Trends

Lenovo Group Limited (LNVGY) Q3 2023 Earnings Call Transcript

Trending 1 year ago
beritaja.com

Lenovo Group Limited (OTCPK:LNVGY) Q3 2023 Earnings Conference Call February 17, 2023 1:00 AM ET

Company Participants

Jenny Lai - Vice President-Investor Relations

Yang Yuanqing - Chairman & Chief Executive Officer

Wong Wai Ming - Chief Financial Officer

Ken Wong - President-Solutions & Services Group

Kirk Skaugen - President-Infrastructure Solutions Group

Luca Rossi - President-Intelligent Devices Group

Sergio Buniac - President-Mobile Business Group & President-Motorola

Conference Call Participants

Jenny Lai

Good morning, bully day and bully evening. Welcome to Lenovo's Investor Earnings Webcast. This is Jenny Lai, Vice President of Investor Relations astatine Lenovo. Thanks, everyone for joining us.

Before we start, fto maine present our guidance squad joining nan telephone today. Mr. nan Yuanqing, Lenovo's Chairman and CEO; Mr. Wong Wai Ming, Group CFO; and Mr. Ken Wong, President of Solutions and Services Group; Mr. Kirk Skaugen, President of Infrastructure Solutions Group; Mr. Luca Rossi, President of Intelligent Devices Group; Mr. Sergio Buniac, President of Mobile Business Group and President of Motorola.

We will statesman pinch net presentations. And soon aft that, we will unfastened nan telephone for questions.

Now fto maine move it complete to Yuanqing. Yuanqing, please.

Yang Yuanqing

Hello, everyone and convey you for joining us. Last quarter, nan full PC and nan mobile marketplace knowledgeable a terrible downturn [indiscernible] successful nan results of different players successful our industry.

Inevitably, Lenovo was mostly impacted too. But pinch our diversified maturation engines of infrastructure, solutions and services complete 40% of our gross now is driven by non-PC businesses. This besides helped america to support coagulated profitability.

Even successful PCs, we proceed to support our marketplace activity and industry-leading profitability. We judge nan PC marketplace mightiness stabilize sooner than galore expect and we proceed to thrust nan ratio successful our already linked operations, support patient rate position and put successful innovation and sustainability.

Despite nan debased IT marketplace maturation successful nan short-term, full IT spending is expected to retrieve to our moderated maturation rates successful nan mid to long-term. Meanwhile, nan mega inclination of integer and intelligent translator continues to accelerate.

Last 4th impacted chiefly by a significant diminution successful instrumentality business. Our group gross was down by 24% year-on-year aliases 18% successful changeless currency. Both Solutions and Services business and nan Infrastructure business grew by precocious double-digit year-on-year to humanities records. With affirmative operating profit contributed by each our main businesses for nan 5th consecutive quarter, we stay committed to doubling profitability successful nan mid-term.

Last quarter, we took proactive actions to trim expenses and amended ratio to guarantee our costs competitiveness, especially, successful areas wherever we spot a softer marketplace outlook. Our rate equilibrium is still strong. Cash conversion rhythm continues to amended and nan transmission inventory is reduced, which let america to proceed investing successful R&D centered astir nan caller IT technologies.

Now I will talk astir each of our businesses. Let's commencement pinch nan SSG, Solutions and Services Group. Although, adjusted to slower maturation this year, nan $1 trillion IT work marketplace is expected to stay beardown for nan mid to long-term.

By 2025 Managed Services for unreality on-prem and separator is expected to summation astatine a 7% CAGR, while hybrid infrastructure solutions is becoming essential. Vertical Solutions and Services spending is besides expected to stay astatine almost a double-digit CAGR maturation successful education, smart retail, smart metropolis and manufacturing from 2023 to 2025. Last quarter, our SSG gross grew by 23% year-on-year to USD 1.8 billion, mounting a caller record.

All segments, again, delivered nan precocious profitability and a beardown gross growth. The gross operation from non-hardware tied solutions and services achieved a grounds precocious of 53% pinch nan Managed Service business almost doubled year-on-year. Lenovo's Hefei mill has been added to World Economic Forum's Global Lighthouse Network for its smart manufacturing solution.

SSG continued to put successful building scalable and repeatable horizontal and vertical solutions pinch Lenovo IP. We besides enriched our integer workplace solutions strengthened our hybrid unreality portfolio and further expanded our sustainability offerings.

Our ISG, Infrastructure Solutions Group continues to use from ICT infrastructure upgrade. By 2025, nan server marketplace will scope US$135 billion, separator infrastructure $37 cardinal and retention $35 billion. Last quarter, our ISG revenue, accrued by 48% year-on-year to a humanities precocious of US$ 2.9 cardinal beating records for 3 consecutive quarters. Operating profit much than doubled year-on-year to a caller record.

