In the past two years, Lenovo has adopted a sound strategy in its operations to seek profitable growth.
On August 15, Lenovo released its first-quarter results for the fiscal year ending 2019/2020 as of June 30. Lenovo’s first-quarter revenue and net profit were higher than expected.
Revenues of $11.156 billion(85 billion yuan), up 5% year-on-year,Achieved year-on-year growth for eight consecutive quarters; pre-tax profit of $240 million (1.64 billion yuan), an increase of more than 113%. Net profit was US$192 million (1.1 billion RMB), an increase of over 111% year-on-year.
Although Lenovo’s performance slightly exceeded market expectations, the stock price once fell by more than 6%, and the current decline has narrowed to less than 5%. On the one hand, there are reasons for the global stock market to fall today. The stock prices of major technology stocks including Apple, Google, Amazon, Facebook, Intel, NVIDIA, Baidu and Tencent all fell by about 2% or more. On the other hand, Lenovo’s operating expenses increased by 18% to $1.705 billion, and non-operating expenses increased by 52% to $103 million.
Lenovo has adopted a robust strategy in its operations over the past two years to seek profitable growth. Yang Yuanqing once said that improving profitability and profitable growth is Lenovo’s long-term strategy.
This is most evident in the mobile business. Lenovo abandoned its secondary market and focused on major markets, including strategic markets such as China and India, and markets with a large share of South and North America, which made Lenovo gradually profitable. From the third quarter of the 2018/2019 fiscal year, Lenovo made its first profit after the first acquisition of MoTo in the mobile business. During the quarter, Lenovo’s mobile business achieved its pre-tax profit again, and its pre-tax profit increased by US$103 million year-on-year. The profitability of the four consecutive quarters improved year-on-year.
At the same time, PC business pre-tax profit reached a record high for the same period, up 23% year-on-year to 524 million US dollars (3.57 billion yuan), pre-tax profit margin of 5.4%, up 0.5 percentage points year-on-year. Its revenue of 9.631 billion US dollars (65.7 billion yuan) accounted for more than 75% of the group’s total income, increased by 12%. Together with the mobile business, the smart device business group revenue was $11.156 billion, an increase of 8% year-on-year.
According to Gartner’s statistics, Lenovo PC shipments increased by 15.9% year-on-year, and the market share of 25% ranked first in the world.
At the same time, the PC market picked up in the second quarter, and global shipments fell after two quarters of decline.The rise also boosted the shipments of the top three head manufacturers. Mikako Kitagawa, senior principal analyst at Gartner, said that the promotion of Windows 10 and the easing of the shortage of Intel CPU supply are driving the growth of the global PC market. At the same time, the shortage of CPU supply mainly affected small manufacturers, while large manufacturers took advantage of it and expanded their share.
The profitability of the data center is also improving. The financial report said that the data center business this quarter’s loss narrowed to $ 52 million, compared with a loss of $ 63 million in the same period last year. However, due to the industry downturn, hoarding stocks, etc., its revenue fell 17% year-on-year to $1.356 billion.
In terms of regional markets, China’s market revenue fell by 15%, but the three regions of the Americas, Asia Pacific, Europe-Middle East-Africa all achieved growth, making up for the decline in the Chinese market. The Americas region grew by 10% year-on-year, and the Asia-Pacific region grew by 26% year-on-year. Lenovo’s regional markets are relatively balanced, the Americas market contributes 35% of revenue, and the other three major market revenues are between 20% and 22%.
It is worth mentioning that in June this year, Lenovo established the Data Intelligence Business Group to operate the original big data business independently. As PC business peaked, Lenovo looked for new growth points and reduced reliance on PC business.
According to Lenovo, in the new business of its transformation, the software and service business turnover in the quarter increased by 23.4% year-on-year, which is about five times the growth rate of the Group’s overall turnover, reaching nearly RMB 5 billion, accounting for the Group. The total revenue is nearly 6% and the profit margin is excellent. Big data service revenues achieved triple-digit growth. The overall turnover of the industry’s smart sector grew rapidly, reaching four times the same period last year.
For the next quarter’s outlook, Lenovo said it will drive software and service revenue, PC business in high-end and high-growth markets, mobile phones will launch six machines Type, maintains profitable growth.