Lenovo Delivers Solid Revenue Growth of $11.8 Billion in Q2 FY 2017/18

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Lenovo Group today announced results for its second fiscal quarter ended September 30, 2017. Revenue was US$11.8 billion, a 5% increase year-over-year, and an 18% increase over the first fiscal quarter. Quarter-to-quarter revenue gains were achieved in all three of its main businesses, namely data center, mobile, and PCs and smart devices, demonstrating that strong execution of Lenovo’s three-wave strategy is producing consistently improving results across its portfolio. In the second fiscal quarter, Lenovo’s pre-tax income grew by US$104 million, rebounding significantly from the previous quarter’s loss.

Summary:

• Revenue was $11.8 billion, up 5% year-over year, up 18% quarter-to-quarter
• Pre-tax income improved US$104 million quarter-to-quarter to US$35 million
• Market conditions remain challenging and Lenovo is strongly executing its 3-wave strategy
• Lenovo finalized its joint venture with Fujitsu
• Basic earnings per share of 1.26 US cents or 9.85 HK cents

Following last quarter’s launch of the most comprehensive portfolio lineup in its history, Lenovo’s Data Center Group (DCG), supported by a revamped channel structure and recorded year-over-year revenue gains outside China most notably in Europe and North America for the second quarter in a row. With new Moto phones performing well in key markets, Lenovo’s Mobile Business Group (MBG) also saw year-over-year revenue improvements, with strong shipments momentum in West Europe, North America, and Latin America, and generated solid overall revenue growth for the third consecutive quarter.

And Lenovo’s PC/Smart Devices Group (PCSD), which was again profitable in all geographies, saw a record-high 21.3% market share in its Europe/Middle East and Africa region; launched Star Wars: Jedi Challenges, a new AR product partnership with Disney, and celebrated the 25th anniversary of the iconic ThinkPad at the close of the quarter.

Additionally, Lenovo today finalized a joint venture agreement with Fujitsu, wherein the two companies will combine resources - leveraging Fujitsu’s capabilities in global sales, customer support, R&D and manufacturing, together with Lenovo’s global scale and presence.

As Lenovo continues to pursue high-growth opportunities and new partnerships, particularly in key markets, this new joint venture will strengthen Lenovo’s PC leadership worldwide, and help support continued profitable growth.

“In the last quarter we continued to make progress in transforming our business by executing our 3-wave strategy. We maintained industry leading profitability in our PC business and outgrew the market year-on-year. In our Data Center business our transformation is taking effect with a strengthened sales force, new global channel structure and programs, and new product competitiveness. Our mobile business turnaround is still in progress, and in most markets we saw strong premium to market growth,” said Yang Yuanqing, Lenovo Chairman and CEO. “The combination of strong execution and building solid foundations continue to be Lenovo’s strength. The turnaround of our business in Brazil is a good example of that. We will continue to invest in building foundation and core competence for the two new growth engines, which will bring stable and sustainable returns.”

The Company’s gross profit increased 0.3% year-over-year to US$1.6 billion, which was a 18.2% improvement quarter-to-quarter. Gross margin was 13.7% a slight quarterly increase. Operating profit increased by US$94 million quarter-to-quarter. Basic earnings per share was 1.26 US cents or 9.85 HK cents. Lenovo’s Board of Directors declared an interim dividend of 6.0 HK cents per share.

Business Group Overview

Lenovo’s PC and Smart Devices (PCSD) business group recorded an impressive year-over-year revenue increase of seven percent, up 20% quarter-to-quarter to US$8.4 billion. The average selling price for our PCSD products was up six percent year-over-year, as Lenovo continued to focus on innovation, a higher-value product portfolio, and de-emphasize lower-value offerings.

PCSD which includes PCs, tablets and smart devices, was again profitable in all geographies, maintaining its industry-leading profitability at 4.45, as customers continued to take advantage of Lenovo’s improved product mix which led to the quarter’s improved results. Lenovo’s PC shipments were 14.5 million units, flat year-over-year, compared to a slight dip for the overall market. Lenovo’s tablet shipments were up 8.95 year-over-year to 2.97 million units, in a market that fell 9.4%.

During the quarter Lenovo and Disney introduced to rave reviews Star Wars: Jedi Challenges, a new augmented reality product that allows fans to experience Star Wars in ways never before possible. Jedi Challenges features a smartphone powered Lenovo Mirage AR headset, Lightsaber controller, Tracking Beacon, and hours of Star Wars gameplay, available this holiday season. Pre-order momentum has been very encouraging. Lenovo also celebrated the 25 anniversary of its iconic ThinkPad, with over 125 million units shipped since its introduction and still going strong with models such as the ThinkPad X1 Carbon.

In our Data Center Group (DCG), which includes servers, storage, networking, software and services, we saw solid year-over-year revenue growth in both the North America, and Europe/Middle East and Africa markets. In particular, in North America we achieved a DCG revenue increase of ten percent, as investments in a revamped channel structure, a new product portfolio, sales training and new partnerships continued to drive the transformation of the data center business for the second consecutive quarter.

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