Lenovo Group Ltd Ord

Good morning, good afternoon, and good evening. Welcome everyone to Lenovo's earnings media webcast. This is Jenny Lai, Vice President of Investor Relations at Lenovo. By now, you should have received a copy of our earnings release and earnings presentation. Before we start, let me introduce our management during the call today, Mr. Yang Yuanqing, Lenovo's Chairman and CEO, Mr. Gianfranco Lenci, Corporate President and COO, Mr. Wang Wai-Ming, Group CFO, Mr. Kurt Skaugen, President of Infrastructure Solutions Group, and Mr. Sergio Buniak, President of Latin America and Mobile Business Group, and President of Motorola. We will begin with Ernie's presentations, and shortly after that, we will open the call for questions. Now, let me turn it over to Yanqing Yuanqing, please.

Hello, everyone. Thank you for joining us. A year ago, as we faced great uncertainty, I told you we would continue to be resilient and strive for new heights. Today, I am pleased to say that we have indeed seen phenomenal growth in every part of our business. and have achieved both a record fourth quarter and a new milestone for our fiscal year. Starting with our historical fourth quarter results, growth revenue reached $15.6 billion, growing 48% year-on-year, fasted growth in almost a decade. Pre-tax income sold to US$380 million. Net income reached US$260 million, both around five to six times as much as last year. All our core businesses achieved high double digital growth in revenue at the same time for the first time in six years, demonstrating our progress in diversification of our businesses. For Intelligent Device Group, PC and smart devices had its best fourth quarter ever, with 12.4 billion US dollars, up 46% year-on-year. Even more, profitability hit an all-time high at 6.7%. All of our geographies realized high double-digit growth in revenue. Particularly in China, we grew 80% year-on-year. Our PC volume outgrew the market to further strengthen our leading position. Tablet volume also had a breakthrough growth of 157% year-on-year, around three times as fast as the market. Our consistent strategy to focus on and invest in high-growth and premier segments keeps delivering strong results, as gaming PCs, thin and light, Chromebooks and visual volumes each grow at more than double-digit rates and outgrow the market. Our mobile growth continues its momentum of profitable growth with terrific results. Revenue achieved hyper-growth, up 86% year-on-year. Pre-tax income reached 21 million US dollars, record high since the Motorola acquisition. With expanded carrier relationships and a strong product portfolio, particularly 5G products, our volume grew at a triple-digit rate in North America. Europe, and Asia Pacific. Latin America remains a stronghold with market share reaching a new record of nearly 21%. Our data center group had a tremendous quarter. Revenue grew at a strong 32% year-on-year, the fifth straight quarter of premier-to-market growth. Profitability improved 4.4 points year-on-year, the biggest increase in over two years. Both our cloud service provider segment and enterprise SMB segment achieved year-on-year growth. In particular, the CSP business grew 73% year-on-year. Our storage software-defined infrastructure, and software business all had record fourth-quarter revenue. Particularly, storage revenue achieved a high growth of 73% year-on-year. Our service-led transformation accelerated, fueled by ongoing strong growth in software and services, with revenue up 44% year-on-year. Managed service revenue, including DAS and TrueScale, nearly doubled, and solution revenue grew 65% year-on-year. This historical quarter ensured we reached a significant fiscal year milestone. For the first time, group revenue surged to over $60 billion adding more than US$10 billion in just one year. Profit grew even faster to reach new records, with a pre-tax income of almost US$1.8 billion and a net income of almost US$1.2 billion. Both were up more than 70% year-on-year. Our intelligent device group and data center group achieved revenue growth of 20% and 15%, respectively, as both reached historical highs. Our software and service revenue grew twice as fast as the overall group revenue, at almost 