Lenovo’s growth accelerates – capturing hybrid AI opportunities

Today, we are pleased to report that since resuming year-on-year revenue growth and quarter-to-quarter profitability improvement last quarter, we have accelerated this momentum further in the fourth quarter. We have successfully navigated the industry downturn and moved fast to capture the tremendous Hybrid AI opportunities. We are optimistic about the outlook of the new fiscal year.

Let me start with the strong performance of our fourth quarter. We accelerated revenue growth across all of our businesses, driving group revenue to increase almost 10% year on year and net income to double year on year. Fueled by our diversified growth engines, our non-PC revenue mix reached a historic high of almost 45%.

Last quarter, the PC and smartphone markets have already returned to growth. Meanwhile, hybrid AI is driving greater demand for hybrid infrastructure. Customers are increasingly asking for customized AI solutions and services, particularly consulting, design, deployment and maintenance of AI. 

With our persistent commitment to investment in innovation, Lenovo is well prepared to lead in the hybrid AI era. We are confident to realize our vision of “Smarter AI for all”, while driving sustainable growth for our business.

Now I’ll talk about each of our businesses in the fourth quarter.

Q4 SSG: Strong growth & profitability, driving AI solutions

First is our SSG, Solutions & Services Group. We continued to strengthen its position as both our growth engine and profit contributor by delivering double-digit year-on-year revenue growth and high profitability. We expanded Managed Services and Projects & Solutions Services, with their combined revenue mix growing 5pts year on year to account for 55% of SSG’s total business. In particular, our hero offerings, such as Digital Workplace Solution and Hybrid Cloud have delivered rapid growth.

Looking ahead, we will continue to meet increasing customer demands by moving fast to build AI-native and AI-embedded solutions and services.

Q4 ISG: Regained Momentum

For our Infrastructure Solutions Group, or ISG, we achieved double-digit year-on-year revenue growth as we forecasted last quarter, while profitability was still under pressure. We achieved hypergrowth of Storage, Software and Services businesses, the combined revenue of which increased more than 50% year on year.

Looking ahead, AI servers are expected to grow twice as fast as the broad server market. At Lenovo, we will capture these growth opportunities by building a broad portfolio and converting our extensive pipeline to revenue. By leveraging our strengths, we will also capture steady growth opportunities in traditional servers, storage, software and services. And we have a solid plan in place to drive this business’ return to profitability shortly.

Q4 IDG: Solid growth, Strengthened leadership

Our Intelligent Devices Group, or IDG, continued to deliver a solid quarter. For PC, we strengthened our global market leadership with significant premium to the market, while maintaining industry leading profitability. We were No. 1 in four out of five geographies and achieved record high market share in North America as well. Our smartphone business delivered another remarkable quarter with double-digit growth in shipment and revenue with substantial premium to the market.

Looking ahead, we expect the total volume of the PC market to recover to higher than pre-Covid levels, with smartphone market already returning to double-digit year-on-year hypergrowth. Lenovo is provided with ample room for growth. We are particularly excited about the huge growth opportunities brought by AI devices, starting from AI PC, which in our definition, are equipped with a personal AI agent, heterogeneous computing, personal knowledge base, connected to an open AI application ecosystem, and with privacy and security protection. We expect in the next three years, AI PC will gradually grow from premium to mainstream, driving a new refresh cycle in the PC market. We are also gradually expanding from AI PC to AI phone and AI tablet, while building seamless collaboration among devices. Last month, we announced a new partnership with Meta in mixed reality and we expect more such collaborations to come.

Full Year Group: Steady growth, Profitability improvement

Lastly, let me also briefly cover our full year performance. Faced with various headwinds in the macro environment, group revenue and profit declined year on year. But if we take a closer look, starting from the third quarter, we have already achieved year-on-year revenue growth and begun to recover net margin from year-on-year decline in the first half to flat in the second half of the fiscal year. Last year, we increased R&D investment, focusing on our anchor technologies of AI and Computing. Our R&D expense-to-revenue ratio, R&D headcount and its percentage all achieved record highs.

Our SSG delivered solid revenue growth and high operating margin. For ISG, while we saw full year revenue decline year on year, we achieved quarter-to-quarter growth for three consecutive quarters. Our IDG overcame the challenges of a weaker-than-expected market and delivered resilient profitability. Our PC, tablet and smartphone businesses all successfully resumed growth for the second half of the fiscal year.

Conclusion

Entering the new fiscal year, we are determined to leverage the unprecedented opportunities of hybrid AI to accelerate the growth of our 3S businesses. Supported by our continued investment in innovation, full-stack portfolio, resilient operations, and ecosystem partnerships, we have full confidence in our ability to deliver sustainable growth and profitability improvement.

*Read our earnings press release here.