[August 17, 2017] |
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Lenovo Continues to Gain Momentum in First Quarter FY 2017/18
Behind the strength of its 3-wave strategy, Lenovo's (News - Alert) business
transformation continued to gain traction during the first quarter,
delivering solid profitability in its core PC and smart devices
business, and revenue and profit improvements in targeted growth areas,
including the data center and mobile businesses.
Fueled by new investments in people and products, Lenovo's Data Center
Group (DCG) introduced the most comprehensive product lineup in its
history, with the new ThinkSystem and ThinkAgile portfolio, and
continued to build out its end-to-end sales organization. Similarly,
Lenovo's Mobile Business Group launched significant new products led by
the Moto Z2 Force, available now on all major U.S. carriers, and ramped
up its branding efforts worldwide.
"In the first quarter this fiscal year, we had stable performance as we
executed our 3-wave strategy with commitment. We maintained our industry
leading profitability in PC, built the foundation in mobile and data
center, and further invested in 'Device + Cloud' and 'Infrastructure +
Cloud' powered by Artificial Intelligence," said Yang Yuanqing, Lenovo
Chairman and CEO. "We have made solid progress on every front of our
strategy. Particularly MBG (News - Alert) continued to improve, and is on track to
breakeven by second half of this fiscal year. DCG gained good momentum
as well. As the two new growth engines gain speed, we believe the
sustainable results will soon follow."
For its first fiscal quarter ended June 30, 2017, Lenovo's quarterly
revenue was US$10 billion, flat year-over-year, but an increase
quarter-to-quarter of 4.5 percent. First quarter pre-tax loss was US$69
million, with a net loss of US$72 million.
Operating profit was up US$110 million quarter-to-quarter. The Company's
gross profit for the first fiscal quarter decreased 11 percent
year-over-year to US$1.4 billion, yet remained flat quarter-to-quarter,
with gross margin at 13.6 percent. Basic loss per share for the quarter
was 0.66 US cents, or 5.15 HK cents.
Lenovo introduced its 3-wave strategy, namely balancing PCSD growth and
profit, accelerating our DCG and MBG growth engines, and investing in
non-hardware areas, to both meet today's market dynamics while
positioning the Company for longer-term profitable growth. Lenovo is
investing in core technology and next-generation platforms that will
help customers move towards a smart internet era where all smart devices
will be connected to the cloud and powered by Artificial Intelligence
(AI).
While Lenovo is focused on new technologies with our 'Device + Cloud
strategy', the Lenovo Capital and Investment Group (LCIG), the Company's
provider of IoT solutions, reached a first quarter milestone of over
three million users on its Global API platform.
In addition, as Lenovo continued to expand its ecosystem, LenovoID (a
unique identification of directly reachable users across Lenovo devices)
reached 225 million users in the first quarter. The progress Lenovo is
making in its non-hardware businesses, such as software, services, and
big data, is already gaining significant traction and winning new
customers.
At its third annual Tech World event, held last month in Shanghai,
Lenovo demonstrated several new consumer and commercial products, such
as SmartVest wearable technology and daystAR glasses to help with
industrial maintenance. Lenovo also announced a US$1.2 billion
investment in AI research and development, and is pursuing smart
solutions and partnerships in the manufacturing, healthcare and
transportation sectors.
Business Group Overview
In our PC and Smart Devices (PCSD) business group, which
includes PCs, tablets and smart devices, the average selling price of
our PC + tablet products improved 7.8 percent year-over-year, meaning
that customers were gravitating to Lenovo's more innovative, higher-end
products. Despite industry-wide component shortages and subsequent
cost-hike pressures, Lenovo maintained its industry-leading
profitability.
PCSD revenue was US$7 billion, with flat growth year-over-year. However,
quarter-to-quarter, PCSD revenue grew 4.8 percent. Pre-tax income was
US$291 million and pre-tax income margin fell to 4.2 percent, mainly due
to the industry-wide increased component costs.
