December 2, 2021

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LENOVO GROUP: Second Quarter Results 2021/22

LENOVO GROUP: Second Quarter Results 2021/22

Lenovo achieved a record quarter, and with a strategy focused on transformation and sustainable growth, doubled profitability in three years

a company Lenovo (HKSE: 992) (ADR: LNVGY) The group reported record quarterly results with historic earnings and maximum returns. Operational excellence, innovation and strong performance for the company underscore improvement in all major business groups, despite challenges in presentation across the industry. This, combined with the global opportunities created through accelerated digitization, smart transformation, and modernization of IT equipment, infrastructure and applications, continues to support a long-term and sustainable increase in the company’s profitability.

Lenovo’s performance achieved significant improvements year-over-year, with net income up 65% year-over-year to $512 million, and net income margin improving 0.7 points, in line with the company’s three-year target. Revenue before tax was $742 million, a year-over-year increase of 58%, and Group sales continued to grow strongly, reaching $17.9 billion, a year-over-year increase of 23%. Operating cash flow doubled year-over-year to $1.6 billion, while company spending on research and development rose nearly 60% for the quarter due to increased investment in innovation.

Looking ahead, the strategy to support sustainable profit and growth growth will continue to focus on high-margin businesses and sectors, with a doubling of investment in research and development over three years, as announced in The last quarter. This focus will support the company’s ongoing transformation, the development of technologies focused on new IT opportunities, and the “Client-Edge-Cloud-Network-Intelligence” technology architecture resulting from changing customer needs.

Summary of financial results:

Q 2 21/22

Million US Dollars

Q 2 20/21

Million US Dollars

difference

Company revenue

17,869

14,519

23%

Income before taxes

742

470

58%

net income (profit attributable to shareholders)

512

310

65%

basic earnings per share (US cents)

4.42

2.59

1.83

Lenovo’s Board of Directors has announced an interim dividend of HK HK 8.0 per share.

Statement from Yuanqing Yang, Chairman and CEO of Lenovo:

“Lenovo’s new ‘Client-Edge-Cloud-Network-Intelligence’ IT architecture is gaining momentum and gaining increasing acceptance across the industry. Thanks to the strong implementation of our 3I strategy (Smart Devices/IoT, Smart Infrastructure, Smart Vertical Solutions) in the last quarter, Our net income and revenue have set new records and we are on track to double our net profit margin by three years. At the same time, our investment in research and development has increased dramatically by nearly 60%.” Yuanqing Yang, Chairman and CEO of Lenovo. “Looking forward, we will continue to pursue our goal of doubling R&D spending over three years and further supporting service-based intelligent transformation.”

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Solutions and Services Group (SSG): Delivers strong growth and high profit margins – increases overall Group profitability

the opportunity:

The solutions and services group continues to be profitable and robust in the fast-growing market. The technology architecture is becoming more complex, customers demand more advanced IT services, and the market value is expected to reach over $1 trillion by 2025, with the rapid growth of equipment as high-margin services market expected to reach $67 billion by 2025 .

Second quarter results:

  • The significant revenue growth in the second quarter (30% YoY to $1.36 billion) represented 7.3% of the Group’s total revenue with an operating margin of close to 21%.
  • Improved penetration of support services for PC and infrastructure customers. Managed Services saw revenue growth of nearly 90% year over year, and the group noted that Lenovo’s replicable IP-based solutions were gaining traction, resulting in Enterprise Services and Solutions achieving approximately 22% of revenue growth year-over-year.
  • The group at the annual major innovation event the world of technology Announced an evolution in its consumption-based business model by launching TruScale A new portfolio that brings all of Lenovo’s offerings as a service under one roof and provides a truly global solution that makes everything from mobile to the cloud accessible under a single contractual framework.

front view:

  • In this context, Lenovo will continue to support revenue growth and profitability. By integrating the company’s internal IT function into SSG, it can improve research and development and transform proven internal digital capabilities into solutions for customers.
  • Managed Services will introduce new platforms, tools, and marketing options to improve TruScale as a service offerings.
  • As part of the support services, it will focus on increasing the penetration rate in the commercial sector, which is remembered.

Infrastructure Solutions Group (ISG): Growing market surpassed by a record quarter

the opportunity:

ISG opportunities are constantly expanding as ICT infrastructure continues to be modernized around the world. The ICT infrastructure market is expected to become a $250 billion market by 2025, making it the size of the worldwide computer market.