40% year-on-year, to a record US$4.9 billion, which now makes up 8% of overall company revenue. This demonstrates our solid progress in service-led transformation. These results come from excellent performance across all our businesses, delivering to the new needs in a new normal, leveraging our clear strategy, innovative product, operational excellence, and our global local model. While we completed a true historical and record year, we are not stopping here. Looking forward, we will further drive our service-led transformation to capture growth opportunities created by both the new normal and the new technologies. We see three important industry trends now and post-pandemic. The first trend is consumption upgrade as people spend more time on their devices, leading them to buy more devices and upgrade more often as we work, learn, entertain from home. At the same time, the adoption of commercial 5G is driving the shift from computer to computing making more traditional devices intelligent. The second trend is the infrastructure upgrade. The ever-growing use of online applications has not only increased the demand but also raised the bar for ICT infrastructure. Infrastructure not only refers to traditional data center products like server, storage, networking, but also edge or cloud total solutions for computing power from design and deployment to operation and maintenance. The third trend is the application upgrade from digitalization to intelligent transformation with AR at its core. Industry survey by a leading consulting company shows the digitalization and intelligent transformation of enterprises have accelerated by three to four years to enable more productive and efficient processes under remote working conditions. The massive amounts of data from Bin's digitalization and various smart devices are stored, organized, and analyzed with computing power from Edge and Cloud. Then, by combining the data and computing power with algorithms based on industry know-how, we built intelligent solutions to transform industries. At our last earnings call in February, I shared that Lenovo was making changes to align our organizational structure to our 3S strategy. And the new structure, Intelligent Device Group, or IDG, Infrastructure Solutions Group, or ISG, and the Solutions and Services Group, or SSG, will each focus on the unique opportunities created by these three upgrade trends to achieve sustainable long-term growth. In the year ahead, IDG will continue to drive leadership in PC and tablet through innovation and operational excellence and further penetrate in new areas such as embedded computing, smart office, smart edge, and AR VR. And MOBA will continue profitable growth as we take advantage of increased market demand and changing competitive landscape, and maintain strong momentum in North America, Europe, and Asia Pacific, and keep our stronghold in Latin America. ISG will continue premier to market growth. We will further expand our cloud service provider customer base and grow our channel business through our newly integrated one Lenovo sales organization structure. We will drive storage, software-defined infrastructure, software and services to further improve profitability and ramp up true-scale infrastructure as a service. Our new business group, SSG, will strengthen our attached service portfolio and increase attached rates, expand managed services, and develop repeatable solutions in key vertical industries. Meanwhile, we have reduced greenhouse gas emissions by 92% over the past decade, and set new science-based targets to continue making progress in sustainability. In fact, we were being recognized by the annual Corporate Nights Index as one of the world's 100 most sustainable companies. The past year certainly presented many challenges that reminded us of the importance of sustainability adaptability and resilience. But the past year also created opportunities for Lenovo to empower our customers and the society to do more than just survive in the new normal, but to thrive and achieve even greater success. We will continue to turn challenges into opportunities and build even smarter future in the year ahead. Thank you. Now, let me turn it over to our CFO, Wei Ming. Wei Ming, please.

