Lenovo transcript: PC’s single mobile business losses narrow, uncertainty remains

“At the moment, although there is still a lot of uncertainty, but Lenovo’s performance and the industry is still relatively optimistic” – in the experience of parts shortages, trade frictions and the new crown epidemic and other multiple shocks, Lenovo Group Chairman and CEO Yang Yuanqing still gave a positive answer to the financial situation. Yesterday, Lenovo reported its financial results for the 19/20 financial year.

Sina Technology Han Dapeng

From the full-year results, Lenovo’s performance is basically stable. Total revenue for the year was RMB353.1 billion, down 1% YoY, and pre-tax profit was RMB7.09 billion, up 19% YoY, a record high. Net profit was $4.63 billion, up nearly 12% year-on-year.

However, its fourth-quarter results were “dragged back” by the new crown outbreak. In the quarter, Lenovo’s revenue was Rmb73.8bn, down 9.7 per cent year-on-year, while net profit was Rmb297m, down 64 per cent year-on-year.

Overall, Lenovo’s business pattern has remained unchanged: PC business is large, data business losses, mobile phone business weakness. Under the intelligent transformation, the latter two have improved, but how to completely reverse the situation has become the key.

Lenovo transcript: PC's single mobile business losses narrow, uncertainty remains

PC single large outbreak caused the domestic market to drop 30% year-on-year

PC business has always been the foundation of Lenovo, its revenue in the three main business accounted for nearly 80%.

Lenovo’s PCSD group reported full-year revenue of $45.216 billion, a record high, with revenue up 0.5 percent year-on-year and its pre-tax profit up 25 percent year-on-year to $2.302 billion. Among them, the PC and smart device business grew 3.6% year-on-year to a record $39.859 billion, accounting for 79% of the Group’s total turnover.

Lenovo’s PC market share increased by 1.4 and 0.7 percentage points in the fourth quarter and the previous fiscal year, respectively, according to IDC’s latest data. According to market research firm Analytics, the global notebook computer market shipments for the 2020 quarter report shows that Lenovo’s shipments continue to stabilize in the world’s first position, 8.9 million units of shipments compared to q1 q1 2019 growth of only 1%, but the market share increased from the previous 22.8% to 23.5%.

In fact, intel.CPU shortages and Microsoft initiatives have had a lasting impact on the overall market, as the global PC market is large. The outbreak at the beginning of this year has also had a huge impact on the PC business.

Yang Yuanqing bluntly said that the impact of the outbreak is supply. Lenovo’s supply side was heavily affected in the last quarter, with factories in the country more affected and closed for several weeks.

Not only that, but consumer demand also fell sharply in the quarter. Liu Jun, Lenovo’s president in China, admitted that the domestic PC market fell 30 per cent year-on-year as a result of the outbreak, but showed significant growth last month, “PC is a productivity tool, a very clear barometer of the economic situation, optimistic about the next quarter, but the situation for the entire fiscal year is difficult to draw conclusions.”

Earlier in the PC market prospects, Yang Yuanqing performance is very optimistic: still optimistic. In his serious, although the PC is the growth of unit numbers, but it is a creative tool for creating information, “the future as long as the world is full of creativity, THE PC will not be replaced.”

Data business weak Revenue falls but losses narrow

Lenovo’s mobile business has long been criticised, and although in the past year, Lenovo has launched folding-screen phones, 5G phones and so on, but it still does not seem to have found a clear profit point.

The results showed that mobile business turnover fell 19.2 per cent to $5.218 billion in the 19/20 financial year, with a 58 per cent annual decline coming from a supply shortage in the fourth quarter.

Lenovo explained that the impact of the outbreak’s sharp decline in turnover prompted the business to quickly take cost control measures, bringing its fourth-quarter pre-tax loss to $60 million, compared with $43 million for the full year. But the business achieved healthy profitability in its two largest core markets, Latin America and North America.

In fact, Lenovo’s previous focus on its mobile business, in short, avoiding a competitive market and investing in countries with profitable growth potential has led to a narrowing of its operations and a narrowing of losses.

In an interview with Sina Technology, Yang Yuanqing once admitted that if the pursuit of profit, it is necessary to put the non-profit market on the back burner. As a result, emerging markets in Asia-Pacific and even around the world are not a key focus area for Lenovo. “The market competition there is ‘the bayonet is red’, basically in the price war, so there is not the focus of our development.”

In addition, the data center business, which Was High Expectations from Lenovo, remained weak, with overall turnover down 8.7% year-on-year and losses falling to $220 million year-on-year. Profitability improved in the first three quarters, although the fourth-quarter pre-tax loss widened to 34 per cent of its full-year losses. Lenovo said demand in some areas had been affected in some areas in the wake of the outbreak, but supply chain costs, including freight, had risen.

Accelerating intelligent transformation New infrastructure benefits b-side C-side two-way

Since the beginning of this year, the national level has repeatedly referred to “new infrastructure”. Yang Yuanqing pointed out that the new infrastructure for Lenovo in the to B, to C level are beneficial.

“On the C side, home office will become a long-term new trend due to the outbreak, with households buying computers and possibly one computer per person, which will boost the size of the PC market, including tablets and monitors.” On the B side, Lenovo’s public cloud, data center, SaaS and other businesses will also benefit”, while Lenovo’s intelligent transformation ultimately has to fall to the customer level, not only to provide products but to provide services.

He also revealed that cloud and network convergence is a big trend. Lenovo has set up a cloud network fusion division to strengthen the provision of technology and products in this area, last year began to contribute revenue and profit.

“This is a new business that extends under the smart infrastructure, and it also makes Lenovo more clear, using services to drive the development and landing of intelligent solutions in the industry,” Yang said.