Lenovo delivers solid results as diversified growth engines and operational excellence drive profitability

HONG KONG — (BUSINESS WIRE) — February 16, 2023 — Lenovo Group (HKSE: 992) (ADR: LNVGY) today announced third quarter results, reporting Group revenue of US$15.3 billion and net income of US$437 million. Group revenue from non-PC businesses reached a high of 41% and profitability remained solid as Lenovo’s diversified growth engines of Solutions and Services Group (SSG) and Infrastructure Solutions Group (ISG) grew revenue to record highs of US$1.8 billion and US$2.9 billion respectively, up 23% and 48% year-on-year. All main business groups contributed operating profit for the fifth consecutive quarter.

While the industry faces significant macroeconomic pressures, Lenovo sees long-term opportunities ahead as the global trends of digitalization and intelligent transformation continue to accelerate and IT spending is expected to recover to a moderate growth rate in the mid-to-long term. In the PC sector, real demand, as reflected by the activation data in 2022, is much better than the industry shipment data indicates as the channel consumes excess inventory. The Group expects year-on-year growth to resume in the second half of the calendar year with end-user demand to be higher than pre-Covid levels.

The Group continues to take proactive actions to further strengthen its cost competitiveness. It will do this by investing in high-margin growth engines as well as reducing run rate operational expenses. Lenovo’s cash balance remains strong, the cash conversion cycle continues to improve, channel inventory has reduced, and the company continues to invest in R&D and sustainability – remaining committed to doubling profitability in the medium-term.

Financial Highlights:

Chairman and CEO quote – Yuanqing Yang:

“Today’s solid results demonstrate that our service-led transformation strategy is paying off. Our diversified growth engines of non-PC business now account for over 40% of our group revenue and are driving solid profitability. Despite the complex macro environment, we retained our market leadership in PCs. I remain confident that our clear strategy, operational resilience, healthy liquidity, and continued investment in innovation will ensure we can deliver long-term sustainable growth and improved profitability.”

Solutions and Services Group (SSG): record revenue and high margin

Opportunity:

The trillion-dollar IT services market is expected to remain strong in the mid-to-long term with growth in managed services for cloud, on-prem, and edge expected to increase 7% CAGR. Spending in vertical solutions and services in education, smart retail, smart city, and manufacturing is almost double-digit CAGR.

Q3 FY22/23 performance:

• In the last quarter, SSG revenue grew by 23% year-on-year to US$1.8 billion, with an operating margin of 20.2% and operating profit up 12% year-on-year.
• All segments once again delivered high profitability and strong revenue growth.
• The revenue mix from non-hardware-centric solutions and services achieved a record of 53%, with managed services almost doubling year-on-year, driven by TruScale Everything as a Service.

Sustainable Growth:

• SSG continues to invest in building scalable and repeatable horizontal and vertical solutions with Lenovo IP.
• In addition, SSG enriched its digital workplace solutions, strengthened its hybrid cloud portfolio, and further expanded its sustainability offerings.

Infrastructure Solutions Group (ISG): record revenue, record profit

Opportunity:

By 2025, the server market alone is expected to reach US$135 billion. In the same time frame, the edge infrastructure market will grow 17% CAGR to reach US$37 billion, and the storage market will exceed US$35 billion.

Q3 FY22/23 performance:

• ISG revenue for the quarter increased by 48% year-on-year to a historic high of US$2.9 billion.
• Operating profit more than doubled year-on-year to an all-time high of US$43 million, marking seven straight quarters of year-on-year improvements.
• Server revenue grew 35% YTY to a new record, making Lenovo the 3^rd largest server company in the world. Storage revenue more than tripled (now #5 in the world), and software grew by 52% - both reaching all-time highs.

Sustainable Growth:

• ISG continues to enhance its comprehensive infrastructure portfolio and invest in innovation, particularly in AI powered edge computing and hybrid cloud.
• ISG remains focused on being one of the fastest growing and ultimately the largest end-to-end infrastructure solutions provider in the world, at the same time balancing scale and profitability.