Good Quarter for Lenovo, Bad for their Mobile Unit

Lenovo had a Group revenue in the first quarter of US$13.3 billion, up almost 7% year-on-year (up 10% year-on-year excluding currency impact). Pre-tax income grew 38% compared to the same quarter a year earlier, to US$332 million, while net income also increased by 31% year-on-year to US$213 million. Basic earnings per share for the first quarter were 1.80 US cents or 13.95 HK cents.

“Our outstanding performance last quarter proves that Lenovo has quickly regained momentum from the impact of the pandemic and is capturing the new opportunities emerging from remote working, education and accelerated digitalization,“ said Yang Yuanqing, Lenovo Chairman and CEO. “While the world continues to face challenges, Lenovo is focused on delivering sustainable growth through our core businesses as well as the new services and solutions opportunities presented by our service-led intelligent transformation.“

Intelligent Devices Group continues to lead the company’s strong performance. The PC and Smart Devices Group, one of the two IDG business units, grew revenue by double digits year-on-year to US$10.6 billion. Pre-tax income reached US$670 million, up nearly 28% year-on-year, while industry-leading profitability improved by almost 1 point to a new record of 6.3%. The PC market significantly outperformed the industry forecast of a market decline, with Lenovo retaining its #1 leadership position in the worldwide PC Devices market (PC and Tablets). Similarly, there was strong year-on-year growth (45%) in Consumer business revenue worldwide. Driven by this, revenue grew 30% in EMEA and 18% in China.

Mobile Business Group revenue declined 27.3% year-on-year to $1.09 billion. It recorded a pre-tax loss of $50 million compared with a $5 million profit. The company said it took swift action to control expenses, which helped narrow the loss. Lenovo noted the MBG continued to execute its core market strategy to develop in regions where it has notable competitive advantages. Moving forward, it will seek to return to profit growth by leveraging its product portfolio and technology, particularly in 5G, along with expanding its offering.

The Data Center Group resumed growth, with revenue growing almost 20% to US$1.6 billion and profitability improving year-on-year. Notable successes included Cloud Service Provider business, which grew more than 30% year-on-year, setting a new revenue record by capturing strong public cloud infrastructure demand driven by increased digital consumption due to COVID-19 lockdowns. Meanwhile, the customer base continues to grow thanks to customized in-house design and manufacturing capabilities and an expanded cloud services provider salesforce.

Lenovo’s Intelligent Transformation continues to show strong progress as a result of determined execution of the 3S strategy. Overall Software and Services revenue grew 38% year-on-year to over US$1 billion, now accounting for around 7.6% of Group revenue. Smart IoT revenue grew 39% year-on-year, Smart Infrastructure was up 16% and Smart Verticals up 65%, driven by Smart City solutions in China and Smart Healthcare solutions in North America. Attached Service grew 32% year-on-year, Managed Service (including fast growing Device as a Service) grew 48% year-on-year and Solutions grew 54% year-on-year.