PC business is still the only source of net profit
Editor’s note: This article comes from WeChat public number “Tencent deep Network” (ID: qqshenwang), author Ma Guanxia.
On November 7, Lenovo Group released its second-quarter earnings report for the 2019/2020 fiscal year ending September 30 (July 1 to September 30). The financial report showed that Lenovo’s revenue and profits both increased. Among them, revenue was 13.522 billion US dollars (about 94.8 billion yuan), an increase of 1%; net profit of 202 million US dollars (about 1.42 billion yuan), an increase of 20%.
Yang Yuanqing, Chairman and CEO of Lenovo Group, is quite satisfied with the performance of the financial report: “In the second quarter, we are very pleased to see that Lenovo’s growth momentum continues to accelerate, proving that our intelligent transformation strategy is correct and clear, and its implementation is strong and strong. In the current complex and volatile international economic and trade environment, we are still successful in achieving strong financial performance, demonstrating our commitment to continuous innovation, our commitment to customers in 180 markets around the world, and our commitment to achieving ‘intelligence, for each A possible effort to make a ‘company vision.’
However, from the perspective of various business segments, Lenovo’s financial performance can only be considered to be quite satisfactory.
In terms of revenue, Lenovo’s revenue growth was only 1% in the quarter. Among the three main businesses, PC (including smart devices) business is still the main source of revenue growth, mobile and data center business camps. Both incomes are negative growth.
In terms of profit, Lenovo’s net profit for the quarter rose 20% year-on-year, but the PC business is still the only source of net profit, and neither the mobile business nor the data center business achieved net profit.
The software and services business related to Lenovo’s intelligent transformation has grown rapidly and has become the biggest highlight in the financial report.
Detailed dismantling of Lenovo’s financial report data is not difficult to see, Lenovo PC business is still solid, but the mobile business and data center business is still two shortcomings in the Lenovo troika. Combining the information disclosed by Yang Yuanqing and other Lenovo Group executives in an interview with the media such as “Shenzhen” after the earnings call, Lenovo’s current thinking is to gradually improve the mobile business and data center while maintaining the growth momentum of the PC business. The operation of the business, while vigorously adding intelligent transformation business.
Financial Data Interpretation
Financial Reports show that Lenovo’s second-quarter revenue was $13.522 billion, up 1% year-on-year; net profit was $202 million, up 20% year-on-year.
Lenovo did not separately disclose the revenue and profit of the PC business and mobile business in the second quarter in the financial report, but classified the two into the smart device business group. From the combined data of the first half of the 2019/2020 fiscal year:
Lenovo’s core PC business revenue was $202.87, up 8% year-on-year, accounting for 78% of total revenue. Net profit was $1.135 billion, up 21% year-on-year. Lenovo PC’s global market share reached 24.4%, maintaining its number one position in the world, with sales growth of more than 7% year-on-year.
However, Lenovo’s mobile business, which is dominated by the mobile phone business, saw revenues fall by 7% to $3.012 billion in the same period, accounting for 10.3% of total revenue. Regarding the profitability of the mobile business, Lenovo said in its earnings report: “The pre-tax profit of the mobile business was $160 million higher than the same period of the previous year”, while the pre-tax loss for the same period of the previous year was $146 million. According to the pre-tax profit of $12 million, Lenovo’s mobile business net profit after tax should not be turned positive. “Shennet” asked the relevant people of Lenovo Group for this, but did not receive a response before the deadline.
In addition, Lenovo’s data center business, revenue fell 15% to 2.687 billion US dollars in the same period, accounting for about 10% of total revenue, a loss of $ 103 million.
PC business, mobile business and data center business are the three Hummers that drive Lenovo’s revenue growth, but the PC business is clearly the backbone of Lenovo. Due to the continued shrinking of mobile services and the weakening of data center services, Lenovo PC business accounted for 66% of total revenue in the 1516 fiscal year, and all the way to 78% in the first half of 1920. Lenovo’s diversification, the reliance on PC business is even more serious.
Of course, the good news is that Lenovo PC business performance is still solid.
Why can the PC stay strong?
The growth of Lenovo’s PC business is due to the recovery of the global PC market. A number of research institutions believe that the shortage of CPU supply from upstream manufacturers Intel has eased, allowing the market to digest existing PC demand and unleash new demand, especially from the enterprise market and the desktop market.
Yang Yuanqing said today (November 7) that he was interviewed by Deepnet and said that the global PCThe market’s recovery has also benefited from the switch from Windows 7 to Windows 10. “The transition from Windows 7 to Windows 10 is underway, so there are still more than 100 million computers running on Windows 7 and previous versions worldwide. We believe these will be recently Replace it.”
The combination of the above multiple positive factors has brought signs of recovery in the global PC market. According to statistics from IDC, Gartne and Canalys, the global PC market continued to pick up in the second and third quarters.
