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Lenovo Group second quarter 2021 results

Lenovo delivers record quarter, as strategy continues to drive transformation and sustainable growth, with profitability on track to double in three years

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Yuanqing Yang, Lenovo Chairman and CEO

Lenovo Group today announced record quarterly results for the Group, with historic highs for both profit and revenue.

The company’s operational excellence, innovation, and strong execution underpin the improvements across all key business groups, despite wider industry supply challenges.

These, together with the opportunities created by accelerated digitalization, intelligent transformation, and IT upgrades in devices, infrastructure, and applications around the world continue to fuel the Group’s long-term and sustainable profitability increases.

Lenovo’s performance delivered significant year-on-year improvements, with

  • net income growing 65% year-on-year to US$512 million and
  • net income margin improving by 0.7 points, on track towards the Group’s goal of doubling in three years.
  • Pre-tax income was US$742 million, up 58% year-on-year, and
  • Group revenue continued its strong growth trajectory hitting US$17.9 billion, up 23% year-on-year.
  • Operating cashflow doubled year-on-year to US$1.6 billion, and
  • at the same time the Group’s R&D expenses for the quarter were up almost 60% owing to increased investments in innovation.

Looking ahead, the strategy to drive sustainable profit improvements and growth will continue to focus on high margin businesses and segments, at the same time doubling investments in R&D over three years as announced last quarter.

This focus will support the Group’s continued transformation, developing technology focused on the New IT opportunities and the technology architecture of ‘Client-Edge-Cloud-Network-Intelligence’ brought about by changing customer needs.

Financial Highlights:

Lenovo financial highlights

Lenovo’s Board of Directors declared an interim dividend of 8.0 HK cents per share. 

In his comment, Yuanqing Yang, chairman and CEO Lenovo Group said:

“Lenovo’s New IT technology architecture of “Client-Edge-Cloud-Network-Intelligence” is gaining momentum and more accepted across the industry. Through the strong execution of our 3S strategy (Smart Devices/IoT, Smart Infrastructure, Smart Vertical), last quarter, both our net income and revenue achieved new records, and we are on track to double our net margin in three years. At the same time, our R&D investment greatly increased by almost 60%” said Yuanqing Yang, Lenovo chairman and CEO. “Looking ahead, we will continue to drive to our goal to double R&D spending over three years, and further drive our service-led intelligent transformation.”

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Solutions and Services Group (SSG): delivering strong growth and high margins – driving higher overall profitability for the Group

Opportunity:

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The Solutions and Services Group continues to drive strong profitability and growth in a rapidly expanding market.

As the technology architecture becomes more complex, customers demand more sophisticated IT services, and the market is predicted to be worth over one trillion US dollars through 2025, with the fast growing and high-margin device-as-a-service market predicted to be US$67 billion by 2025.

Q2 performance:

  • Significant Q2 revenue growth (30% year-on-year to US$1.36 billion), delivering 7.3% of overall Group revenue and with an operating margin of almost 21%.
  • Support services penetration rates for PC customers and infrastructure customers both improved. Managed Services saw revenue up almost 90% year-on-year, and the Group saw repeatable solutions based on Lenovo’s own IP gaining traction, resulting in Project Services and Solutions achieving almost 22% year-on-year revenue growth.
  • The Group announced an evolution in its consumption-based business model at its annual flagship innovation event Tech World with the launch of TruScale – a new portfolio that brings together all of Lenovo’s as-a-Service offerings under one umbrella to provide a truly global solution that makes everything from the pocket to the cloud available via a single contract framework.

Looking ahead:

  • Against this backdrop, Lenovo will continue to drive both revenue growth and profitability. By integrating the company’s internal IT function into SSG it can improve the business group’s R&D delivery capability and turn proven internal digital capabilities into solution offerings for customers.
  • In managed services, new platforms, tools, and go-to-market capabilities will be introduced to enhance the TruScale as-a-service offerings.
  • In support services, the focus will be to increase penetration rates as the commercial segment rebounds.
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Infrastructure Solutions Group (ISG): record quarter, outperforming a growing market

Opportunity:

Opportunities continue to expand for ISG as ICT infrastructure modernization continues around the world. The ICT infrastructure market is expected to become a US$250 billion market through 2025, making it as big globally as the PC market. 

Q2 performance:

  • ISG delivered record performance, led by all-time high revenue of almost US$2 billion, up almost 34% year-on-year. Profitability continued to improve by US$24 million year-on-year, nearing break even.
  • The business outgrew the market in nearly every segment. Cloud Service Provider reached historic high revenue with over 50% growth year-on-year; Enterprise/SMB revenue had strong growth of 20% year-on-year.
  • In the higher margin segments, storage revenue grew over 50% year-on-year to a new record, and in High Performance Computing the Group delivered the fastest university high performance computer in China, powered by Lenovo Neptune water-cooling technology.

Looking ahead:

  • The Group will continue to increase investments in fast-growing segments such as Edge computing, hybrid cloud solutions, and 5G cloud-network convergence.
  • The Group will also continue to strengthen in-house design and manufacturing capabilities to drive profitability improvements as the business moves towards breakeven and beyond.
  • The vision remains to become the largest and most trusted global ICT infrastructure solutions provider.

Intelligent Devices Group (IDG): strong revenue growth and stronger profitability, increasing contribution from non-PC businesses

Opportunity:

The demand for PCs and other smart devices remains strong. This is driven by commercial demand recovering, with market reports showing commercial PCs (excluding Chromebooks) growing 18% year-on-year last quarter, as well as increased demand expected from the launch of Windows 11.

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Lenovo expects PC demand to be in line with industry assessments of 340-355 million units a year for the next few years.

The global smartphone market still presents tremendous opportunities to grow, as does the surging IoT market which is expecting to grow by 11% CAGR through 2025. 

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