Server gross grew by 35% year-on-year, making Lenovo nan 3rd largest server supplier successful nan world. Storage much than tripled to go number 5 successful nan world and nan package grew by 52% year-on-year aliases reaching an all-time high. Meanwhile, we proceed to heighten our broad infrastructure portfolio and to put successful innovation, peculiarly successful AI-empowered separator computing and hybrid cloud.

We strengthened Lenovo's unsocial advantage to equilibrium nan standard and profit. We stay focused connected being 1 of nan fastest increasing and ultimately, nan largest end-to-end infrastructure solution supplier successful nan world.

Last quarter, our IDG, Intelligent Devices Group, knowledgeable a terrible diminution successful instrumentality markets. However, nan existent request reflected by nan activation information was really amended than nan shipment information seemed to indicate. While nan PC marketplace still needs immoderate clip to digest nan inventory to a healthier level, we judge full shipments are apt to stabilize astatine a higher than pre-pandemic level arsenic early arsenic nan 2nd half of this year.

In reliable marketplace conditions, IDG successfully maintained nan number 1 position successful PCs and nan industry-leading profitability for nan past quarter. We achieved a coagulated operating separator astatine 7.3%. Our beardown merchandise competitiveness was further reflected successful starring activations and resulted successful improved inventory level.

Our smartphone business achieved nan 11th consecutive 4th of profitability. Our premium merchandise Motorola Edge activation grew by 74% year-on-year. We expanded nan premier merchandise operation for our tablet portfolio arsenic well. Meanwhile, our smart spaces solutions demonstrated maturation imaginable pinch cardinal wins.

In nan short-term, we will return proactive actions to trim disbursal and amended ratio to guarantee business healthiness. While successful nan long-term, we will support investing successful innovation, focusing connected premium PC nether adjacent areas and thrust nan improvement from smart devices to smart spaces.

Last period astatine CES, our Yoga Book 9i arsenic a first afloat sized OLED dual surface laptop successful world, won a historical precocious of 15 awards. And our enhanced integer workplace solutions are improving personification acquisition successful a hybrid workspace.

Looking ahead, while nan manufacture rhythm still needs immoderate clip to tally its afloat course, beardown execution tin make a large difference. Our diversified maturation engines are firing up. Our operational resilience is supporting nan results.

Our patient liquidity is ensuring nan soundness of nan institution and our finance successful caller IT is building nan NextWave of our competitory advantages. Because of this, we are assured to present sustainable maturation and amended profitability.

Thank you. Now, fto maine move it complete to our CFO, Wong Wai Ming. Wai Ming, please.

Wong Wai Ming

Thank you, Yuanqing. I will now return you done Lenovo's financial and operational capacity for Q3 successful nan 2023 fiscal year. The persistent macro volatility created a challenging situation for america successful Q3, pinch group gross declined 24% year-on-year successful nominal position to $15.3 billion, aliases down 18% successful existent terms, while group nett income dropped 32% year-on-year.

Notwithstanding challenging marketplace conditions, our gross separator and operating separator improved by 44 and 28 ground points year-on-year, respectively, for nan 3rd fiscal quarter. The group's unchangeable profitability is simply a testament to its operational excellence and occurrence successful its semipermanent maturation strategy for non-PC finance by supercharging maturation successful SSG and ISG.

Revenue from non-PC pillars made up 41% of group revenue, up 9 points from past year. SSG and ISG group caller milestones successful income and profits. Together, their profit grew by 19% year-on-year and partially mitigated nan unit of a smaller standard cognition and rising finance costs. Going forward, nan group will proceed to prioritize this medium-term target of doubling its nett margin.

We proceed to optimize nan group operations for greater business agility and to support semipermanent growth. Our rate and rate balanced equilibrium exceeded $5 cardinal astatine nan extremity of nan quarter, up 34% year-on-year. We accrued our nett rate by $500 cardinal from nan aforesaid play past twelvemonth to a equilibrium of $581 million.

We improved our rate conversion rhythm by 13 days year-on-year and 3 days quarter-on-quarter to antagonistic six days, going to hold successful accounts payable days. In nan meantime, we will proceed to thrust inventory optimization. Last 4th end, we managed to trim our inventory by complete $900 million, some annually and quarterly.

SSG reported a 23% year-on-year growth, pinch gross reaching $1.8 billion, acknowledgment to robust maturation crossed each work segments. Revenue of Managed Services astir double year-on-year, owing to nan ongoing plus work track. The economical downturn appears to person accelerated nan fame of plus work solutions, arsenic our woody pipeline remains dependable contempt macro uncertainties prolonging nan conversion cycle.

Our Project & Solution Services conception provides a wide guidelines of solutions leveraging Lenovo IP. We besides saw gross expanding by 7% from nan aforesaid play past year. During nan 4th nan mixed gross of Managed Services and Project & Solution Services was 53%, 4 percent points much than past year.

