Market Overview

Lenovo Accelerates Turnaround with Back-to-Back, Double-Digit Quarterly Revenue Growth

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Company's ‘Intelligent Transformation' firmly establishes Lenovo as
global, end-to-end tech leader; strong business performance reinforces
3-wave strategy's impact on results

  • Quarterly performance continues to validate Lenovo's strategy with Q1
    revenue up 19% YOY to US$11.91 billion; second consecutive,
    double-digit quarterly growth and profitability improvement across all
    business units
  • Q1 PTI continues strong momentum, growing to US$113 million, up US$182
    million from last year's Q1, and up US$76 million sequentially
  • Q1 profit attributable to equity holders grows to US$77 million, up
    US$149 million from last year's Q1

Lenovo Group (HKSE: 0992) (PINK SHEETS: LNVGY) today announced
results for its first fiscal quarter ended June 30, 2018. For the second
straight quarter, Lenovo achieved strong double-digit growth in revenue
year-on-year. Group revenue reached US$11.91 billion, up 19%
year-on-year. The company also reported strong pre-tax income during the
quarter of US$113 million, an improvement of US$182 million
year-on-year, as profitability improved across all businesses.

In the first fiscal quarter, Lenovo's profit attributable to equity
holders grew to US$77 million, up US$149 million year-over-year. Basic
earnings per share in the first fiscal quarter was 0.65 US cents or 5.10
HK cents.

"As we persistently execute our 3-wave strategy, all our businesses made
solid improvements in both revenue and profitability. Lenovo has passed
the turning point and entered a phase of ‘acceleration' - accelerating
the execution of our transformation strategy and accelerating the rising
momentum in business performance," said Yang Yuanqing, Lenovo Chairman
and CEO. "In the future, we will maintain industry leading profitability
and premium to market growth in PCs; return the smartphone business to
health; build the data center business into a sustainable growth and
profit engine, and continue to invest in ‘Smart IoT + Cloud' and
‘Infrastructure + Cloud' to drive long term sustainable return."

Business Group Overview

With this Q1 FY2018/19 earnings report, Lenovo has turned a corner in
its transformation and enters a new phase of growth, thanks to
meaningful progress on its strategy and focus on "Intelligent
Transformation" during the quarter. Lenovo's decisive steps to
consolidate key businesses into a streamlined, integrated enterprise,
along with an emphasis on dynamic revenue generators, are quickly
yielding significant returns.

Last quarter, Lenovo announced the creation of its new Intelligent
Devices Group
(IDG), combining its Personal Computer and Smart
Devices Group
with its Mobile Business Group. Rethinking the
ways these units and their devices interact and impact customers led to
IDG's double-digit, quarterly revenue growth year-over-year, and PC unit
market share gains in every geography. At the same time, Lenovo is not
only driving, but capitalizing on, global growth trends in both software
and services.

Lenovo's key business units each tallied significant growth and market
strength during the quarter:

The Intelligent Devices Group is energized by the synergy of
shared platforms and resources, delivered a strong revenue growth of 14%
year-on-year, amounting to US$9.95 billion.

  • During the quarter, the PC and Smart Devices (PCSD) business
    under IDG delivered strong double digit revenue growth for the 2nd
    consecutive quarter, growing 19% year to year while maintaining
    industry leading profitability of 5%. Lenovo is the fastest growing
    player (by units) among the Top five global PC makers and returned to
    the global PC number one leading position according to Gartner.
    Outside of the core PC business Lenovo continues to invest in growing
    its portfolio of smart devices including smart home; smart office and
    AR/VR.
  • The Mobile Business Group (MBG) under IDG improved
    significantly during the quarter thanks to three key measures.
    Firstly, the group reduced operating expenses by more than US$100
    million; secondly introduced a refined product portfolio and thirdly
    focused on selected markets where the company can compete profitably.
    With the refined product portfolio in place, the company focused on
    mainstream segments and successfully launched Moto G and E during the
    quarter. Revenue and volume continued to strengthen in Latin America
    in particular, outgrowing the market in both for seven quarters. In
    North America, Lenovo's mobile volume nearly doubled year-on-year
    thanks to the right scaling strategy to expand to all four major
    carriers.

Building on a strong Q4, Lenovo's Data Center Group (DCG) further
accelerated its momentum, reporting another record revenue quarter of
US$1.6 billion, the third consecutive quarter of double-digit revenue
growth, and up 67.8% compared to the same quarter a year earlier. The
record high revenue was driven by growth in Software Defined
Infrastructure, High Performance Computing & A.I businesses and
Hyperscale. Lenovo's software-defined products, led by the new
ThinkAgile brand, once again drove more than triple-digit growth
year-on-year, and along with the announcement of the new ThinkAgile CP
for next-generation composable cloud infrastructure. The Hyperscale
business also grew by triple-digits year-on-year while improving gross
profit and diversifying the customer base. Traditional infrastructure
continued on a positive trend and flash-based storage solutions showed
strong momentum at 42% YOY growth. This quarter also saw Lenovo
surpassing HPE to become the #1 supercomputer provider on the TOP500
supercomputing list for the first time, with 117 systems.

With an eye to the future, Lenovo's Capital and Incubator Group
(LCIG) continues to invest and build the Group's next-generation IT
capabilities in AI, IoT, Big Data and VR/AR across various sectors such
as manufacturing, healthcare and transportation.

About Lenovo

Lenovo (HKSE: 0992) (PINK SHEETS: LNVGY) is a US$45 billion Fortune
Global 500 company and a global technology leader in driving Intelligent
Transformation through smart devices and infrastructure that create the
best user experience. Lenovo manufactures one of the world's widest
portfolio of connected products, including smartphones (Motorola),
tablets, PCs (ThinkPad, Yoga, Lenovo Legion) and workstations as well as
AR/VR devices and smart home/office solutions. Lenovo's data center
solutions (ThinkSystem, ThinkAgile) are creating the capacity and
computing power for the connections that are changing business and
society. Lenovo works to inspire the difference in everyone and build a
smarter future where everyone thrives. Follow us on LinkedInFacebookTwitterInstagramWeibo,
read about the latest news via our Storyhub,
or visit our website at http://www.lenovo.com/.

       
LENOVO GROUP
 
FINANCIAL SUMMARY

For the fiscal quarter ended June 30, 2018

(In US$ millions, except per share data)

               
 



Q1 18/19

 

Q1 17/18

 

Y/Y CHG
Revenue 11,913     10,012     19 %
Gross profit 1,632     1,365     20 %
Gross profit margin 13.7 %   13.6 %   0.1 pts
Operating expenses (1,452 )   (1,371 )   6 %
Expenses-to-revenue ratio 12.2 %   13.7 %   (1.5) pts
Operating profit/(loss) 180     (6 )   N/A  
Other non-operating expenses (67 )   (63 )   7 %
Pre-tax income/(loss) 113     (69 )   N/A  
Taxation (28 )   15     N/A  
Profit/(loss) for the period 85     (54 )   N/A  
Non-controlling interests (8 )   (18 )   (55 )%
Profit/(loss) attributable to equity holders 77     (72 )   N/A  
EPS (US cents)

 

Basic 0.65 (0.66 ) N/A
Diluted     0.65     (0.66 )  

N/A

 

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