Thank you, Yuanqing. I will now take you through Lenovo Financial and operational performance in Q4 and fiscal year 2021. We had a strong finish to a record fiscal year. For Q4, we delivered $15.6 billion in revenue with a 48% year-on-year growth which is the fastest growth in almost a decade, with net profit increasing by more than five times. Not only did all our three business groups achieve high double-digit sales growth for the first time since Moto and 886 acquisitions, the group's high-margin software and services booking revenue also grew at its highest rate ever since our service-led transformation started. Our core competences of operational excellence, time to market, and innovation are setting us apart in the post-COVID world and accelerating our transformation towards end-to-end solutions. Our e-to-hour ratio was reduced by 1.9 percentage point year-on-year to 14.1 percent as a result of discipline control and economies of scale. Profit attributable to equity holders was $260 million, and the basic earnings per share came in at 2.19 U.S. cents. Q4 marked another exceptional quarter for our PCSD business, which sustained its position as the largest global PC brand by market share. All regions saw year-on-year revenue increases in a range of 29% to 80%, leading to a blended 46% growth and record revenue of $12.4 billion for the group. PCSD delivered a record profit of $831 million in the fourth quarter, with a 58% year-on-year growth. Its pre-tax margin expanded 50 basis points to an all-time high of 6.7%. In addition to the high growth segments, which have been our strong catalyst in past quarters, e-commerce and services upselling emerged as a new growth engine to propel hyper-revenue growth of 42% to 58%, as well as higher profitability. Enterprise demand recovery was also encouraging, as evidenced by double-digit growth in shipments. Our MBG business levered a hyper-sales growth of 86% year-on-year, while improving its pre-tax profit by $80 million year-on-year to a record $21 million since acquisition. We achieved premium-to-market growth across our major geographies and outperforming the market. We have grown our MBG business by strengthening its product portfolio via a 5G for all strategy, and broadening its carrier ranging across key focus markets. Data Center Group concluded the quarter with a 32% year-on-year growth to 1.6 billion sales, thanks to the robust hyperscale demand and new customer acquisitions. Revenue of enterprise SMB business reached three-year high despite continuous soft demand from enterprise. Their higher margin boded well to the sales mix, along with more profitable cloud service provider projects. DCG pre-tax improved by $45 million year-on-year, the largest expansion in the last 10 quarters. It has been three years since we started our software and services-led transformation. The high-margin software and services business continues to see accelerated growth in invoice revenue to its highest ever rate of 44%, contributing 7.9% of group sales. deferred revenue increased 32% year-on-year, which further secured our future growth by building a sticky business model. Many services enjoyed 91% growth in invoice revenue, supported by upselling opportunities leveraging the growing popularity of our as-a-service solution. Our group generated an additional $10 billion revenue for the full year, capping off a record year with the highest rate in almost a decade. Our revenue grew 20% to $60.7 billion. Profit attributable to equity holders increased 77% to $1.2 billion, and basic earnings per share came in at $9.54 US cents. PCSD, DCG, and software and services businesses each score all-time annual revenue or record profit. Challenges from the pandemic impacted MBG first-half performance, but its swift recovery in second half led to its high half-year profit since acquisition. Our E-to-R ratio was reduced by 110 business points year-on-year to 12.5% on disciplined expense control. Pre-tax income was $1.8 billion, up 74% year-on-year, while pre-tax margin reached 2.9%, its highest level in the last 13 years. All of our business reported margin expansion will have repositioned Lenovo to take advantage of the high demand for computing power, data, and end-to-end solutions. The consistent and strong earnings trajectory across our business units had underscored our company achievement after the intelligent transformation. Today, the Board declared a final dividend of 24 Hong Kong cents per share. Taking into consideration of the interim dividend of 6.6 Hong Kong cents per share, total dividend will be 30.6 Hong Kong cents per share, a 10% increase compared to dividend paid in FY19-20. For the fiscal year, our operating cash flow improved by 1.4 billion to 3.7 billion thanks to strong earnings and working capital management. To optimise our capital structure, we reduced our net debt and repurchased perpetual securities amounting to a total of 1.4 billion. In the fiscal year, we obtained our first investment credit rating with a subsequent upgrade. All of these actions together save us 13% in financing costs and perpetual securities dividend. We expect more cost saving in the next fiscal year. PCSD business achieved many performance records as industry demand continued to exceed expectations throughout the year. Its revenue grew 22% to an all-time high of $48.5 billion, while pre-tax profit advanced 34% to $3.1 billion. Since the outbreak of the pandemic, there have been many unexpected lifestyle changes, including the one-PC for-person trend, rising usage intensity, and e-commerce revolution. The group has leveraged our operational excellence, product innovation, and quick time-to-market capability to address these new demand tailwinds. We maintained a solid worldwide number one position for the third consecutive year and became number one in EMEA in