Lenovo Group today announced full-year results, reporting Group revenue of US$62 billion and net income of US$1.6 billion, or US$1.9 billion on a non-Hong Kong Financial Reporting Standards (HKFRS) [1] basis.
Profitability was stable with gross margin and operating
margin both delivering 18-year highs and non-HKFRS net margin flat
year-to-year. While Group revenue was impacted due to the softness in the
device market, revenue from non-PC businesses reached a fiscal year high of
nearly 40%, fueled by Lenovo’s diversified growth engines of Solutions and
Services Group (SSG) and Infrastructure Solutions Group (ISG) growing revenue
to record highs of US$6.7 billion and US$9.8 billion respectively, up 22% and
37% year-on-year.
After a year of industry and global uncertainties, Lenovo
sees positive signs of the market stabilizing. The Group expects the entire PC
and smart devices market to resume year-to-year growth in the second half of
2023, and for the IT services market to resume relatively high growth – together
these will drive the total IT market in 2023 back to moderate growth.
In the mid-to-long term, digital and intelligent
transformation will continue to accelerate, leading to a big growth potential
for cloud and computing infrastructure.
Lenovo’s cash position remains strong, and its cash
conversion cycle has further improved. This healthy liquidity has seen the
Group continue to invest in R&D around ‘New IT’ (client, edge, cloud,
network, and intelligence) to build its future core competencies. During the
last year, Lenovo increased its full year investment in R&D to US$2.2
billion, up 6% year-to-year.
In Q4, the Group recognized a one-time restructuring and
other charges of US$249M, among various other actions, to deliver around
US$850M of annual run-rate group expense savings, helping to establish a solid
foundation for the Group’s operations in a challenging market, and position it
for future growth.
Lenovo’s Board of Directors declared a final dividend of 3.8
US cents or 30.0 HK cents per share for the fiscal year ended March 31, 2023.
Chairman and CEO quote – Yuanqing Yang:
“Lenovo has delivered stable profitability in the last
fiscal year as our diversified growth engines continue to hit new milestones.
Their momentum is driving steady progress in our services-led transformation,
and our non-PC businesses’ revenue mix increased to nearly 40%. Our clear
strategy is working, and our operation is resilient, even in the face of global
uncertainties. Going forward, we will continue to invest in R&D to capture
the next wave of growth opportunities, so we are well prepared for the future.”
Opportunity:
The ‘New IT’ services segments within the trillion-dollar IT
services market continue to expand, with Device-as-a-Service (DaaS) and cloud
solutions expected to grow at double digits CAGR by 2025. Spending in solutions
and services will remain strong, in particular in education, smart retail,
smart city, and manufacturing.
FY22/23 performance:
SSG continues to be the growth engine for the Group and an
important profit contributor.
Revenue reached an all-time record, up 22% year-to-year to
US$6.7 billion, with a high operating margin of 21%.
High double-digit growth across all segments, with the
revenue mix from non-hardware-centric solutions and services now accounting for
more than half of SSG’s revenue.
Sustainable Growth:
SSG continues to invest in building scalable and repeatable
horizontal solutions or building blocks that can be deployed in any industry,
leveraging Lenovo IP.
In addition, SSG enriched its digital workplace solutions
and TruScale hybrid cloud solutions portfolio.
Scaled TruScale for SAP with Private Edition Customer Data
Center (PE CDC) and expanded exclusive partnership to provide technical managed
service for SAP PE CDC customers in China.
Infrastructure Solutions Group (ISG): record revenue, record
profit, hypergrowth
Opportunity:
ISG continues to benefit from the ongoing ICT infrastructure
upgrade. By 2025, the server market alone is expected to surpass US$132
billion, with storage expected to reach US$36 billion and edge infrastructure
US$37 billion.
FY22/23 performance:
Historic full year performance for ISG as a profitable
high-growth engine. Revenue grew to almost US$10 billion, up 37% year-to-year,
with record operating profit of US$98 million.
Revenue from the server business grew by almost 30%
year-to-year to a record high, making Lenovo the third largest server provider
in the world.
Storage also reached a record high revenue, tripling the
previous fiscal year’s results and moving from the #8 position in the world to
#5. Software revenue grew 25% year-to-year, another record.
Sustainable Growth:
ISG continues to enhance its full stack capabilities that
cover both the Cloud Service Provider and Enterprise and SMB segments.
At the same time, ISG is investing in infrastructure
innovations empowered by artificial intelligence (AI), such as AI-powered edge
computing and hybrid cloud.
Inhouse manufacturing and cost competitiveness has been
bolstered with the addition of an inhouse facility in Budapest, Hungary.
Intelligent Devices Group (IDG): leading market position and
profitability
Opportunity:
The business was impacted by several quarters of device
market softness due to channel inventory digestion. With PCs the essential
productivity tool in today’s digital era, Lenovo anticipates that the PC market
will return to growth in the 2nd half of calendar year 2023. The digitalization
trend and hybrid work model continue to drive steady growth in smart spaces
solutions.
FY22/23 performance:
IDG revenue declined year-on-year to US$49.4 billion, but
successfully maintained the #1 position in the PC market with 23.2% market
share globally and maintained its industry-leading profitability of 7.3%.
Revenue mix from premium products increased to nearly 30%.
The smartphone business has been profitable for three
consecutive years and achieved premium-to-market revenue growth in most
markets.
Sustainable Growth:
IDG will closely manage expense and further sharpen its
operational excellence.
It will continue to invest in technology innovations
focusing on premium offerings and adjacent areas, while at the same time
enhancing smart space solutions for hybrid work models.
Q4 Performance
Fiscal year Q4 was the most challenging quarter of the year
given pressures from both the PC market and the global economy. Lenovo closed
the quarter with revenue of US$12.6 billion, down 24% year-to-year. Revenue
from IDG declined 33% year-to-year, while the strong momentum from the growth
engines of SSG and ISG helped offset the device market softness. SSG revenue
was up 18% YTY to US$1.6 billion, and ISG revenue was up 56% to US$2.2 billion.
Non-PC revenue mix during the quarter reached a historic high of 43%, up 12
points year-to-year.
Q4 Operational highlights
Environmental, Social, Governance – Lenovo’s Environmental,
Social and Governance Rating score was recently upgraded to AAA by MSCI, the
international ratings agency. This upgrade represents the highest possible
rating for corporations leading in ESG programs. In addition, EcoVadis
recognized Lenovo for its excellence in sustainable procurement at its 7th
annual Sustainable Procurement Leadership Awards. The company was also recently
recognized by Forbes as one of the Best Employers for Diversity in 2023,
evaluated based on direct recommendations, indirect recommendations, and
research on the key performance indicators.
[1] non-HKFRS measure was adjusted by excluding net fair value changes on financial assets at fair value through profit or loss, amortization of intangible assets resulting from mergers and acquisitions, mergers and acquisitions related charges; restructuring and other charges; and the corresponding income tax effects, if any.