Lenovo's PC business in the first quarter recorded share gains in Asia
Pacific, Europe and Latin America, and worldwide shipped 12.4 million
units. In China, where Lenovo still enjoys almost 36 percent market
share, the Company appointed a strong new consumer-focused leader to run
its PCSD business. In North America as well, where the PCSD business has
been flat, new leadership is now in place to help boost sales.
Lenovo's Mobile Business Group (MBG), which includes Moto and
Lenovo-branded smartphones, saw encouraging revenue growth outside of
China to US$1.7 billion, 7.6 percent increase year-over-year. As an
example of the Company's continuing momentum in this business, Lenovo
achieved its publically-stated goal of selling three million Moto Z
smartphones within the first 12 months.
For the second consecutive quarter MBG has continued to grow revenue and
improve profitability, with revenue up two percent year-over-year to
US$1.7 billion and a pre-tax income margin improvement of 2.2 pts.
during the same period.
With 11 million smartphones shipped in the first quarter, Lenovo grew
12.3 percent year-over-year outside of China, driven by significant
gains in both Western Europe and Latin America, up 137 percent and 56
percent respectively year-over-year.
Lenovo's Data Center Group (DCG), which includes servers,
storage, software and services, continued to focus on the transformative
actions that will help drive long-term DCG competitiveness, such as
strengthening our sales teams, investing in the channel, revamping our
product lines, building our brand strategy, and adding new partnerships.
These actions helped to stabilize the business outside of China in the
first quarter with quarter-to-quarter revenue growth of 14 percent.
Particularly encouraging was the year-over-year revenue growth in
Western Europe and North America of 11 percent and eight percent
respectively, including quarter-over-quarter revenue growth of 22 and 19
percent respectively. In both geographies, new leadership, a
restructured sales organization, and new products are beginning to pay
the expected dividends, and we expect that trend to accelerate into
other geographies, including China, as we execute our DCG transformation
worldwide.
Another positive sign in DCG was a pre-tax income margin improvement of
1.7 pts. quarter-to-quarter. In addition to these financial indicators,
DCG set 42 world-record benchmarks on the new Intel (News - Alert) platform, more than
any of our competitors and Lenovo continued to be the world's
fastest-growing super-computing provider, number #1 in China and under
recent new leadership there, secured a major win with Peking University.
Lenovo (HKSE: 0992) (PINK SHEETS: LNVGY) is a US$43 billion global
Fortune 500 company and a leader in providing innovative consumer,
commercial, and enterprise technology. Our portfolio of high-quality,
secure products and services covers PCs (including the legendary Think
and multimode YOGA brands), workstations, servers, storage, smart TVs
and a family of mobile products like smartphones (including the Motorola (News - Alert)
brand), tablets and apps. Join us on LinkedIn,
follow us on Facebook
or Twitter (News - Alert) (@Lenovo)
or visit us at www.lenovo.com.
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LENOVO GROUP
FINANCIAL SUMMARY
For the fiscal quarter ended June 30, 2017
(in US$ millions, except per share data)
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Q1 17/18
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Q1 16/17
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Y/Y CHG
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Revenue
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10,012
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10,056
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-
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Gross profit
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1,365
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1,534
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-11
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%
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Gross profit margin
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13.6
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%
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15.3
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%
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-1.7pts
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Operating expenses
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(1,371
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)
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(1,289
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)
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6
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%
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Expenses-to-revenue ratio
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13.7
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%
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12.8
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%
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0.9pts
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Operating (loss)/profit
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(6
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)
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245
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N/A
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Other non-operating expenses
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(63
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)
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(39
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)
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60
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%
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Pre-tax (loss)/income
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(69
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)
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206
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N/A
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Taxation
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15
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(38
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N/A
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(Loss)/profit for the period
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(54
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)
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168
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N/A
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Non-controlling interests
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(18
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)
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5
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N/A
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(Loss)/profit attributable to equity holders
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(72
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)
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173
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N/A
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EPS (US cents)
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Basic
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(0.66
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1.57
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N/A
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Diluted
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(0.66
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1.56
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N/A
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View source version on businesswire.com: http://www.businesswire.com/news/home/20170817006086/en/
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