the second half of the year for the first time in our history. We made the strategic decision to drive high-growth segments and expect segment profitability. We also deploy our capital and resources under PCSD to grow the high-value active services business. As a result, the business further extended its industry-leading profitability to set a new milestone at 6.5%. In the earlier part of the fiscal year, MBG operation was negatively impacted on both supply and demand side by the pandemic. Nevertheless, our commitment to strategic action has helped us stage a swift recovery in the second half of the year. Thanks to the strong momentum across key markets, the business delivered a 39% revenue growth in the second half and a 9% for the full year. Similarly, the pre-tax performance reversed from a loss in the first half to a record pre-tax profit of $31 million in the second half, up $87 million year-on-year. We achieved a record market share in Latin America and North America and nearly doubled our revenue base in Europe. Our strategy remains clear, driving product portfolio enhancement to include more premium models, a 5G for all strategy to make 5G connectivity more accessible and broaden our carrier ranging to drive regional expansion. Looking forward, MBG will target to groom NA to be a significant contributor and embark its Europe business at a faster pace while maintaining LA at a strong whole market. Data Center Group delivered a record high annual revenue at $6.3 billion, up 15% year-on-year. CSP is the largest growth contributor with a strong double-digit increase. Positive catalysts for CSP included public cloud demand and customer and product expansion. We are winning projects knownly utilizing our in-house design and manufacturing, but also high-end design, storage, and HPC to expand the number of growth engines. ESMB revenue was at its highest in the last three years, outperforming the overall enterprise market, even though market demand was sluggish. Storage, SDI, software, and HPC performed well, posting strong double-digit growth and record revenue. Our DCG is now ranked global number two in entries-level storage, advanced from number five last year and extended its number one lead in the HPC segment. On pre-tax, DCG saw improved profitability for the fourth consecutive year by $57 million year-on-year and narrow pre-tax loss to $169 million, driven by board-based improvement across CSB and ESMB. Since this group started its surface-led transformation, The software and services business has made tremendous progress. Its invoice revenue grew accelerated and reached 39% for the year to $4.9 billion, which is nearly twice as high as the group revenue growth rate, now contributing 8% of the group sales. The business has broadened its scope and scale and has won many landmark deals. Many services enjoy a 78% growth thanks to mega as-a-service deals signed around the world with leading technology, retail, and financial institutions, as well as global spot events. Complex solutions posted a strong 58% growth from all verticals. Attached services continued to grow at a fast pace of 28%. Deferred revenue increased 32% year-on-year to $2.2 billion, pointing to a fast-growing recurring revenue base as we make further inroads to build a sticky business model. With regional economy on pace to expand and signs of a rebound in enterprise IT spending, the group will continue to ride on recovery-led opportunities and deliver sustainable growth. With our new organizational structure, we plan to supercharge the growth opportunity arising from our surface-led transformation efforts and capitalize on long-term upgrade cycles. With the investment grade rating, we will further improve our debt capital structure by leveraging current low-interest environment. Our planned CDR listing will also further our market-leading position in China and provide capital for us to invest in technology, hence further support our long-term growth. By business growth, our PCSD business will continue to address opportunities emerging from new smart devices and extend its leading position in both market share and profitability. It will leverage its innovation solution capabilities and further improve its world-class supply chain to meet strong segment demand, partly driven by commercial recovery. For mobile business, the Group will focus on sustaining its strong momentum in North America and Europe while maintaining its leadership in Latin America. MBGU will further push product innovation and accelerated 5G smartphone launches to score wins in more markets and stay on the profitable growth journey. our Infrastructure Solutions Group, or DCG business, will aim to grow the channel business with a one Lenovo platform while delivering premium-to-market growth and profitability. In the ESMB segment, the group will grow high-margin services tax rates, expand high-growth segments, and position its hybrid cloud solution to drive a prudent shift in computing with edge-to-cloud solutions. For the CSP business, the group will continue to expand customer base and gain wallet share among existing accounts. To achieve that, the business will leverage its unique strength, including in-house custom design and worldwide manufacturing capability, and expand its product portfolio with advanced configuration and storage platform. The newly established SSG will bring our service-led transformation to a new level, We will continuously focus on expanding our capabilities in three key priority segments with clear multi-year growth targets. We will raise the attach rate for attach services, drive hybrid growth in many services and as a service by enhancing delivery, differentiation, and platform, and develop end-to-end solutions and our Lenovo IP to support our growth in solutions. Thank you. And now we can take your questions.

