Lenovo Group announced financial results for the third quarter1 2023/24 financial year2 and reported Group turnover of $15,7 billion, which is 3% more than the previous quarter and indicates an improvement in profitability for the second time in a row. The Group's net profit amounted to $357 million, if measured according to HKFRS3, and the gross profit margin increased by 0,4% compared to the previous quarter to 2,3%. The Group's diversified growth drivers continue to perform strongly, with non-PC revenue accounting for 42% of total revenue, up 1,3 points year-on-year.
The consistent improvement in performance over recent quarters was made possible by the sustainability of the Group's core businesses and the greater efficiency of its ongoing transformation. SSG's business crossed the milestone of $2 billion and achieved a record high operating profit with a margin of over 20%. This happened by increasing revenues from managed services and services from the implementation of projects and solutions on an annual basis for 11 consecutive quarters. ISG's business has shown revenue growth in recent quarters and reached a record $1 billion in storage, software and services segments. Overall, the IDG business unit resumed revenue growth, outperformed the market and delivered year-over-year growth in PC shipments, and maintained industry-leading profitability.
Financial indicators:
"Last quarter, we delivered on our promise and resumed annual revenue growth thanks to the resilience of our core business and the effectiveness of our service-oriented transformation," said Yuanging Yang, chairman and CEO of Lenovo. — Going forward, our commitment to innovation in AI, pocket and cloud computing, a portfolio of smart devices, smart infrastructure, smart solutions and services, combined with partnerships with other key AI leaders, will position us well to take advantage of the enormous opportunities that artificial intelligence".
Accelerating AI leadership
The Group is taking advantage of the great growth opportunities presented by the AI era. In particular, the emerging trend of hybrid AI is directly impacting the demand for AI computing, a trend that will drive another cycle of industry renewal as users demand devices designed for greater creativity and productivity. In addition to devices, hybrid AI is fueling the growth of various business sectors, demand for hybrid infrastructure, including AI-based applications, solutions, and services such as consulting, design, development, and maintenance.
To further strengthen its position in the era of artificial intelligence, Lenovo continues to invest in innovation. The number of employees in the research and development department is growing from year to year and makes up more than 25% of the total number. The ratio of research and development expenses to revenue for the entire fiscal year is approaching an all-time high. These ongoing investments, along with a full portfolio of AI-enabled and AI-enabled devices, infrastructure, solutions and services, underpin Lenovo's vision of “AI for All”—changing the way individuals and businesses live and work, driving the company's future sustainable growth.
The company's recent AI news includes partnership with Anaconda to accelerate the development of artificial intelligence and the deployment of high-performance Lenovo workstations for data processing, a set of devices and solutions based on AI, announced at the annual CES exhibition, extending the hybrid cloud platform for AI new hyperconverged ThinkAgile solutions and ThinkSystem servers, as well as the recently launched offering cyber resilience as a service (CRaaS).
Solutions and Services Group (SSG): Record revenue and operating profit, driving AI solutions and services
Results of activity in the third quarter of the 23/24 fiscal year:
- Record revenue of $2 billion, with double-digit year-over-year growth. Record high operating profit with an operating margin of over 20%.
- Secure support services and software are SSG's main sources of revenue.
- Further expansion of managed and project and solutions services, which together account for 55% of SSG's revenue, up 1,5 points year-over-year and growing for 11 consecutive quarters.
Opportunities and sustainable growth:
- SSG has strong momentum for its offerings, including Digital Workplace Solutions (DWS), hybrid cloud technologies, and sustainability solutions and services.
- SSG has focused its offerings on supporting specific industries with intelligent solutions and services, having entered into agreements with customers in many markets.
- AI technologies used in industrial use cases, as well as related services such as consulting, design and deployment, contribute to the growth of demand for artificial intelligence services in various industries.
Infrastructure Solutions Group (ISG): harnessing the power of AI infrastructure
Results of the third quarter of the 23/24 financial year:
- ISG posted quarter-over-quarter revenue growth for the second quarter in a row.
- Combined revenue from storage, software and services reached a record $1 billion.
- ISG expects to remain the #3 global leader in both data storage and AI infrastructure.
Opportunities and sustainable growth:
- The AI server market is expected to grow nearly twice as fast as the overall server market.
- ISG is developing key strategic partnerships to strengthen the competitiveness of its portfolio.