On the other hand, Lenovo also attributed the success of the PC business to the focus on investing in high-growth and high-end segments, including workstations, thin and light books, gaming PCs, monitors and other categories. According to data from the industry and Lenovo, the growth rate of Lenovo’s four high-end categories in the second quarter of the 19/20 fiscal year was 35.1%, 30.7%, 27.9% and 28.2%, respectively, which were much higher than the overall market performance.
In addition, Lenovo’s acquisition of Japan’s Fujitsu PC business has also accelerated the growth of PC business. In May 2018, Lenovo officially announced the completion of the acquisition of 51% of Fujitsu’s PC business.
In May of this year, Lenovo COO Lanci revealed in an interview with “Shenzhen” that Lenovo has established a joint venture with Fujitsu in Japan and has a majority stake. Fujitsu currently manufactures and sells its own products independently, but Lenovo has integrated the supply chain and may integrate product development in the future. Lanci believes that Lenovo’s acquisition of Fujitsu has achieved double growth in market share and revenue, basically achieving the effect of 1+1 greater than 2.
From the perspective of the global market, compared with the fast-growing Asia-Pacific and weekly markets, the sales of Lenovo PC business in the Chinese market declined due to the overall market downturn, which also led to the overall business of Lenovo China. There was a negative growth in revenue.
Liu Jun, President of Lenovo China, said in an interview with Deepnet today that despite the pressure of CPU shortage and overall market decline, Lenovo PC’s market in ChinaThe share is still further increasing, and Lenovo PC China’s market share has reached 40.2%, equivalent to the total market of two to five.
Liu Jun also introduced that Lenovo is currently implementing a customer-centric transformation in China and upgrading its PC business model. In the last quarter, Lenovo launched ThinkBox, a new Think family. Compared to traditional Think notebooks that target classic business, Thinkbook is positioned as a fashion business. For a younger user base, Liu Jun believes that such a transformation can help Lenovo continue to expand its PC market in China. Advantage.
Although Lenovo PC business revenue growth has declined, Yang Yuanqing is still optimistic about the prospects of PC business.
“In fact, in the early years, PCs worried that they would be completely replaced by mobile phones. Now people have no such concerns. Because PCs and mobile phones are completely two types of tools, mobile phones may be a tool for consumer information, and PCs are A creative tool for creating information. I said that creation is not a single-finger design. It is also a creation of PPT, but it may not be possible with a mobile phone. In the future, as long as the world is still full of creativity, the PC will not be replaced.” /p>
Mobile business becomes pragmatic
The mobile phone business is a piece of injury from Lenovo. Lenovo mobile phones have been on the top of the “China Cool Alliance”, but the reality of the past few years is not satisfactory. Lenovo’s mobile phone brand has gradually been marginalized, and the acquisition of Motorola has become the card in hand.
The importance of the mobile phone business is self-evident. In fact, Lenovo has not given up this business. “Investors are most concerned about whether the mobile phone business can turn a profit. To make a profit, we must put the non-profitable place in a secondary position.” Yang Yuanqing said that Lenovo’s mobile phone business has been mainly focused for more than a year. profit.
Lions focuses on profitable North American and Latin American markets and reduces costs on a global scale. As a result of this focus strategy, Lenovo’s profitability in core markets such as North America and Latin America continues to increase. “Lenovo’s mobile business has achieved (pre-tax) profitability in the past four quarters, and its performance has been better every quarter than in the previous quarter. Almost every quarter’s expenses have decreased by more than $100 million year-on-year.” But at the same time, The overall revenue scale of Lenovo’s mobile business has also continued to decline.
Yang Yuanqing naturally saw this. “Of course, in the long run, the mobile phone business can not only focus on profitability. From now on, we must focus on profitable growth. Profitable growth means that under the premise of ensuring profit, it is even more Focus on growth.” Yang Yuanqing went on to say, “Of course, when focusing on profitable growth, we will still prefer the place where we can make a profit. For example, Europe will be the next battlefield. We hope to acquire the market with more innovative products. Earn profitable growth.” It is not difficult to see that Lenovo is most valued for the profitability of the mobile phone business.
Lenovo’s positioning of the mobile phone business is also reflected in the world’s largest mobile phone market in China. In answering the question from Shenzhou, Liu Jun said that Lenovo Mobile did not make large-scale investment in the domestic market this year, but the R&D side has been continuously investing. In Liu Jun’s own words, such an approach is “more pragmatic”.
For the 5G mobile phone market on the eve of the outbreak, Liu Jun said that Lenovo is more optimistic about the 5G entering the mainstream in the first quarter of next year. The layout of Lenovo’s main products will also come out at that time. Liu Jun also revealed that Lenovo will launch Motorola’s 5G mobile phone products in China in the future.