Thank you. Now we will open the line for questions, and this session will be in English only. Please be reminded to limit yourself to two questions at a time, and please also state your name and company before asking questions. Operator, we will now turn it over to you. Please give us your instructions.

Thank you. To answer questions on the phone, you may press star 1 and wait for a name to be announced. To cancel your request, please press the pound or hash key. Once again, to ask questions, please press star one on your telephone. There will be a short silence while questions are being collected. Thank you for your patience. First question comes from the line of Le Ping Huang from Huatai. Please go ahead.

Okay. Thank you for taking my question. Congratulations for the very good results of what went with me. So I have two questions. One question is about the the impact of the chipset shortage. And we see it's recorded very good results last quarter, but looking forward, so do you see any impact from shortage? This is number one. And the second one is that we see a reopening of the major countries. And so in the major countries, do you see the PC demand remain still strong, or do you see the market, especially the Do you think the consumer market has any chance? Thank you.

So can I invite Gianfranco to answer the question?

Can you hear me? Thank you, Gianfranco. Yes. Okay, good. No, okay. Impact of the... First of all, let me say, We are facing this shortage since Q4 last year, so it is not new. We have seen some deterioration, frankly speaking, in Q1 in terms of shortage, and now it's getting relatively stable. And I would say moving forward, I don't expect further deterioration, but for sure we will continue to face the shortage for the next 12, 18 months. It's mainly coming not only from PC demand, but also from other products, automotive and so on. We have been able, as you see the results, to manage the shortage quite well in Q4 and last year in Q1. And we will continue to manage, as we did in the past, also in the future. There is another important thing that probably, because when we talk about shortage, people just think about IC, and they think that all the ICs are the same or similar, right? Some of the shortage comes from the demand from cars, the car industry. But usually the IC that they utilize is based on very, very old fab technology. 28 or even higher. We use still chips that are coming and IC that are coming from a little bit more recent technology. So the two things are not really overlapping too much. And While it's very difficult to invest in very old technology, it's different from our side. But let's say in terms of impact, looking forward, as I said, we will be probably in a similar situation like Q1 or Q4, but not a deterioration. Talking about PC demand, I think it's a very good question because it is true. that a lot of countries in the world, they are finally opening up, and it looks like we are slowly getting out of the tunnel. But when I see the demand in terms of PC, this quarter, even for the next following quarters, it's still very, very strong. And I think the real difference... It's not because people... It's because people working from home, learning from home, playing from home, everything from home. But I think the major difference is people, they start to realize, one, they need one PC per person and not one or two PC per house. Second, there are a few very interesting surveys in terms of what the people think about PC after the pandemic, let's say. Secondly, the experience on PC, a very different experience than what experience on phone, on certain applications. So PC is becoming much more key for a lot of people, not only because everything from home, but also for gaming or entertainment or other things, because they realize they can do and they can get a much better experience than what we get on a phone or a tablet. The last thing is that when you look at the store base, we have a very old store base, four, five, six years, and it's a huge number. And all these people, they are or they will be in the position to refresh their own PCs, so we will see an acceleration of the refresh rate. of the entire store base. But again, because if you want to get good experience, if you want to enjoy certain experience, you need a brand new PC, not a four or five years old PC. I'm quite optimistic. We are quite optimistic that what we see in terms of growth, but also if you look at the market research data and so on, it will continue for several quarters. This year for sure and next year also.

Thank you, Gianfranco. So given this is a very important question, so I just want to echo what Gianfranco just said. So PC and the tablet demand are still very strong. So not only we see a big volume of the backlog, so in our order pool, But also, we are, so you can see the number, particularly China number. China has already reopened for a couple of quarters. But their demand is still very strong, even stronger than other countries. So that can prove what Jiang Fangbo just said. So this pandemic just push the people's behavior change. So they try to own PC and also people are spending more time on their devices. And they are buying more devices and upgrading, upgrading more often. So their work learn and play from home. So we believe that the demand will continue to be strong. for a longer time, not just because of the pandemic. And also, regarding of the shortage, so I think this shortage is mainly driven by the stronger demand than expected. But for sure, not just the PC and the tablet, but also electronic car as well. So it's caused by additional growth. So that means the market will continue to grow, and the Lenovo will also grow. It's just how much growth depends on how much supply we can get. But in that aspect, we are confident that Lenovo can perform better than the market and our key competitors. First, we have a very, very strong global supply chain, which was just awarded the Gartner's top 25 supply chain. Also, Lenovo has a very unique business model. Most of our competitors don't do manufacturing by themselves. They're just outside the third parties. But Lenovo has a hybrid model. We do 50% outsourcing and 50% in-house manufacturing. So this unique business model gives us the advantage to approach upstream vendors and build a better relationship with them. So in a shortage like this, we can leverage this relationship to get a better supply situation. So I'm confident that we will continue to outperform the market and Keep competitors. Enjoy sustainable growth. Thank you. Next question.

Thank you. Thank you. Next questions will come from the line of Jerry Su of Credit Suisse. Please ask your question.

Thank you. Thanks for taking my question. And congratulations on a good result. My first question is still regarding PPP. I think education or computing has been quite strong for the past couple of quarters. Can you, you know, give us some idea what do you think about the education penetration rate, also the growth outlook into the later half of the year? I think there are some concerns that, you know, this could slow down due to some area. It's reaching some higher penetration. So I would love to get your thoughts on that. And then, certainly, on the data center side, on TCG, I think in last quarter, it seems like that the losses is at about $30 million, which, please call me if I'm wrong, that this probably means that it's already at a level excluding the depreciation and also the urbanization. So how should we think about the future probability of DCG? Thank you.

