Lenovo reveals financial results for first quarter of 2021/22

Lenovo has revealed the Group’s financial results for the first quarter of 2021/22. The Group continues to boost its long-term and sustainable profitability by creating opportunities through speedy digitalising, smart conversion and IT upgrading in devices, infrastructures and applications throughout the globe.

Lenovo’s performance benefited from these prospects, with pre-tax income nearly doubling to US$650 million (up 96%) and net income more than double (up 119%), with a net income margin of 2.8 percent, the best in many years.

Group revenue increased by 27% year over year to US$16.9 billion in the first quarter.

Looking ahead, the company expects more prospects for long-term growth and profitability in areas like vertical solutions, infrastructure solutions, premium PCs, and adjacent non-PC devices like tablets, smartphones, embedded computing, and other smart devices. Furthermore, innovation will continue to support lucrative and long-term growth. Lenovo will continue to invest in innovation and double its R&D investments over the next three years, after increasing R&D expenses by 40% year over year in the first quarter.

The company’s new business group structure of Solutions and Services Group (SSG), Infrastructure Solutions Group (ISG), and Intelligent Devices Group (IDG), which was announced earlier this year, is being reported for the first time this quarter.

Financial Highlights:

	Q1 21/22 US$ millions	Q120/21 US$ millions	Change
Group Revenue	16,929	13,348	27%
Pre-tax income	650	332	96%
Net Income(profit attributable to equity holders)	466	213	119%
Basic earnings per share(US cents)	4.02	1.80	2.22

Chairman and CEO quote – Yuanqing Yang:

“The accelerated digital and intelligent transformation has created significant market opportunities globally. Lenovo is successfully seizing these as we transform from a device company to a services and solutions provider. The proof is in our performance – this quarter alone we’ve doubled profitability year-on-year. At the same time, net income margin reached the highest in many years,” said Yuanqing Yang, Lenovo Chairman and CEO. 

Also said, “Going forward, we will continue to increase R&D investment, aiming to double it over the next three years; we will further improve our operational excellence, and we remain committed to green innovation and corporate citizenship to achieve long-term sustainable profitability increases.” 

General Manager of Lenovo Gulf quote – Mohammed Hilili:

Solutions and Services Group (SSG): driving increased Group profitability in rapid growth sectors

Customers’ increasing need for more complex IT services is altering the sector, opening up tremendous prospects for solution services and managed services, including the subscription-based as-a-Service model. The IT services sector is expected to be valued more than $1 trillion by 2025.

Q1 performance:

• Significant revenue growth (38 percent year over year to US$1.18 billion) in Q1 across SSG’s three core categories (support services, managed services/as-a-Service, and vertical solutions), with an operating margin of 22%, far higher than typical hardware firms.
• Support services profitability increased by nearly three points year over year; income from managed service/as-a-Service increased by double digits, and contract value for vertical solutions increased by triple digits.
• Several new high-profile smart city and smart retail transactions, as well as hybrid cloud solutions based on Lenovo IP, have contributed to the company’s success.

Looking ahead:

• In this environment, Lenovo will increase support service penetration rates and capitalise on the growing device install base, especially when the commercial sector recovers. In terms of as-a-Service, Lenovo is investing heavily in capabilities, platforms, and tools, as well as scaling up through the creation of more repeatable vertical solutions based on Lenovo’s own IP and strategic alliances.
• SSG’s three core segments will have much greater margins in the coming quarters and years, resulting in higher total profitability.

Infrastructure Solutions Group (ISG): accelerating profitability and significantly outgrowing the market quarter after quarter

The corner stone for digital and intelligent transformation is ICT infrastructure, which is expected to be worth over US$250 billion by 2025. Lenovo is well positioned as a “full-stack” ICT supplier after investing in laying a solid foundation.

Q1 performance:

• ISG set a new revenue record of US$1.8 billion and has outpaced the market for six consecutive quarters, delivering the strongest earnings in five years.
• Currently ranked third in the worldwide x86 Server market and second in mainstream storage.
• Higher margin businesses, such as storage, software, and Hybrid Cloud solutions, continue to grow strongly year over year, with Hybrid Cloud Solutions rising in the high double digits.

Looking ahead:      

• The Group will continue to invest in edge computing, hybrid cloud solutions, and 5G cloud-network convergence in order to achieve its goal of becoming the leading data centre infrastructure solutions provider.
• Ongoing investment in overall ISG competitiveness will generate profitability and overall competitiveness for the business group.
• The company will continue to increase in-house design and production skills, improve efficiencies, and extend strategic relationships to allow new solutions.

Intelligent Devices Group (IDG): record profit, further growing non-PC businesses

The epidemic has altered how people live and work, with PCs reclaiming their place at the hub of their digital life. The PC renewal cycle has shortened, the penetration rate has grown, and total PC demand will at least maintain current levels through 2025, with commercial demand swiftly returning. At the same time, the IoT market is predicted to grow at an 11 percent compound annual growth rate (CAGR) until 2025. And non-PC firms are exploding with new opportunities.

Q1 performance:

• Profit and revenue both set new highs in the first quarter. Profit of US$1.1 billion, up 43% year over year, and revenue of US$14.7 billion, up 28% year over year, were driven by a mix of excellent PC performance and increasing non-PC segments, which now account for 18% of IDG’s total revenue.
• Thanks to continued investment in premium and high-growth PC areas such as Gaming, Workstation, and Thin & Light, the average selling price and profitability continue to rise.
• Lenovo maintained its No. 2 position in the global Android tablet market, and its smartphone business grew by more than 60% year over year, establishing itself as a self-sustaining, robust firm with record operating margins.

Looking ahead:

• Lenovo plans to increase its investments in smarter devices, core component technology, and next-generation computing platforms.
• Lenovo will use its large customer base to cross-sell non-PC products, resulting in long-term profit improvements.

Operational highlights and investing for the future

• R&D spending grew 40% year over year in Q1, with a goal of doubling R&D spending over the next three years.
• The company has surged 65 spots to #159 on the Fortune Global 500 list, a new high for the company.
• The Group’s operational excellence and global supply chain remain best-in-class, assisting the business in navigating ongoing global component supply challenges.
• The Group continues to focus on ESG, including science-based climate targets and green innovation; supporting communities and businesses in need as a result of COVID challenges; and empowering under-represented groups. 

LENOVO GROUP

FINANCIAL SUMMARY

For the fiscal quarter ended June30, 2021

(in US$ millions, except per share data)

		Q121/22	Q120/21	Y/Y CHG
Revenue		16,929	13,348	27%
Gross profit		2,824	2,041	38%
Gross profit margin		16.7%	15.3%	1.4pts
Operating expenses		(2,081)	(1,605)	30%
Expenses-to-revenue ratio		12.3%	12.0%	0.3 pts
Operating profit		743	436	70%
Other non-operating expenses – net		(93)	(104)	(11)%
Pre-taxincome		650	332	96%
Taxation		(165)	(85)	94%
Profit for the period		485	247	97%
Non-controlling interests		(19)	(34)	(44)%
Profit attributable to equity holders		466	213	119%
EPS (US cents) Basic Diluted		4.02 3.53	1.80 1.76	2.22 1.77