Lenovo said in the earnings report that “Lenovo’s Motorola brand will soon launch a revolutionary mobile phone product on November 14th, and Lenovo will continue to build leading innovative technologies and products in the future.”
Of course, in the current situation of the domestic mobile phone brand becoming more and more obvious, the difficulty of regaining the Chinese mobile phone market is obvious. Lenovo’s upcoming “revolutionary mobile phone product” is yet to be tested by the market.
Data Center Business Pressure
If the decline in Lenovo’s mobile business revenue is the result of proactive adjustment, then the data center business is affected by the overall market environment. “Global cloud computing companies have delayed purchasing, which has led to a decline in revenue.” Yang Yuanqing summed up the industry situation facing the data center business.
In addition to the downturn in the overall industry, fierce competition among vendors has also put pressure on Lenovo’s data center business. “Deep Net” in the previous article “How to explain the revival of Lenovo? In the analysis of the challenges faced by Lenovo’s data center business: In the short term, Lenovo can continue to take advantage of the HP X field with System X series servers, but Lenovo faces products in products including storage, other servers, and switch networks. From other domestic and foreign friends, the pursuit of chasing and fierce fight. And as the industry has entered a mixed cloud and cloudy battle, the growth of Lenovo’s data center business may face more uncertainty.
Of course, Lenovo’s data center business is not without highlights in this quarter’s financial report. According to the financial report, the data center business includes three segments of high-performance computing, software-defined infrastructure and storage, which achieved 33.4%, 44.5% and 68.8% year-on-year growth respectively.
In addition, Lenovo’s data center’s China business performance also exceeded expectations. In the second quarter of 2019/2020, Lenovo Data Center’s overall business revenue in China increased by 19% year-on-year, higher than the industry’s 3% growth rate, and non-super large-scale data center business grew by 47% year-on-year.
For the eye-catching performance of Lenovo’s data center business in the Chinese market, Tong Fujun, president of Lenovo’s data center business China, responded to a question from Shennet, saying that Lenovo is more concerned with non-large-scale (Non-HyperScale) data center business. Growth, because it represents Lenovo’s core competitiveness.
“If we further analyze the composition of the turnover, we can see that more products come from hyper-convergence, virtualization, super-calculation and storage. That is, Lenovo is now more than just a hardware equipment supplier. But more actively participate in the digital transformation of customers and provide them with a holistic approach.”
Children’s first-time disclosure of Lenovo’s data center business high-value service solutions accounted for 18.9% of China’s turnover. Tong Fuzhen believes that this data is a huge improvement, but he hopes to double in a short period of time and truly complete the digital transformation of Lenovo’s data center business in the Chinese market.
In the last quarter, Lenovo’s data center business began to operate independently in China. Tongfu told SDB that the future China region will be deployed in five directions: first, covering and winning more customers; second, we will Rooted in China, using global technology, combined with Chinese customer characteristics, to provide tailor-made products and solutions for domestic customers; third, will focus on the sales of solutions; fourth, focus on the construction of their professional service team capabilities, More and better services are recommended to customers. Fifth, actively seek new market opportunities.
PC business, mobile business and data center business are Lenovo’s three main business, and in June this year, Lenovo established the Data Intelligence Business Group (DIBG). Lenovo said that the data intelligence business group is an important step to promote its intelligent transformation.
Plus intelligent transformation
In the past year, Yang Yuanqing’s intelligent transformation in public has increased significantly. At the Lenovo Swearing Conference in April this year, Yang Yuanqing officially announced that Lenovo will enter the new “3S strategy” stage: First, Smart IOT, intelligent IoT device, the data it generates is realizedGrowth in camp services and other aspects is very fast.
In other transformation services businesses, you can also see faster growth. For example, the overall turnover of industry intelligence is three times that of the same period last year. In addition to software and services, Smart Internet of Things revenue increased by 428%. The growth of products like smart homes, smart office products and AR/VR products is very fast. We believe these are also areas for future growth.
In addition, in the data center business, the data center is divided into servers, storage, and networks, and our storage business is growing rapidly. In addition, there is now a software-defined data center, and this area is also growing at a high speed.
Of course, the data center business should also mention China’s business in particular. Although the overall turnover of the company has declined, the overall revenue of Lenovo’s data center China business increased by 19% year-on-year, including non-super large data center business year. It is nearly 47% year-on-year, which is the highlight of ours.
We are still optimistic about the prospects of the PC business in the second half of the year. In fact, in the early years, PCs worried that they would be completely replaced by mobile phones. Now everyone has no such concerns. Because PCs and mobile phones are completely two types of tools, mobile phones may be a tool for consumer information, and PCs are a creative tool for creating information. The creation I said is not a single-finger design. It is also a creation of PPT, but it may not be possible with a mobile phone. As long as the world is still full of creativity, the PC will not be replaced. We are very optimistic about the prospects of PC. Recently, these quarters have been rising. Although the number of units has increased, they have all resumed growth. Unlike in previous years, both sales volume and sales are declining.