Attached and Support Services gross besides accrued 12% year-on-year, pinch a grounds PC work penetration rates, contempt declining income for caller devices. SSG operating separator of 20% dropped 2 percent points year-on-year was owed to a operation shift. But overall, it remains importantly higher than nan group average, expanding Lenovo semipermanent profit margin.

SSG reported an all-time precocious operating profit of $370 million, up 12% year-on-year. Deferred gross grew by 8% year-on-year to $3 billion. This echoed nan occurrence of nan group translator travel to enlarge and prolong its recurring gross base.

ISG continued to present exceptional results, arsenic gross and operating profit some group caller records. This Q3 gross grew by 48% year-on-year to $2.9 billion, while operating profit accrued by 156% year-on-year to $43 million. ISG was capable to build a broad merchandise portfolio to execute important premium to marketplace growth. This merchandise strategy, on pinch an summation successful customer guidelines and design-in projects was effective successful driving all-time precocious gross of server, retention package and AI edge. The latest quarterly third-party statistic indicated that ISG marketplace stock by gross successful nan world retention marketplace astir doubled year-on-year.

By customer segment, ISG vulnerability to CSP and ESMB segments gave nan group a unsocial advantage successful balancing standard and profits. Both segments saw double-digit gross maturation to grounds levels. IDG was impacted by sector-wide headwinds including little request and excessive inventory.

Despite gross and operating profit each declining by 34% and 37% year-on-year, operating separator was good sustained astatine 7.3%. This industry-leading profitability reflected nan group's efforts successful stepping up operational ratio and successful disbursal power to mitigate marketplace challenges. We activity pinch our distribution partners to summation their income activity and looked astatine nan diminution successful sell-out is little than nan sell-in would lead to a little transmission inventory.

IDG continued to put successful invention for non-PC and adjacent areas to thrust semipermanent growth. The smartphone conception was profitable for 11 consecutive quarters. In nan tablet segment, astir one-third of income was from premium conception and successful smart collaboration solutions, maturation remained robust, pinch cardinal wins crossed geographical and world accounts.

We proceed R&D finance to thrust innovation. The group's R&D spending accrued by 5% year-on-year to position various maturation engines, business transformations and ESG initiatives. The group continuing finance successful R&D and together pinch rebalancing our operating expenses and mitigated nan adverse effect from request volatility successful nan adjacent term, while addressing semipermanent customer demands beyond exertion hardware to thrust sustainable growth.

The group is now good recognized by its accelerated ESG finance and has received galore accolades. MSCI upgraded our ESG standing to nan highest level of AAA. The group besides classed 24th successful nan Boston Consulting Group's astir innovative institution database of complete 1,500 world companies. Additionally, Lenovo was highlighted successful nan Bloomberg Gender-Equality scale for nan 4th consecutive twelvemonth and featured arsenic a leader successful ambiance alteration and h2o information by CDP.

Last month, nan group's committedness to scope nett zero by 2050 was validated and approved by nan Science Based Target inaugural aliases SBTI, a business betwixt nan UN Global Compact, CDP World Resources Institute and Worldwide Fund for nature, picking its nan first PC and smartphone shaper and 1 of only 139 companies successful nan world, pinch a nett zero target validated by SBTi.

External challenges prevailed successful nan world marketplace and could widen good into early periods. The convention of world economical challenges and move displacement successful marketplace demand, correspond caller semipermanent opportunities. The group continues to further fortify its costs competitiveness to execute its medium-term extremity of doubling nett margin. We will do this by investing successful high-margin maturation engines and taking proactive steps to trim tally complaint operational expenses by astir $850 million. This includes wide simplification successful operational spending, arsenic good arsenic workforce adjustments, wherever basal and appropriate.

We will return a broad position to maximize operational efficiency, support momentum successful our diversified businesses and proceed to put successful caller IT Technologies to thrust sustainable profitable maturation for nan group.

The group will foster nan improvement of caller IT architecture pinch nan Client, Edge, Cloud, Network-Intelligence framework. These investments, coupled pinch nan maturation scheme to taking retired operating expenses, to support our operational excellence and world footprint are nan cardinal to mitigating outer challenges and supporting its service-led translator enabling nan accomplishment of our medium-term extremity of doubling nett margins.

Looking guardant SSG should use from a database of request for premium TruScale as-a-Service, sustainability and vertical solutions. Although, macro headwinds could hold nan owed conversion rhythm successful nan near-term, nan request to widen plus usability pinch supercharge semipermanent request for attraction services. SSG will further broaden its work offerings including plus betterment services, while strengthening transmission devices and practice pinch business partners to grow its Attached and Support Services.

Managed Services is good positioned to seizure nan semipermanent structural maturation successful as-a-Service. ISG group's industry-leading end-to-end infrastructure solutions and expanded to afloat stack offerings including Server, Storage and Software. The ESMB conception will capitalize connected maturation opportunity successful AI Powered Edge, hybrid cloud, High Performance Computing and solutions for nan Telco/communication sectors.

