and sustainability services, and embedding vertical industry solutions to help customers improve their employees' experience and productivity.

ISG strives for profitable growth with differentiated technology

Business opportunities: driven by strong AI demand, the process of upgrading ICT infrastructure is being further accelerated. Strong growth is also expected in the areas of services, edge computing and enterprise software.

Performance: affected by multiple market environments, ISG's revenue was 13.4 billion yuan, down 8% from the same period last year. Sustainable growth: Lenovo will invest in all aspects of AI infrastructure R & D and innovation, including the development of AI edge computing, hybrid clouds, and servers and storage to support AI workloads. ISG will continue to expand its horizons and aim to become the most reliable infrastructure partner for customers' digital intelligence transformation.

IDG maintains a leading position in the severe market challenges

Business opportunities: although the smart device industry is still in the period of adjustment, the smart space market and the new generation of smart terminal equipment market are full of new opportunities.

Performance: affected by the market environment, IDG's revenue was 71.8 billion yuan, down 28% from the same period last year.

Sustainable growth: Lenovo is committed to investing in innovation to improve its long-term competitiveness, including building a new generation of AI terminals. The smartphone business has formulated a three-year growth plan to expand markets such as Asia-Pacific and Europe-Middle East-Africa while achieving supermarket growth in North America and Latin America. Products and solutions such as smart collaboration and smart home also show great potential for growth. IDG will continue to expand and enrich its diversified product portfolio, including further development of software and services to create a good ecosystem of smart devices.

* the amount of US dollars in this results report is calculated as the RMB amount at the average exchange rate of RMB 1 to US $0.142820767 for the fiscal year 2023 and the first quarter, which cannot be used in any other time period of the performance report.

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