The basic market of Lenovo Holdings remains stable and healthy, and its focus and investment in scientific and technological innovation, especially the layout of cutting-edge technologies such as AI and new materials, has also provided strong support for it to get through the cycle and break out of its trough.
On March 28, Lenovo Holdings (03396) announced the 2023 results. According to financial reports, the company's revenue during the reporting period was 436.012 billion yuan (RMB, same below), achieving net profit of 630 million yuan, but net profit to mother recorded a loss.
Against the backdrop of a slowdown in global economic growth, due to fluctuations in the industry and capital markets, Lenovo Holdings' operating performance is under considerable pressure in the short term. Profits contributed by Lenovo Group and Lianhong Group in the industrial operation sector have declined. In particular, the decline in investment business income in the industrial incubation and investment sectors has had a great impact on overall profit performance.
However, it is worth noting that one of the most important reasons for the decline in earnings in the industrial incubation and investment sector of Lenovo Holdings is that the fair value of the assets it holds declined significantly due to fluctuations in the capital market last year. However, changes in fair value are only changes in book investment value; they are not operating losses, so they will not have a significant impact on Lenovo Holdings' cash flow and business operations during the reporting period.
Fluctuations in the external environment have indeed put unavoidable pressure on Lenovo Holdings' short-term performance, but through the information disclosed in its performance announcement, we believe that Lenovo Holdings' basic market is still developing steadily and healthily, and that its focus and investment in scientific and technological innovation, especially the layout of cutting-edge technologies such as AI and new materials, has also provided strong support for it to get through the cycle and break out of its trough.
The industrial operation segment is the core basic market of Lenovo Holdings. During the reporting period, this sector achieved revenue of RMB 431,589 billion and net profit to mother of RMB 3,078 billion. Among them, Lenovo Group has maintained a stable market leadership position in the IT field, further consolidating the number one PC position in the world with significantly superior performance and maintaining leading profitability; the share of the non-PC business in overall turnover has further increased to 42%, and further results have been achieved in building a diversified growth engine. Lianhong Group's key projects are progressing steadily, achieving revenue of RMB 6.879 billion. On the one hand, it continues to optimize the product structure and increase the proportion of high-profit products. On the other hand, it closely follows the national development strategy, accelerates independent R&D and innovation in the fields of new energy materials, biomaterials and electronic materials, and continuously promotes the development and innovation of new products and technologies. The International Bank of Luxembourg also achieved the best performance in the past ten years, achieving revenue of RMB 6.127 billion and net profit of RMB 1,316 billion to mother.
While making every effort to expand and strengthen the pillar industry and consolidate the operating foundation of the industry, Lenovo Holdings, which takes “scientific and technological innovation” as its strategic direction, closely follows the national strategy to accelerate the formation of a new quality of productivity, and is also further building the core competitiveness of the enterprise.
According to the performance report, in 2023, Lenovo Holdings' R&D expenses reached 14.8 billion yuan, and the R&D expenditure ratio increased from 2.6% in 2021 to 3.4% in 2023. By increasing investment in R&D, Lenovo Holdings continues to advance research on key core technologies in key areas and accelerate breakthroughs in a number of core technologies and iconic strategic products. For example, during the reporting period, Lenovo Group released next-generation AI PCs and various AI servers; Lianhong Xinke plans to build a 300,000 ton POE project, which will break foreign monopolies in the field of polyolefin elastomer production technology.
In particular, in the field of artificial intelligence, which is an important engine for the development of new quality productivity, Lenovo Holdings has invested in more than 200 related companies to form a full-stack layout of “basic layer - technology layer - model layer - platform layer - application layer”, and established a first-mover advantage in carrying out the “Artificial Intelligence +” campaign. On March 8, 2024, Lenovo Holdings also signed a strategic cooperation agreement with Zhipu AI, a leading domestic artificial intelligence company. The two sides will carry out in-depth cooperation in the field of artificial intelligence. Through a multi-dimensional layout, Lenovo Holdings is firmly grasping the huge growth opportunities in the AI era.
As an important step to lay out cutting-edge technology, the Forward-looking Technology Research Institute established by Lenovo Holdings has initially established a technological innovation system with enterprises as the main body, market-oriented, and deep integration of industry, education, research and use. It has established contacts with more than 60 enterprises and scientific research institutions, initially screened out 39 seed technologies, and initiated in-depth cooperation with 2 universities and 7 domestic and foreign enterprises.
Economic data for the first two months of 2024 showed signs of recovery. Domestic economic resilience was highlighted, and it is expected to usher in further recovery. In addition to the end of the US dollar rate hike cycle, China's capital market has also clearly picked up since February. “Vigorously promote the construction of a modern industrial system and accelerate the development of new quality productivity” proposed in this year's government work report also provides new guidelines for the development of enterprises, especially technology-based enterprises. We have reason to believe that Lenovo Holdings, which has always focused on the theme of “technological innovation” and has 40 years of industrial accumulation, ecological layout and investment advantages in science and innovation, can hammer out its core competitive advantage and achieve breakthroughs in a new cycle driven by technological strength.