Why is it particularly optimistic in the near future? Just because the transition from Windows 7 to Windows 10 is in progress, there are still more than 100 million computers running on Windows 7 and previous versions worldwide. We believe that these will be replaced in the near future, so this is our optimistic place.
In addition, PCs also have many high-growth areas, such as ultra-thin books, game books, and workstations. These are high-end and fast-growing areas, which will drive PC business further forward.
Q: Yuanqing, hello! We have been emphasizing the transformation of intelligence in the past year. What achievements have Lenovo made in the transformation of intelligent transformation? Would you please talk about it? In addition, what are the achievements of these achievements in the figures of the financial report?
Yang Yuanqing: Lenovo’s intelligent transformation strategy has become more and more clear. Our “3S strategy” is developed around intelligent Internet of Things, intelligent infrastructure, and industry intelligence solutions, which are divided into intelligent individuals. Solutions and intelligent solutions for the enterprise. For intelligence, we basically revolve around application scenarios, such as smart home, smart travel, smart officeThe direction is about the mobile business. In this report, the mobile business is very active in the Latin American market and the North American market, while in the Asia Pacific and Europe markets, the mobile business may not be as strong. I want to know what Lenovo’s strategy and expectations are in other markets. How to boost (related) performance? The second direction is about industry intelligence. In this financial report, the performance of industry intelligence is also very good. Among them, there is a clear breakthrough in wisdom education. Can you tell us more about it? In addition to education, how does industry intelligence perform in other industries?
Yang Yuanqing: Our mobile phone business has focused on profitability for more than a year. We managed to achieve this goal four quarters ago and maintained profitability for four quarters, and each quarter performed better than the previous quarter. This shows that Lenovo is a company that says it is very strong and enforceable. To be profitable, we must put the unprofitable market in a secondary position. Therefore, emerging markets in Asia-Pacific and emerging markets in the world are not the areas we focus on because market competition and developed markets there are not. The same, the market competition there is “the bayonet sees red”, basically the price war situation, so there is not the focus of our development.
Our focus is on profitable markets and reducing costs on a global scale. In the past four quarters, Lenovo’s cost per quarter has decreased by more than $100 million year-on-year. This guarantees the achievement of results and also makes our profitability in major markets very good. The profit margins of our mobile phone business in Latin America and North America are close to the profit margin of the PC business.
Of course, in the long run, the mobile phone business can’t just focus on profitability. From now on, we must focus on profitable growth. Profitable growth refers to paying more attention to growth on the premise of ensuring profitability. Of course, when focusing on profitable growth, we will still prefer the place where we can make a profit. For example, Europe will be the next battlefield,
We hope to gain market growth and profitable growth with more innovative products.
Liu Jun: I added that wisdom education broke the total sales in the first half of China by 400 million in the first half of the year, and increased by 90% in the second quarter and 6,000% year-on-year.
Yang Yuanqing: The business of smart education is mainly driven by the Chinese market.
Q: Lenovo has mentioned many times recently that the future IT opportunities are in the To B business. What kind of planning does Lenovo have in the To B business direction?
Yang Yuanqing: Regarding the planning of the To B business, we use the “3S” strategy to cover the end, the side, the cloud, the net, and the wisdom. Looking at the second floor of our future center, it will be very clear. What is the end? The end includes the computer, but now more emphasis on computing, is the transition from computer to computing power, so in the future, embeddedThere are some dependencies on C, but the PC’s recovery will not necessarily meet our expectations, as well as the loss of mobile business and data center business. Will these factors be the main influencing factors and will it continue to affect?
Yang Yuanqing: First of all, the main factor that caused the growth in the last quarter to be lower than the previous quarters came from the macroeconomic environment.
Second, PC growth is slower than in previous quarters, mainly due to supply-side factors. But in the future, I have confidence in Lenovo’s growth. In addition to the confidence that PCs continue to grow and outperform the trend, for the mobile business, we will consider more profitable growth on the basis of restoring profitability, so this aspect will also grow.
Third, we have greater expectations for the growth of the data center business. Nowadays, the data center business not only gains faster growth than the market in the non-cloud computing business field, but also increases customers in the field of cloud computing, so this is also a growth area.
Fourth, is the transformation business I just talked about. Our new smart Internet of Things terminals will grow at a high speed, both in the consumer and commercial sectors. We will also achieve relatively high growth in software-defined infrastructure and high-speed growth in industry intelligence solutions and services. Of course, the transformational business I mentioned just now is “small” compared to our core business, but you have to believe that it will grow into a towering tree. Why is it a transformation business? Because it is a process from small to large.
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