May 23, 2024 - Lenovo Group (HKSE: 992) (ADR: LNVGY), a global leader in the digital economy, announced its fourth fiscal quarter and annual results for the 2023/24 fiscal year ending March 31, 2024: revenue for the fourth fiscal quarter of 99.4 billion yuan, up nearly 10% year on year; main business fully resumed growth, with net profit of 1.78 billion yuan, up 118% year on year; businesses other than PCs accounted for nearly 45%, a record high. For the entire 2023/24 fiscal year, revenue was 407.4 billion yuan.

The signs that the global PC market continues to pick up have been further confirmed. The Group's core PC business continued to expand its lead in the fourth fiscal quarter: the global market share was 22.9%, the growth rate was nearly 6 percentage points higher than the market, and ranked first in four of the world's five major regional markets. Meanwhile, in the midst of another revolution in global productivity set off by generative AI, the Group has established a leading position in the field of AI PC as a new species: it pioneered the definition of the five major characteristics of real AI PCs, and related products have also taken the lead in the launch of related products recently.

The Group's mobile phone business continued to advance rapidly in the fourth fiscal quarter, achieving double-digit growth in both shipments and revenue, of 23% and 14%, respectively, far higher than the market growth rate.

As the Group's new growth engine, SSG Solutions Services Group also performed strongly in the fourth fiscal quarter: revenue of RMB 13.1 billion, up 10.3% year over year, and operating margin of 21.4%. Among them, the share of operation and maintenance services and project and solution services in SSG's overall revenue increased by 5 percentage points compared to the same period last year, reaching 55%.

The server business reached an inflection point at the end of the fourth fiscal quarter: ISG Infrastructure Business Group regained growth momentum, and the year-on-year revenue growth rate reached 15.1%, a record high for the same period. Total revenue from the storage, software and services business increased by more than 50% year over year, and the high-performance computing business also reached a new high.

Throughout the 2023/24 fiscal year, global macroeconomic challenges are still very serious, and the Group is determined to innovate while maintaining resilience. In return, the Group's performance continued to improve since the second half of the fiscal year and entered a recovery cycle: revenue for the second half of the fiscal year increased 5.9% year over year. Among them, IDG continued to outperform the market, and the PC, tablet, and smartphone businesses all resumed growth in the second half of the fiscal year. SSG achieved annual revenue growth of more than 12% and operating margin of more than 20%. ISG, on the other hand, achieved a month-on-month improvement in revenue for 3 consecutive quarters and resumed growth.

A new generation of artificial intelligence revolution is reshaping thousands of industries. In fiscal year 23/24, Lenovo Group increased its investment in the two major anchor technologies of artificial intelligence and computing. The annual R&D cost rate and total number and proportion of R&D personnel reached record highs. On May 22, Gartner Top 25, the world's most authoritative supply chain list, announced the latest 2024 ranking. Lenovo Group has been in the top 10 for 3 consecutive years, and is the only high-tech manufacturing company in China and the Asia-Pacific region. This is also the 10th time that Lenovo Group has been on the list, continuing to maintain the record for the most number of Chinese companies on the list.

Looking ahead to the “new AI decade” that has begun, Lenovo Group will fully embrace artificial intelligence: the end-side revolution of artificial intelligence will bring huge growth opportunities. AI PCs with personalized intelligence, local heterogeneous computing power, personal knowledge base, open application ecosystem, and privacy security protection capabilities are expected to gradually move from high-end to mainstream within 3 years, and the PC market will also usher in a new switching cycle. At the same time, the trend of hybrid artificial intelligence is driving the growth in demand for hybrid infrastructure. Customers are also increasingly demanding customized artificial intelligence solutions and services, and demand for services such as AI consulting, design, deployment, and maintenance is growing rapidly.

“Entering the new fiscal year, we are determined to take full advantage of the unprecedented development opportunities brought by hybrid artificial intelligence to accelerate the growth of the 3S business.” Yang Yuanqing, Chairman and CEO of Lenovo Group, said, “Continued investment in innovation, full-stack product portfolio, resilient operations, and strong ecosystem partnerships will help Lenovo achieve strong and sustainable growth in revenue and profitability.”

Performance highlights:

• Revenue for the fourth fiscal quarter was RMB 99.4 billion, up nearly 10% year on year; net profit was RMB 1.78 billion, up 118% year on year;

• In the fourth fiscal quarter, revenue from businesses other than PCs accounted for 45% of total revenue, a record high;

• IDG Smart Device Business Group's fourth fiscal quarter revenue was 75.2 billion yuan, up 6.8% year on year;

• SSG Solution Services Group's fourth fiscal quarter revenue was RMB 13.1 billion, up 10.3% year over year.

• ISG Infrastructure Business Group's fourth fiscal quarter revenue was RMB 18.2 billion, up 15.1% year over year.

• In the 2023/24 fiscal year, revenue was 407.4 billion yuan, and the annual R&D expenditure rate and total number and proportion of R&D personnel reached record highs.

IDG: Outperforms the market and debuts a real AI PC

According to IDC statistics, after two years of decline, the global traditional PC market recovered in the first quarter of 2024.

The total shipment volume reached 59.8 million units, which is basically the same as the same period in 2019. Moreover, AI PCs are injecting new room for imagination into the market, and AI PCs are expected to account for nearly 60% of global PC shipments by 2027. Over the same period, global smartphone shipments increased 7.8% year over year, and continued to grow for the 3rd consecutive quarter, sending a signal that market recovery is progressing smoothly.