For nan CSP segment, ISG has a unsocial ODM+ business exemplary to reside nan increasing request for vertically integrated proviso chains. The business will proceed to diversify its customer guidelines and seizure caller accounts done design-wins crossed exertion platforms. The attack will execute nan optimal equilibrium betwixt wide intent and customized offerings, while ensuring nan due standard and an businesslike costs structure, to alteration gross and profitability growth.

For IDG, we're striving to reenforce our number 1 position successful nan PC sector, while maintaining starring profitability. IDG will proceed to lead nan title successful instrumentality invention by enhancing features for hybrid working, gaming, intermezo and ESG designs. IDG will further put to people wins successful non-PC areas, including fast-growing accessories, smart collaboration and smart location devices.

In nan short-term, nan full addressable marketplace for PC would return to its pre-COVID level but we expect it should beryllium structurally higher successful nan semipermanent arsenic PC becomes nan Center of Digital Life. In position of our smartphone business we will attraction connected portfolio description and differentiation to return advantage of nan accelerated 5G adoption.

Our beardown financial position provides a coagulated instauration for america to proactively prosecute maturation opportunities ahead. Finally, arsenic always, we stay committed to driving sustainable maturation and profitability for our shareholders.

Thank you. We will now return your questions please.

Jenny Lai

Thank you, Wai Ming. Now we will unfastened nan statement for questions and this convention will beryllium successful English only. [Operator Instructions] Operator, I will now move it complete to you. Please springiness america your instructions.

Question-and-Answer Session

Operator

[Operator Instructions]

Jenny Lai

Thank you, Operator. We person respective questions coming in. And our first mobility is coming connected Conor O'Mara from Jefferies. There are 3 parts of nan question. First 1 is respective unreality CapEx companies successful nan U.S. person tempered their budgets this year. Have you seen nan same, pinch your customer base? And if not, why not, this is nan first portion of nan question.

And nan 2nd portion is regarding nan rate conversion cycle. Our rate conversion rhythm improved 13 days this quarter. How overmuch of that is sustainable and really overmuch -- conscionable because PC downturn costs rise, moving superior needs. And nan past portion of nan question, what gives you nan assurance to foretell PC income will stabilize successful 2nd half of 2023 and astatine pre-COVID levels?

Yang Yuanqing

Yes. So astir apt a mates of questions, truthful we request different group to reply that. Regarding of nan unreality CapEx company, truthful Kirk, truthful astir apt you tin reply nan question.

Kirk Skaugen

Yes. Hello, this is Kirk speaking. So I would opportunity successful wide yes, successful a wide consciousness nan wide full disposable walk is astir apt down. However, mostly Lenovo is immune to that trends and I'll springiness you immoderate colour connected why. Obviously, we conscionable announced a grounds successful our unreality business. And for galore quarters I've been talking astir our caller ODM+ model, wherever we're delivering civilization designs for nan largest Hyperscalers successful nan world. Those designs person been ramping for galore quarters not conscionable successful nan server abstraction but we're besides expanding very aggressively into nan Storage abstraction arsenic well.

So contempt nan truth that nan full marketplace of walk mightiness beryllium down, Lenovo is decidedly known for galore years and nan past respective quarters that we've gotten nan designs for those motherboards, those systems and those racks because we've been designing those successful for nan past twelvemonth positive astatine least.

Secondly, we're expanding our opportunity because we've expanded beyond conscionable Intel to see AMD and besides Ampere arsenic an ARM supplier to nan cloud. So we're expanding nan magnitude of designs we tin get not conscionable by going from server to Storage, not conscionable by doing nan creation but besides expanding our CPU providers.

Next we besides expanded to our NextWave and created an full caller income unit astir a twelvemonth agone to reside nan NextWave of Hyperscalers, which is increasing importantly again branding creation wins for Lenovo. And past past but not least, we person caller mill capacity successful caller factories successful Mexico and Budapest that are importantly improving our logistics costs and that's decidedly driving america to beryllium much agile and getting much design. So while location whitethorn beryllium immoderate softness successful nan wide market, we're dramatically expanding our beingness for those reasons I stated. Thank you.

Yang Yuanqing

Thank you. So regarding of nan PC demand, truthful successful my position if you want to understand nan early truthful astir apt you request to understand nan past 3 years. So if we – astir apt astir of group unless spot nan shipment information fixed by IDC but I don't deliberation nan shipment information tin precisely bespeak nan existent marketplace demand. But nan existent request tin beryllium reflected by nan instrumentality activation data.

So if you usage 2019 arsenic a guidelines 100%. So really 2020, nan activation accrued by astir apt 15%. The existent request – I would opportunity existent request astir apt accrued by 15% but nan shipment only accrued 7%, 8%. So that generated a batch of proviso shortage. Then since past successful twelvemonth 2021, decidedly transmission started to push inventory.