Results in the second quarter:

  • ISG achieved record performance with highest revenue to date at nearly $2 billion, a year-over-year increase of nearly 34%. Profitability continued to increase by $24 million year-over-year, bringing it closer to a balanced budget.
  • The business has outperformed the market in almost all sectors. The cloud service provider has achieved historically high revenue with an annual growth of over 50%; Corporate/SME sales posted strong year-over-year growth of 20%.
  • In higher-margin sectors, storage revenue rose more than 50% year-over-year to set a new record, and in high-performance computing, the company introduced China’s fastest high-performance college computer, powered by Lenovo Neptune water-cooled technology.
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I look ahead:

  • The company will continue to invest more in fast-growing sectors such as edge computing, hybrid cloud solutions, and 5G convergence clouds.
  • The company will also continue to enhance its design and manufacturing capabilities to support improved profitability as the business moves toward breaking point and beyond.
  • The vision remains to become the largest and most trusted global provider of ICT infrastructure solutions.

Intelligent Device Group (IDG): Strong sales growth and profitability, increasing share of the non-computer segment

the opportunity:

The demand for computers and other smart devices remains strong. This is due to the rebound in commercial demand as well as the expected increase in demand since the launch of Windows 11, as market reports showed that business PCs (excluding Chromebooks) grew 18% year-over-year in the last quarter. Lenovo expects PC demand to align with industry ratings from 340 to 355 million units annually over the next few years. The global smartphone market continues to offer tremendous growth opportunities, as is the growing Internet of Things market, which is expected to grow at a compound annual growth rate of 11% by 2025.

Second quarter results:

  • Great results with 21% year over year revenue growth to $15.3 billion, with stronger profit growth – 34% year-over-year growth to $1.2 billion, on an already high basis.
  • The premium computer segments experienced strong growth, with yoga and premium workstation revenue doubling year-over-year. Business PC sales increased 29% year-on-year, and small and medium business sales increased 48% year-on-year.
  • Smartphones had their best quarter in history, with profits hitting a new all-time high of $89 million, and revenue up 27% year over year, the highest in 15 quarters. All geographies have achieved high profitable growth – not only in the traditional strongholds of Latin America and North America, but also in expansions in the EMEA and Asia Pacific markets. Tablet sales increased 20% year over year, and trade in accessories increased 31% year over year.
  • Motorola doubled its business in Southeast Europe. Motorola recorded a phenomenal year-over-year growth of 102% in the Southeast European region during the second fiscal year. The main countries that contributed to the excellent performance are Romania, Ukraine, Bulgaria, Croatia, Slovakia, Serbia and the Czech Republic. Slovakia achieved 44% year-on-year growth The TOP devices were the Motorola Edge 20 in the premium category, the Moto G20 in the mid-tier category, as well as the Moto E7 in the lower tier category.
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I look ahead:

  • Lenovo will continue to invest in premium segments to increase profitability and average selling price. Associated non-computer products, such as smartphones, tablets, smart collaboration solutions, and embedded computing systems, will expand the business mix of non-computer devices.

Operational highlights and future investment

  • The company continues to do so Focuses heavily on ESG in all of its operations; Setting new goals in Areas of mitigating climate change in August 2021 as part of Annual Report ESG. The company is committed to eliminating one million tons of greenhouse gas emissions from its supply chain by fiscal year 2025/26 as it progresses toward the 2030 emissions reduction targets approved by the Science-Based Targets Initiative. In addition, the company has committed to incorporating consumer recycled materials into 100% of its computer products by 2025 and has reformulated its social recovery goals so that women will occupy 27% of global management roles by 2025, up from 21% in 2020.
  • The group was recently honored for its commitment and work within the ESG, and received Historically Highest Rank From Hang Seng . Sustainability Index, where it received a first-time AA+ rating and the best overall score in the technology industry.
  • After the departure of Lenovo President and COO Gianfranco Lansi recently introduced Chi Min (Jami) to Aku Group Operations Officer Society. In his role, he will build on the company’s strengths in operational excellence and supply chain excellence.

financial evaluation

For the second quarter that ended on September 30, 2021

(in millions of US dollars, excluding data per share)

Q 2 21/22

Q 2 20/21

Y/Y CHG

Revenues

17,869

14,519

23%

Gross profit

3,006

2,253

33%

gross profit margin

16.8%

15.5%

1.3 points

Operating costs

(2,189)

(1,688)

30%

Research and development expenses (included in operating costs)

(482)

(307)

57%

Cost-benefit ratio

12.3%

11.6%

0.7 points

Operating profit

817

565

45%

Other non-operating income/(expenses) – net

(75)

(95)

(21)%

Income before taxes

742

470

58%

tax collection

(185)

(120)

53%

win period

557

three hundred fifty

59%

Non-controlling stakes

(45)

(40)

15th%

Profit attributable to shareholders

512

310

65%

EPS (US cents)

Basic

dilute

4.42
3.96

2.59
2.48

1.83
1.48