Okay, so Giancangolo, could you continue to answer the first question regarding the education market?

Education and corporate, right? But I think we need to make a distinction between corporate and education, in the sense that when we look at education, we have seen, due to the pandemic, a huge demand on education, mainly Chromebooks. Manifolding Chromebook. And we continue to see a strong demand on education. And also. Mainly coming from Chromebook. And if you look at the. Yeah. Hello.

Hello. Yeah. So we. Now it's fine. Now it's fine. We just couldn't.

It's good. No. No, we continue to see strong demand from education, but also moving forward, not only in the last quarter or Q4. There are some seasonal effects, because education is a kind of seasonal business, but But, as I said, also if you look, it's mainly Chromebook, but not only Chromebook. And when you look at the projection in terms of Chromebook growth, we are still talking about a big double-digit number, in the sense that it's starting with three or four. So, for this year, and I think also for the following year. Corporate, I think, is a very different picture, in the sense that we have seen a slowdown during the pandemic, with, of course, corporate reducing investment and trying to control costs. Starting from Q4, we have seen a rebound. Last quarter was already quite strong, and we expect that as soon as people come back to work, work in the office, I mean, not from home, this demand will accelerate. Because what we see in corporate, it's a big transition from, I'm talking about corporate, not government, big transition from desktop to notebook. Simply because people, they want to be ready or equipped for any issue that can happen in the future. So we see a replacement of the desktop install base with notebook. The other important thing when you look at Europe, but also U.S. or some other countries, there are huge programs on digitalization, right? In Europe, it's one of the four or five key elements of the foundation from the European community for the different countries. They need to invest on one clear guideline. They need to invest on digitalization. That means that, again, this means that you need to upgrade or to update or to look at the new install base in terms of not only PC, in terms of PC for sure, but also in terms of infrastructure. server and storage, the entire infrastructure. And this is, when you look at the number in terms of amount of dollars, it's really, really huge. So corporate, in my opinion, we will see a speed up of the growth during the next three, four, five quarters without any doubt. Thank you.

Okay. Thank you. Thank you, John Hancock. So, Kirk, would you like to answer the second question, please?

Yes, thank you for the question. Our strategy within the infrastructure solutions group is to deliver hypergrowth and continued profitability improvements both year on year and quarter on quarter. I think the nice thing about the data center business is the design wins. You get good long-term visibility. into the key profit drivers that will continue to improve DCG's profitability, ISG's profitability in the future. And that is that we're improving not just in server, but in storage. Our in-house design and manufacturing is giving us design wins at the motherboard level, and we're expanding our services business and the attach of our premium services at a double-digit increase to our servers and storage versus last year. And lastly, we see the enterprise and small business market and the on-prem as-a-service through our TrueScale now growing significantly with our as-a-service business growing triple digits year on year. So all these things are sticky and long-term profitability trends that we see. In-house manufacturing and design with motherboards, expanding our storage, you saw us grow 73%, which is a huge premium to market. And our commitment remains to continue this profitability growth each and every quarter. Thank you.

Thank you. Next question. Thank you. Next question comes from the line of Albert Hong of J.V. Morgan. Please go ahead.

Hi, Major Dean. Thank you for taking my question. Congrats on the strong results. My first question is, could you share more colors from the channel inventory level? And what's our pricing strategy for PC under type supply demand? And my second question is, the mobile profit was quite amazing last quarter. And we have seen similar margin bids from Xiaomi. And it seems that pricing dynamics were quite strong last quarter. But I'm wondering what will be the future profitability trend if the supply demand become more balanced. Thank you.

Okay. So, Gianfranco, could you please answer the first question regarding channel inventory and pricing? So, Gianfranco, please prepare for the second question.