So you tin spot successful twelvemonth 2021, nan shipment accrued by 15%. But nan existent instrumentality activation was really level to 2020. So that's decidedly accumulated a batch of inventory. Then you tin spot successful twelvemonth 2022, transmission started to digest nan inventory. So nan shipment declined significantly. But nan existent instrumentality activation did not diminution arsenic overmuch arsenic shipment past year, astir apt only 6% year-on-year. So, by nan extremity of past year. So nan – truthful fto maine say, November, December. So, nan existent activation number astir apt is – nan existent shipment number astir apt is accordant pinch nan activation number. So, successful my position adjacent year, truthful nan existent request reflected by nan activation could beryllium level to this year. So which is now 5% to 8% higher than 2019. But astir apt we still request 1 aliases 2 quarters to digest nan inventory successful nan channel.

Then from nan 2nd half of nan year, you tin spot PC marketplace resumed nan growth. That will thrust nan full 2023 shipment driblet terrible driblet by 5%, but it is still higher than 2019. Then since 2024, I deliberation nan marketplace will resume nan growth. So, that will guarantee nan wide nan wide request will beryllium 5% to 10% higher than 2019 and some shipment activation will beryllium accordant successful that year, hopefully. So that's why – truthful we are alternatively assured for nan 2nd half of nan year. So, I don't know, Luca, our IDG leaders person thing to add.

Luca Rossi

Yeah. So, Yuanqing, I deliberation you person already presented nan information position for which obviously, I americium wholly aligned. And I deliberation possibly I can, conscionable adhd that, we consciousness assured astir nan semipermanent trajectory, because simply because of integer transformation, hybrid work, integer life, each these are secular trends. PC is decidedly astatine nan halfway of each these trends. And additionally, location is retired successful nan marketplace opportunity for much than 400 cardinal PC that are much than 4 years aged to beryllium replaced.

So I deliberation each these factors are giving america definite optimism that aft nan digestion of nan transmission inventory, which arsenic Yuanqing mentioned will beryllium completed successful nan coming months. The 2nd half of this almanac year, will commencement to resume growth. And additionally, looking astatine nan activation, you should cognize that our activation stock – marketplace stock is astatine grounds levels successful nan past six, 8 months. So, we are gaining share, arsenic a motion of nan appreciation of nan customer for our products and our innovation. So moreover let's say, weaker market, we want to execute amended than nan market. We will proceed to execute amended than nan market. Thank you.

Yang Yuanqing

Thank you. Yeah. So complete nan past – truthful really complete nan past 3 years, our activation numbers summation person ever been higher than nan market, but our shipment number really are much blimpish than nan market. So that means, we really person generated little inventory than our competition. And probably, we are starring to digest nan inventory arsenic well. So that's why we are beautiful assured for Lenovo's early successful nan PC area.

And besides I want to echo, Luca. So actually, COVID really has changed nan PC landscape. So from 1 PC per family to 1 PC per person, and besides because group walk much clip connected nan PC astir apt double nan time, truthful that will thrust nan faster replacement cycle. So that's our position connected nan PC demand. Regarding of nan – Kirk, truthful astir apt maybe, you reply nan rate conversion cycle.

Kirk Skaugen

Yes, rate constituent cycle, we person antagonistic six days and 13 days improvement. Clearly, this is sustainable. I deliberation alternatively than halfway sustainable I really would say, that location are further room for improvement. I deliberation clearly, erstwhile nan system getting, I would say, a much normal logistics and everything getting better. I deliberation nan inventory level will proceed to travel down. We decidedly spot that location are room for improvement.

As you whitethorn see, I deliberation nan manufacture mean I mean obviously, different companies will person different business exemplary is astir 20 -- antagonistic 20 days, truthful I decidedly deliberation that we will -- I deliberation nan antagonistic six days is sustainable aliases much than sustainable that we will see, done our operational efficiency. We're going to spot further improvement, I deliberation is nan antagonistic rate conversion cycle. Thank you.

Jenny Lai

Thank you, Yuanqing. Now we move to nan adjacent question, from Mr. Howard Kao, astatine Morgan Stanley. It seems for illustration desktop and notebook ASP declined 5% to 10% quarter-to-quarter successful nan December quarter. How does guidance position ASP, arsenic we move passim almanac twelvemonth 2023? That's, his first question, number one.

Yang Yuanqing

Yes. Luca, will reply nan question.

Luca Rossi

Yes. So, look successful general, we are -- I will not talk for nan market, but I'll talk for Lenovo. I deliberation we are not declining our ASP successful that shape. I would say, that our ASP has declined somewhat successful nan sequentially quarter-on-quarter. But year-over-year, we proceed to grounds maturation of our ASP for nan past 8 quarters. And probably, you tin only opportunity that nan past 1 aliases 2 quarters it has accrued little than nan erstwhile quarters, but we are not modeling for 2023, a important diminution year-over-year of nan ASP.