- The development of artificial intelligence contributes to the growth of demand for intelligent infrastructure (better performance, more "intelligent" management and lower energy consumption). Lenovo is a unique company with its comprehensive Edge to Cloud portfolio, AI Innovators program and AI Innovation Centers that provide vertical and horizontal pre-proven solutions for the industry.
Intelligent Devices Group (IDG): Resuming Growth and Strengthening Leadership
Results of activity in the third quarter of the 23/24 fiscal year:
- IDG had a successful quarter in which it managed to resume revenue growth thanks to a clear strategy, consistent investment in innovation and operational excellence.
- A sustained recovery in the PC market saw IDG Group outperform the market and return to annual growth in shipments with its highest market share since Covid at nearly 24%. The North America region surpassed 20% year-over-year PC revenue growth.
- The non-PC business showed encouraging progress. The smartphone and tablet divisions returned to high double-digit shipment growth year-over-year, with a significant beat of plans relative to the market by more than 20 points. Smartphone shipments grew 32% year-over-year, with hyper growth in Asia Pacific, EMEA and North America.
Opportunities and sustainable growth:
- The hybrid AI trend will drive demand for consumer devices and another refresh cycle, creating the potential for growth and margin improvement.
- Lenovo is uniquely positioned to develop a fully unified AI experience that spans digital user ecosystems, including PCs, tablets and smartphones.
ESG Summary
Lenovo has been recognized for a number of ESG achievements, including:
- Maintaining the highest possible score in the MSCI ESG Annual Ratings with a AAA rating.
- "Gold" award in the annual rankings for the best corporate governance and ESG by the Institute of Chartered Accountants of Hong Kong.
- For the sixth year in a row, the company has been included in the Human Rights Campaign Foundation's Corporate Equality Index for 2023-2024.
- The highest score in the annual global Workplace Pride test.
1Lenovo's Q3 2022/24 financial year ran from October 1 to December 31, 2023.
2Lenovo's 2023/24 financial year runs from April 1, 2023 to March 31, 2024.
3 The non-HKFRS figure has been adjusted by excluding net changes in the fair value of financial assets at fair value through profit or loss, amortization of intangible assets as a result of mergers and acquisitions, costs related to mergers and acquisitions and the related tax impact on profit, if any.
LENOVO GROUP
FINANCIAL SUMMARY
For the quarter ending December 31, 2023
(in millions of US dollars, excluding per share data)
| Third quarter 23/24 | Third quarter 22/23 | Change from year to year | ||
| Receipts | 15,721 | 15,267 | 3% | |
| Gross profit | 2,601 | 2,612 | (0)% | |
| Gross profit margin | 16.5% | 17.1% | (0.6) | |
| Operating expenses | (1,988) | (1,862) | 7% | |
| R&D expenses (included in operating costs)
| (547) | (579) | (6)% | |
| Cost-to-revenue ratio | 12.6% | 12.2% | 0.4 | |
| Operating profit | 613 | 750 | (18)% | |
| Other non-operating income/(expenses) - net | (142) | (145) | (2)% | |
| Profit before taxation | 471 | 605 | (22)% | |
| Taxation | (94) | (123) | (23)% | |
| Profit for the period | 377 | 482 | (22)% | |
| Non-controlling interest | (40) | (45) | (11)% | |
| Profit belonging to owners of shares3 | 337 | 437 | (23)% | |
| Profit attributable to equity holders, non-HKFRS [1] | 357 | 447 | (20)% | |
| Earnings per share, cents Basic Dilute |
2.81 2.64 |
3.65 3.44 |
(0.84) (0.80) |
About Lenovo
Lenovo is a US$62 billion global technology company, ranked 217th on the Fortune Global 500, with 77 employees worldwide and serving millions of customers in 000 markets every day. Driven by a bold vision of “Smart Technology for All”, Lenovo builds on its success as the world's largest PC manufacturer by further expanding into industries that drive the development of “new IT technologies” (client, edge, cloud, network and intelligence), including servers, storage systems, mobile devices, software, solutions and services. This transformation, together with Lenovo's world-changing innovations, is building a more inclusive, secure and intelligent future for everyone, everywhere. Lenovo shares are listed on the Hong Kong Stock Exchange under the name Lenovo Group Limited (HKSE: 180) (ADR: LNVGY). To learn more, visit https://lenovo.com and read about the latest news on our StoryHub.
