Lenovo in 2023: performance driven by resilience of core businesses and effectiveness of transformation

Lenovo Group announced third quarter results, reporting revenue increasing 3% year-on-year to USD 15.7 billion, and Group profitability improving quarter-to-quarter for the second time in a row. Net income was USD 357 million on a non-Hong Kong Financial Reporting Standards basis, with net income margin up 0.4% quarter-to-quarter to 2.3%. The Group’s diversified growth engines continued to deliver strong performance, with revenue from non-PC businesses accounting for 42% of Group revenue, up 1.3 points year-on-year.

The consistent quarter-to-quarter improvements over past quarters have been driven by the resilience of the Group’s core businesses and the wider effectiveness of its ongoing transformation. The SSG business hit an important milestone of passing the USD 2 billion revenue threshold, achieved a record high operating profit with operating margin of over 20% and grew revenue from managed services and project and solution services year-on-year for 11 straight quarters. The ISG business delivered quarter-to-quarter revenue growth and reached a record high USD 1 billion revenue for its storage, software, and services businesses. Overall, the IDG business resumed revenue growth, outperformed the market and achieved year-on-year shipment growth for PCs, and maintained its industry-leading profitability.

Financial Highlights:

	Q3 FY 23/24 US$ millions	Q3 FY 22/23 Read more about Ayn Rand Centre: 63% of businesses want to adopt artificial intelligence in three years read more US$ millions	Change
Group Revenue	15,721	15,267	3%
Pre-tax income	471	605	(22%)
Net Income (profit attributable to equity holders)	337	437	(23%)
Net Income (profit attributable to equity holders – non-HKFRS) [1]	357	447	(20%)
Basic earnings per share (US cents)	2.81	3.65	(23%)

 “Last quarter, we delivered on our promise and resumed year-on-year revenue growth, driven by both the resilience of our core businesses and the effectiveness of the service-led transformation. Looking ahead, our commitment to AI innovation, our pocket-to-cloud computing capabilities, full stack portfolio of smart devices, smart infrastructure, smart solutions and services, combined with our partnerships with other key leaders in AI, will ensure that we are well-positioned to capture the tremendous opportunities in AI.” – Chairman and CEO Yuanqing Yang.

Accelerating AI leadership

The Group is capitalizing on the significant growth opportunities afforded by the AI-era. In particular, the emerging trend of hybrid AI is directly driving the demand for AI PCs, a trend that will stimulate another industry refresh cycle as users require devices designed for more creativity and productivity. Alongside devices, hybrid AI is driving increased demand for hybrid infrastructure and customer demand for AI-native applications, solutions and services such as advisory, design, development and maintenance – fueling growth across multiple customer verticals.

To further build its unique position in the AI-era, Lenovo is continuing its investment commitments in innovation. R&D headcount is up year-to-year at more than 25% of Group headcount, with R&D expenses-to-revenue ratio for the full fiscal year on track to hit an all-time high. This ongoing investment, together with a full portfolio of AI-enabled, AI-ready, and AI-optimized devices, infrastructure, solutions and services, is the foundation of Lenovo’s vision of ‘AI for All’ – changing the way individuals and enterprises live and work and will fuel future sustainable growth for the Group.

Recent AI announcements from the Group include a partnership with Anaconda to accelerate AI development and deployment of Lenovo’s high-performance data science workstations, a suite of AI-powered devices and solutions announced at the annual CES show, an expansion of its hybrid cloud platform for AI with new ThinkAgile hyperconverged solutions and ThinkSystem servers, and a newly launched cyber-resiliency as a service (CRaaS) offering.

Solutions and Services Group (SSG): Record revenue, record operating profit, driving AI solutions

Q3 FY23/24 performance:

• Record revenue of USD 2 billion, with double digit year-on-year growth. Record high operating profit with operating margin of over 20%.
• Protected support services and software as the core profit engines for SSG.
• Further expanded managed services and project and solutions services, together now making up 55% of SSG’s revenue, up 1.5 points year-on-year and growing consecutively year-on-year for 11 straight quarters.

Opportunities and Sustainable Growth:

• SSG has strong momentum for its hero offerings, including Digital Workplace Solutions (DWS), Hybrid Cloud, and sustainability solutions and services.
• SSG focused its hero offerings to support specific vertical industries with smart solutions, winning major customer deals.
• Increasing customer demand of AI technology used in industry use cases – with accompanying services such as advisory, design, and deployment – fueling AI services growth across different verticals.

Infrastructure Solutions Group (ISG): Capturing opportunities in AI infrastructure

Q3 FY23/24 performance:

• ISG delivered quarter-to-quarter revenue growth for the second consecutive quarter.
• Combined revenue from storage, software, and services reached a record high of USD 1 billion.
• ISG expects to remain a solid #3 globally for both storage and AI infrastructure.

Opportunities and Sustainable Growth:

• AI server is expected to grow nearly twice as fast as the total server market.
• ISG is growing key strategic partnerships to strengthen its portfolio competitiveness.
• The rise of AI is driving higher demand for smart infrastructure (better performance, smarter management, and lower energy consumption). Lenovo is unique with its comprehensive Edge to Cloud portfolio, AI Innovators program, and AI Innovation Centers delivering vertical and horizontal pre-validated solutions to the industry.

Intelligent Devices Group (IDG): Resumed growth and solidified leadership

Q3 FY23/24 performance:

• IDG delivered a strong quarter with revenue resuming growth thanks to a clear strategy, consistent investment in innovation, and operational excellence.
• Continued PC market recovery saw IDG outperforming the market and returning to year-on-year shipment growth with the highest market share since Covid at nearly 24%. North America excelled with year-on-year PC revenue growth of 20%.
• The non-PC devices business made encouraging progress. The smartphone and tablet businesses returned to high double-digit year-on-year shipment growth, with a significant premium to the market of more than 20 points. Smartphone shipments were up 32% year-to-year – with hypergrowth in Asia Pacific, EMEA and North America.

Opportunities and Sustainable Growth:

• The trend of hybrid AI will drive the demand for client devices and another refreshment cycle, creating growth potential and margin improvements.
• Lenovo has a unique opportunity to develop a fully unified AI experience that spans users’ digital ecosystems, including PC, tablets, and smartphones.