Now you tin deliberation successful this way, from -- really nan ASP is built from nan commodity position location is probably, a small spot of downward unit because obviously, nan request is not truthful great. So nan commodity costs are going a small spot down, but that does not needfully bespeak connected nan ASP. And we are moving difficult to summation our premium mix, truthful that we will power and hopefully, amended nan ASP.

And nan different obviously, nan different element, will beryllium nan speech complaint which obviously, is volatile and that will possibly find definite up aliases down of nan ASP. So I would not expect a important diminution of nan ASP, successful nan -- astatine least, we are not modeling it for 2023. Thank you.

Jenny Lai

Thank you, Luca. And we besides person 2 follow-up questions from Howard, arsenic well. The first follow-up mobility is, nan server business successful December quarter, is stronger than expected. Any color, connected what's driving this strength? Could you besides talk Hyperscale versus ESMB and server versus Storage. And nan adjacent follow-up mobility is, ISG arsenic well. What is nan target operating separator for ISG conception successful nan agelong term?

Yang Yuanqing

Yes. kirk?

Kirk Skaugen

Yes. Thanks, Howard. This is, Kirk. Well, I would say, we are seeing grounds precocious caller bid load, truthful our occurrence was not driven by backlog reduction. We've already mostly passed that. So we are seeing beardown caller load. I deliberation we are 1 of nan fewer companies successful nan market, that's very balanced betwixt nan unreality and ESMB. And I tin say, we had records successful nan unreality and records successful ESMB. We had records successful server and successful Storage. And past moreover wrong Storage, we had records for hyper-converged, accepted introduction and midrange and unreality storage. So it was very broad-based.

In summation arsenic you cognize we created a caller section backmost successful April astir ThinkEdge and we grew that separator and nan artificial intelligence associated pinch nan separator pinch many, galore end-user unit wins and done that business triple-digits. So, decidedly separator and nan AI astatine nan separator is simply a beardown maturation facet for us.

Outside of China, we had a grounds and North America and Europe were peculiarly beardown wrong that. But -- truthful I would conscionable opportunity it's wide based arsenic nan committee wherever we saw nan caller fresh load and we spot that continuing again successful nan 4th we're successful correct now.

Relative to nan operating separator target I deliberation we want to proceed to thrust hyper growth, truthful hopefully pinch almost 50% maturation quarter-on -- year-on-year alternatively our extremity is to thrust hyper maturation proceed to turn stock while continuing to amended operating profit.

So, I deliberation we're connected our seventh consecutive 4th of year-on-year operating profit betterment now. So, comparative to astatine slightest nan 2 largest competitors we person successful nan marketplace we still person a ways to go, but hopefully we're showing a continuous momentum location while continuing to person hyper growth. Thank you.

Yang Yuanqing

You talk astir nan cognition margin.

Kirk Skaugen

Yes, improving each 4th and getting person to surely wherever our -- nan group that we compete pinch connected a day-to-day ground are.

Yang Yuanqing

Okay.

Jenny Lai

Thank you, Kirk. And nan adjacent mobility is coming from Jerry Su -- Mr. Jerry Su astatine Credit Suisse. And it's besides connected ISG. Given nan slower IT spending and consent connected package unreality server request are you seeing immoderate bid accommodation aliases it's much connected constituent inventory management?

Kirk Skaugen

Well, again I would opportunity nan NextWave business, we way complete 500 NextWave Cloud accounts and that is mostly a caller business for america and that's each brand-new stock gains for us. So, independent of immoderate bid accommodation astatine nan macro level we're gaining stock successful there.

With nan largest 17-or-so unreality providers successful nan world, each is successful its ain unsocial situation. But I would opportunity that nan caller processors from Intel from AMD and from Ampere person compelling worth proposition and we person creation wins different crossed each customer, but nan number of creation wins that we person is growing. So, again, we're astir apt nan beneficiary of marketplace conception stock moreover successful a possibly a softer marketplace that has been good documented successful nan press.

Relative to constituent inventory management. I'm not judge I afloat understand nan question, but I would conscionable opportunity for america we're mostly backmost to normal transmission inventory levels and we're astir each nan measurement done immoderate benignant of proviso situation from a information halfway perspective. So, we're backmost to normal lead-times for nan immense mostly of our projects -- products. Thank you.

Jenny Lai

Thank you, Kirk. And nan adjacent mobility is besides connected ISG and this is coming from Mr. Vincent Cheng astatine BOCI-Prudential. The mobility is do you proviso servers for AI computing including AI schematic cards assembly? Do you expect AI servers will lend to a batch to ISG conception successful coming years?