In the fourth fiscal quarter, IDG Smart Devices Business Group continued to grow steadily, with revenue of 75.2 billion yuan, up 6.8% year on year. Among them, the PC business expanded its global advantage with a growth rate of nearly 6 percentage points above the market average and maintained industry-leading profitability. It ranked first in four of the world's five major regional markets, and the North American market share reached a record high.

Supported by the 3-year growth plan, shipments and revenue of the smartphone business increased 23% and 14%, respectively, in the fourth fiscal quarter. Throughout the fiscal year, smartphone activations increased 12% year over year, high-end products accounted for 25%, and continued to thrive in the Asia Pacific and EMEA (Europe, Africa, Middle East) markets, with revenue growth of 88% and 40% respectively.

For the entire 2023/24 fiscal year, IDG generated revenue of RMB 319.5 billion. In particular, growth resumed in the second half of the fiscal year. Among them, the PC business grew 3.3% year over year, tablets grew 16.9% year over year, and smartphones grew nearly 20% year over year.

Looking ahead, the PC market will return to a higher level than before the pandemic, while the mobile phone market has returned to double-digit year-on-year growth, providing a steady growth space for IDG's business. Not long ago, the Group launched the first batch of AI PC Yuanqi series products in the Chinese market, equipped with personal intelligence devices to further unleash productivity; in overseas markets, the Group released two AI PCs equipped with the fastest AI NPU (processing speed 45 TOPS) so far. Lenovo will gradually expand from AI PCs to diverse terminal devices such as AI phones and AI tablets, and create seamless collaboration between different devices.

SSG: Strengthening the Growth Engine and Expanding Artificial Intelligence Solutions

The rise of hybrid artificial intelligence has provided new AI service opportunities for SSG solution service businesses, including increasing demand for consulting, design, deployment, and maintenance services around hybrid infrastructure; helping customers evaluate, utilize, and manage AI to develop solutions across different vertical fields; and solutions embedded with AI. Gartner expects the IT services market to grow 9.7% in 2024, compared to 11.3% CAGR in 2024-2027.

In the fourth fiscal quarter, SSG's revenue was RMB 13.1 billion, up 10.3% year over year. Operation and maintenance services and project and solution services

SSG's share of overall revenue increased by 5 percentage points compared to the same period last year, reaching 55%. Key general solution businesses such as digital office space and hybrid cloud have achieved rapid growth, with total contract value (TCV) increasing 33% and 82% year over year, respectively. We continue to develop artificial intelligence-enabled solutions in the fields of cities, education, energy, manufacturing, etc., and now we have more than 20 successful cases of lighthouse projects. In the 2023/24 fiscal year, SSG generated 53.5 billion yuan in revenue.

Facing the opportunities of hybrid artificial intelligence, Lenovo is using AI to enhance existing solutions such as Care of One digital workplace solutions, LISSA's sustainability solutions, and security as a service. In the Chinese market, Lenovo upgraded DynaSky 3.0 to build the DynaSky intelligent engine based on Lenovo's intelligent hybrid cloud, including the core AI development and operation layer, the hybrid large model and knowledge base tool layer, and the enterprise's general intelligence business layer to create intelligent solutions for different industries.

Facing the future, Lenovo is actively collaborating with other AI industry leaders such as Nvidia and Microsoft, and has established close partnerships with more than 50 rigorously screened AI leaders in the Lenovo Innovators Program. Lenovo will respond quickly to the growing needs of customers, create solutions and services native and embedded with artificial intelligence, further promote high growth and create high profits.

ISG: Regaining Growth Momentum and Empowering AI Infrastructure

The global server and storage market is expected to continue to grow, driven by the need to upgrade infrastructure around the world. IDC predicts that from 2024-2027, the global server market will grow at a compound annual rate of 10%, the edge server market will reach 19%, and the storage, software and services markets will continue to grow.

Despite facing a series of macroeconomic challenges, ISG achieved revenue of RMB 18.2 billion in the fourth fiscal quarter, a record high for the quarter, and achieved 3 consecutive quarterly improvements. During the 2024 Lenovo Innovation and Technology Conference held in April, the Lenovo Wanquan Heterogeneous Intelligent Computing Platform was officially launched. It provides superior computing power through intelligent matching, improves efficiency based on core algorithms, and realizes greening computing power through innovation in liquid cooling technology. In the 2023/24 fiscal year, ISG achieved revenue of 63.9 billion yuan.

At present, Lenovo has become the world's largest supplier of high-performance computing and the third largest AI infrastructure provider. Storage also ranks third in the world, and has a complete layout of general computing, high-performance computing, intelligent computing, and edge computing. At the same time, with regard to AI, the “energy-consuming giant,” Lenovo is also fully deploying and leading liquid cooling technology. For example, in the field of green computing, Henri, a high-performance computing cluster built by Lenovo for the Flatiron Research Institute, has topped the HPC Green 500 list three times in a row.

Looking ahead, IDC predicts that AI servers will continue to grow at twice the rate of other server markets. Lenovo will seize the growth opportunities by building a rich product portfolio and excellent ability to transform business opportunities, and will also continue to seize the steady growth opportunities of traditional computing servers, storage, software, and services using its existing advantages.