All Lenovo Businesses Profitable for First Time Since IBM, Motorola Buys

Lenovo’s annual net profit topped $2 billion for the first time in its history, rising 72% year over year, said CEO Yang Yuanqing on an earnings call Thursday for the year and fiscal Q4 ended March 31. “Despite the disruption to supply under production due to the COVID-19 outbreak in China, we still managed to close the year with strong results,” he said.

Revenue growth for Lenovo’s fiscal 12 months surpassed $10 billion for the second straight year, reaching $71 billion, “crossing the $70 billion milestone,” said Yang. All of Lenovo’s “main businesses” are now profitable for the first time since its 2005 acquisition of IBM’s PC assets and its $2.91 billion Motorola Mobility buy from Google in 2014, he said.

Yearly revenue in Lenovo’s core PC segment, its Intelligent Device Group, exceeded $60 billion for the first time, rising 18% year over year, said Yang. IDG’s operating profit improved by almost $1 billion, he said: “We maintained the No. 1 position in PCs as the premium segments delivered high-double-digit growth.”

Smart devices within the IDG business “continue to benefit from the hybrid work model, while consumer PC demand may slow in the short term,” said Yang. Commercial PC demand remains strong, he said. Lenovo projects that global revenue in the “smart collaboration market” in which IDG plays will exceed $80 billion by 2025, he said.

Revenue in Lenovo’s mobile business for the year “outgrew the market by 30 points,” said Yang. Operating profit in mobile doubled to more than $360 million, “a record since the Motorola acquisition,” he said. “We are expanding beyond the PC.” IDG draws more than 18% of its revenue from smart devices other than PCs, including embedded computing, IoT and “scenario-based solutions,” he said.

IDG will “lead the global race in device innovation by enhancing features” for hybrid work, gaming and entertainment, said Chief Financial Officer Wong Wai Ming. “The total available market of the global PC sector should remain at a level higher than the pre-pandemic period, thanks to the strong commercial demand from the hybrid work model.”

Lenovo’s smartphone business will focus on “portfolio expansion and differentiation to take advantage of the accelerated 5G adoption and changing competitive landscape,” said Wong. “IDG will accelerate investment to score wins in new growth engines,” including in “fast-growing accessories,” he said.

In the short term, Lenovo will face headwinds from the global slowdown in economic growth and the ongoing pandemic, said Wong. “The entire industry has been impacted by unpredictable developments,” he said.

Lenovo, like the rest of the industry, is experiencing “some weakness” in the low end of its consumer PC business, “particularly Chrome,” said IDG President Luca Rossi. “But we believe that the premium and the gaming segment will continue to do reasonably well,” he said. “For both consumer and commercial, we are also increasing the penetration rate of our services” so that they “can contribute to better profitability,” he said.

In the short term, “we certainly recognize some of the macro headwinds” from chip shortages and the COVID-19 factory lockdowns in China, plus “certain demand slowdown and then the geopolitical tension,” said Rossi. “All these factors are weighing on the demand in the short term” but more so in the consumer PC business, he said.