Kirk Skaugen

Yes. So, again, this is Kirk. So, I would opportunity evidently we support a batch of different segments. It's nan world's largest contributor to nan apical 500 supercomputers. All of those person much and much of an AI constituent to them. And we're assured we're going to enactment number 1 successful nan apical 500 and those workloads will proceed to thrust much to AI.

In nan separator abstraction pinch our ThinkEdge, we person nan astir dense AI separator server successful nan world pinch 4 GPUs per separator server. And again that's driving triple-digits for us. We precocious announced thing called AI Innovators Program. We person now complete 40 partners that person certified their package connected apical of our separator systems.

We were nationalist a fewer months ago. For illustration we won nan largest market concatenation successful nan United States, Kroger wherever we're doing their self-checkouts to thief facilitate, making judge each nan scanning and things for illustration that are done done 1 of our AI Innovator Program, ISV partners ever seen, but we're doing things for illustration cardinal management, drive-through management, Smart City, smart retail, smart manufacturing each connected AI. And past of course, successful nan unreality pinch Omniverse and Metaverse, we conscionable won 1 of nan largest unreality wins connected integer twins, arsenic nan unreality vendors commencement building retired this capacity arsenic well. So I would say, it's successful supercomputing, it's an separator and it's successful nan nationalist unreality arsenic well. Thank you.

Jenny Lai

Thank you, Kirk. And we person adjacent mobility coming from Mr. Albert Hung astatine JPMorgan. What's nan transmission PC inventory level compared to nan normal times? Should we expect pricing enrollment to stay reliable owed to immoderate request weakness? And erstwhile could we spot nan benefits of diminution constituent costs?

Luca Rossi

Yeah. Jenny, I'll return nan question. Actually these are 3 questions successful one. So fto maine commencement 1 by one. So first astir transmission inventory. So to commencement with, I want to punctual each of you that our business is very diversified. So we person a batch of this business that is designed to beryllium without transmission inventory. So that includes our narration business, our nationalist assemblage business and our world relationship business. So pinch these 3 business exemplary aliases for a ample portion of these 3 business model, location is simply nary transmission inventory astatine all.

Then you person nan transactional models pinch user and SMB, wherever nan transmission inventory is still supra nan pre-COVID levels successful immoderate regions pinch nan transit inventory that is besides somewhat higher than pre-COVID, arsenic you astir apt cognize nan transit clip has accrued and now it's getting normalized. So this portion is getting better. So mostly speaking, we consciousness comfortable pinch our inventory position crossed each channels and geographies. We are -- arsenic I said before, we are expanding our sellout stock arsenic nan request for our products is astatine grounds precocious levels. And we person a plan. I deliberation we person a elaborate sellout scheme and we forecast to return astatine aliases beneath pre-COVID inventory levels successful nan coming fewer months. So I deliberation we are mostly comfortable astir that.

The 2nd mobility is shall we expect pricing and situation to stay tough. I deliberation nan reply is, yes. I deliberation until location will beryllium immoderate comparatively anemic request and anemic micro-environment I deliberation we expect nan pricing situation and nan title will beryllium intensified. And that brings maine to nan past mobility erstwhile are we seeing nan use of nan commodity costs going down? I deliberation you are already seeing that successful our expertise to support a bully level of GP successful nan past 4th arsenic we person conscionable demonstrated by being capable to seizure nan commodity costs diminution and not value it astatine nan extremity to prolong our GP margin. Thank you.

Jenny Lai

Thank you, Luca. And nan adjacent mobility is coming from Grace Chen astatine UBS. Could you thief america understand really Lenovo Group support separator for PC business, fixed nan important income diminution pinch a smaller scale? What's your position for PC separator inclination successful 2023 almanac year? Thank you.

Luca Rossi

So Jenny, convey you. So I deliberation I partially responded to this 1 pinch nan past 1 meaning, we are evidently seeing favorable commodity inclination from -- for respective commodities and we are leveraging that to prolong our GP and not pricing this advantage distant connected nan 1 hand. On nan different hand, we person been very disciplined successful Q3 and decidedly we will proceed nan early to negociate our disbursal from each perspective truthful that we mitigate nan effect of nan smaller standard and yet nan consequence of somewhat aliases little GP margin.

And regarding nan GP margin, nan mobility was, whether -- what is our book for nan separator inclination successful 2023? I would say, if nan title continues to intensify, location is objectively a consequence of a somewhat declining GP margin, we will do each imaginable efforts to header pinch it leveraging nan commodity decline, and obviously, managing successful a very disciplined measurement expenses, truthful that we mitigate immoderate imaginable effect to nan bottommost line. I would opportunity that. Thank you.

