Lenovo'S Transformation: Q1 Net Profit Increased 119% Year On Year, SSG Became The Biggest Bright Spot

In the afternoon of August 11, Lenovo Group (HKSE: 992) (ADR: LNVGY) released its first quarter results for the fiscal year 2021 / 22 as of June 30, 2021. According to the financial report, Lenovo's turnover in the first quarter was 109.4 billion yuan, up 27% year-on-year; Net profit was 3.01 billion yuan, up 119% year on year.

It should be noted that Lenovo Group's net profit margin for this fiscal quarter was 2.8%, which reached a multi-year high, while the newly established solution services group (SSG) in this fiscal year contributed a lot.

According to the financial report, the operating profit margin of SSG in the first fiscal quarter increased by 2 percentage points to 22% year-on-year. Compared with the 7.5% operating profit margin of Lenovo's main business intelligent equipment business group (IDG), SSG's operating profit margin is considerable.

Not only in terms of profit margin, in terms of revenue and profit growth itself, SSG is also the biggest bright spot in this fiscal quarter. According to the financial report, SSG's first quarter revenue increased by 38% year-on-year, far exceeding the 28% and 14% revenue growth of IDG and ISG. The operating profit increased by 51% to 1.7 billion yuan, which also exceeded the level of the other two groups.

"SSG will not only help Lenovo improve profitability, but also be the main driving force of Lenovo's 3S strategy." At the performance communication meeting after the release of the financial report, Yang Yuanqing, chairman and CEO of Lenovo Group, fully expressed his expectation for SSG. He also pointed out that high profit margin and high growth will be the main theme of SSG in the future.

As of August 11, Lenovo Group closed at HK $8.02, up 7.51%.

SSG advances

As a newly established business group in this fiscal year, SSG's first report card is quite impressive, with revenue growth, operating profit growth and operating profit margin far exceeding the average level of the group.

"We now see the opportunities and challenges brought by the new IT architecture of" end edge cloud network intelligence ", and we also deeply understand the special requirements when interacting with customers. Therefore, Lenovo reorganized in April this year and established the SSG business group," said Ken Wong, Lenovo's senior vice president and head of SSG, "this is not a new business, Instead, the businesses that Lenovo serves in its various business departments are placed in new business groups and managed and grown centrally. "

Specifically, in this fiscal quarter, SSG's support service revenue increased by 24% year-on-year. The operation and maintenance services fully reflected the market demand for the "everything as a service" (xaas) solution. The revenue growth rate was as high as 64%, and the profit margin increased by 1.8%.

The growth rate of solution business revenue was 56%. Lenovo said that in the field of smart city and intelligent retail, Lenovo is still winning more customers, and the customer list of hybrid cloud solutions based on self-developed IP is gradually expanding. Smart city solutions, "lighthouse factory" solutions, Internet data centers, and retail solutions have a total contract value of more than US $100 million and form replicable solutions.

Facing the future, Lenovo has high hopes for SSG. Yang Yuanqing pointed out that high profit margin and high growth will be the main theme of SSG in the future.

Yang Yuanqing told the 21st century economic report that among the three businesses of SSG, the support service is mainly to support the service of traditional equipment, with considerable profits. The future growth will also increase with the sales of hardware equipment.

Meanwhile, in Yang Yuanqing's view, the growth rate of the other two businesses will be faster in the future“ "Everything as a service" has greater growth potential in operation and maintenance services. It can make customers consume instantly and turn hardware investment into capital investment. And our ultimate goal is industry intelligence. Through our knowledge of the industry, we can establish replicable solutions to promote it in the industry. It is expected that the growth of these two services will be higher than that of support services. "

Huang Jianheng said that the current SSG growth rate or profitability are higher than the group level“ Looking forward to the future, in the medium term, we are very confident in the growth of SSG. We should be able to achieve double-digit growth, which is higher than the overall growth rate of the group. At the same time, the average profitability will also maintain the double-digit level, higher than the group level. "

New growth point

In addition to SSG, Lenovo, whether IDG or ISG, also performed well this quarter.

According to the financial report, Lenovo ISG Infrastructure Solutions Group's turnover reached a new record of 11.85 billion yuan this quarter, up 14% year-on-year. The loss narrowed to the smallest in five years; ISG's China business achieved a 58% year-on-year increase in turnover, and entered a new stage of profitability.

In Yang Yuanqing's view, ISG is only one foot short of real profit in this quarter, stepping on the "last kilometer" of profitability growth.

"Lenovo has invested in ISG for many years, and has established the required product portfolio and capabilities, from x86 to storage to network, to software defined data centers and services. Therefore, growth and profitability improvement can be expected." Yang Yuanqing said, "the basic now is the last kilometer sprint profit, may be one or two quarters of things."

In addition, Lenovo's main business IDG also performed well in this fiscal quarter, with a turnover of 94.7 billion yuan, up 28% year-on-year. Operating profit reached 7.08 billion yuan, an increase of 43%. The PC business performed strongly, ranking first in the global PC share. The non personal computer business has grown rapidly, accounting for 18% of IDG's total turnover.

Among them, the non personal computer business also has considerable growth potential. The latest financial report shows that Lenovo's non PC business has accounted for 18%. The so-called non PC business includes mobile phones, tablet computers and intelligent devices. Among them, the turnover of lenovo mobile phone business increased by 64.4% year-on-year in this fiscal quarter, achieving profit growth for four consecutive quarters, and the quarterly operating profit margin reached a new high of 4.9%.

Yang Yuanqing pointed out that Lenovo IDG's non PC business growth is faster than that of PC, and its profit is better than that of PC“ Although there is still a gap between our mobile business and PC, it is no longer a burden of profit. In the future, we will further drive profitable growth. In addition, in the future, we will also increase the investment in many hardware equipment, including smart office, which is also a bigger imagination space for us in the future. "

?