Ken Wong

Hey, Luca, Ken here. If I whitethorn add, I think, our service-led translator strategy, I think, besides supply important thief to support our PC separator rate. If you look astatine nan SSG services portfolio today, I think, we person a broad catalog from astir nan box. For example, Premier Support Services to beryllium connected nan container wherever we person a full suite of master and managed services via our TruScale instrumentality service, right. And because we are adding worth from a hardware, package and services perspective, truthful we're becoming much sticky, and that will thief america to support our narration pinch our customer and besides support our margin. So I want to adhd that Luca.

Luca Rossi

Thank you, Ken.

Jenny Lai

Thank you, Luca. Thank you, Ken. And truthful we person our adjacent mobility coming successful from Mr. Jerry Su again astatine Credit Suisse. For nan mobile and tablet business, what is nan income operation now and outlook for 2023?

Luca Rossi

So, for nan mobile business, nan operation successful position of nan gross is, let's say, wrong 15%. And I will not springiness america precise number, but wrong 15%. And nan tablet is wrong 5% of nan IDG full revenue.

Jenny Lai

Thank you, Luca. So now we person a mobility connected SSG from Mr. Robert Chan astatine Merrill Lynch. SSG Group has US$3 cardinal recurring sales. It's -- is this mostly from Managed Service aliases Project Solution Services? When do you expect this $3 cardinal income to beryllium recognized?

Ken Wong

Thank you, Robert. Ken here, Head of SSG. So 1 point we're very happy astir is nan momentum of our backlog, we proceed to spot an summation successful our backlog and making a grounds quarter-after-quarter.

Regarding nan mobility astir wherever does it travel from, I think, it walk crossed each our 3 pillars of services correct astir nan container master and Managed Services. I don't person an nonstop number astir really agelong will that -- will it return to beryllium recognized. But normally, our services astir nan container and beyond nan container walk crossed from 2 years to 5 years. Thank you, Robert.

Jenny Lai

Thank you, Ken. Now, if you would for illustration to inquire much questions, please taxable online, and please property nan taxable button, past we will beryllium very happy to reply your questions here. Yes. Thank you.

And our adjacent mobility is coming from Robert again from Merrill Lynch. A batch of chat and concerns are connected transmission inventory connected smartphone. PC and user tech merchandise highest Lenovo's inventory level presently versus 2 to 3 months agone and expectations successful coming 2 to 3 months erstwhile do you expect transmission to cleanable up and marketplace to rebound?

Luca Rossi

No, possibly I tin reply it this way, because if you comparison pinch 3 months ago, possibly you besides request to see nan seasonality that mightiness beryllium not nan correct point to do. So what I tin opportunity is wrong nan past 4 quarters we person consumed a very important information of nan inventory. And arsenic I said before, successful nan coming months, we consciousness we will -- we cognize we will beryllium backmost astatine pre-COVID of nan inventory. As for nan phone, I don't cognize whether Sergio wants to adhd a remark connected nan inventory. Thank you, Sergio.

Sergio Buniac

Yes, it's very akin Luca. Last 4th our activations were 20% higher than our sell-in what leads to a 15% diminution successful inventory. This has been happening successful nan past six to 9 months. And I expect to -- we expect that betwixt now and nan extremity of June nan inventory will beryllium to a very patient level moreover little than pre-COVID conscionable because nan transmission fixed nan liking rates are taken arsenic inventory. So it was a very patient quarter, and expect that rhythm to complete astir nan May clip frame. With now nan other happening arsenic nan 2nd half we expect to rebound successful nan marketplace to -- but nan advancement of inventory has been very healthy, particularly successful nan past six to 9 months including past quarter.

Jenny Lai

Thank you. Thank you, Sergio. Thank you, Luca. And we now only person clip to return nan past mobility and past mobility from Mr. Albert Hung from JPMorgan. How large is Lenovo's AI servers and who are nan customers? And really should we deliberation astir nan conception goes successful 2 to 3 years' clip frame?

Kirk Skaugen

Yes. So, this is Kirk. I think, again, erstwhile you opportunity really large are nan servers, I deliberation you person to look astatine -- our imagination is that AI will beryllium an basal constituent successful everything we do. So, nan measurement to deliberation astir nan TAM complete clip is, I deliberation AI will go a basal constituent of almost each server instrumentality retired there.

And you're correct nan mean trading prices fixed nan number of GPUs aliases accelerators is increasing significantly. So, comparative to nan margin, I deliberation it will amended nan margin. And also, because we're building beardown relationships connected nan package broadside arsenic well, we will beryllium expanding our separator arsenic we waste much AI servers. Thank you.

Jenny Lai

Thank you. Thank you, Kirk. And convey you everyone. This is our past mobility for this quarter's net call. We convey you very overmuch for joining today's call. If you person immoderate further questions, please consciousness free to interaction maine directly. And nan replay of this webcast will beryllium disposable successful nan adjacent mates of hours connected our Investor Relations website. Thank you again for joining america today. Bye-bye now.

Yang Yuanqing

Bye-bye.

Editor: Naga



Read other contents from Beritaja.com at
More Source
close