But thank you for the question. It's a very good question because I think channel inventory has probably never been so low in the history. We are running today in certain countries with two or three weeks of channel inventory, which is really too low. In the sense, we were used to run with something between six to eight, and now we have 50% of what we need. And, frankly speaking, we will be in this situation at least for the next two or three quarters, because when I looked at our back order, as Yanqing said... we are not able to reduce our back order quarter by quarter. It's still there with the same amount, more or less, with the same amount of units. So China inventory is worrying them, but because it's too low. And this is, I would say, everywhere, really everywhere, from Europe to China. China is even probably one of the worst places in terms of China inventory. In terms of being too low, Europe, U.S., and Latin America, really everywhere. We need to deal with this situation. Pricing, with this strong demand on one side, some components, but mainly when I look at components, it's really... very cheap components. You talk about IC, you are talking about cents. But pricing are slowing going up. And in order to maintain the profitability we need and also to make sure that we continue to watch pricing We still want to be competitive, of course, but pricing is slowly going up. And I think we continue to go up for the next three or four quarters because of the component cost trend. On the other side, it's not affecting demand because demand is so strong. that is really not... We didn't see... We started already the exercise in the last quarter, even in Q4 partially, but we didn't see any impact on the demand at all.

Thank you. Thank you, Gianfranco. So, Bunyak, would you like to answer MBG's topic?

Yeah, sure. From the mobile side, I think, number one, despite the high growth, the demand was even stronger. We are seeing demand growing in many different regions across the globe and even in different channels, including like enterprise where we are just starting. So, you know, I believe in the future we will sustain the profitability, don't see any deterioration. and we expect to still grow in premium to market for the full year and the next few quarters, and we expect demand to hold. Now, as much as there is more competition from some players, as you mentioned, there are other easy teams that are benefiting demand, so our expectation is to continue to grow premium to market, and we are seeing demand stocking channel at the very healthy low levels and demand across multiple regions, especially North America, Latin America, and Europe, but also markets like India, growing in a good pace. And I will continue to focus on our strategy that is, you know, focus on our core strength and grow profitably like we have been doing in almost the last two to three years.

So, thank you, Bunyaka. So, We definitely have a higher expectation on our mobile business to drive the profitable growth. Actually, we think we have the better position than other competitors in some markets, particularly mature markets. in North America. So we will leverage some competitors' exit to further grow our share. Definitely, similar situation will happen in Europe and some Asia-Pacific markets as well. So we will keep the strong growth profitable growth in those markets. So actually for the mobile businesses, we could grow even stronger, but we are limited by the supply as well. So we will try our best to get more supply to support our profitable growth. Thank you.

Thank you, YY. We are now ready to take the last question due to limited time. And please raise your last question, operator, please.

Thank you. Your last question comes from Christian of UBS. Please go ahead.

Thank you. Thank you very much for taking my questions. I have two questions. Number one is just a follow-up on the component shortage topic. I'm wondering whether you're able to quantify the size of component shortage. And when do you expect the component shortage will ease? And then second question about servers. I understand that your servers have been growing quite well. I'm wondering whether you're also seeing some component shortage in servers. And also, what do you believe is your key competitive edge to win cloud server orders from the ODM? Thank you.

So John, how about you? Would you like to repeat your answer?

Again, no, but it's also a very interesting question. It's a good question because to quantify is always not easy. But I would say if I look at our backorder, and we can probably say that in terms of quantifying the shortage, we can probably say that it's around the 20, in the range of 20%. So without shortage, we could probably ship easily 20% more. So still, the brilliant result in Q1 without shortage could be much, much better. Let's put it in this way. But it's not easy to quantify because, unfortunately, we are not talking about one component or two components. We are talking about a big number of different small components. Then in some cases, if you are flexible and good enough, and this is why it's important to run your own factory, you can easily switch and you can be flexible enough to enjoy maybe some other components that are available rather than what is not available. But you need to be very flexible. You need to do qualification very quickly. You need to do a lot of things. that if you run, let's say, your own destiny, it's much more easy than depending from an OGM supplier. When, as I said, I would not expect that in the next 12 to 18 months the situation will improve. It will not deteriorate. Probably it will stay at the same level, but I would not expect that for the next 12 to 18 months. So we will see still the same situation also next year. Because to build up capacity, when you talk about Feb, silicon foundry, it takes some time. There are big investments going on in different areas of the world in terms of new Feb, but they will not be ready before 12 to 18 months.

Thank you. Thank you. Thank you, Gianfranco. Kirk, would you like to add something on DCG or ICG? Sure.

So two questions. First is servers being impacted by component issues, and second is how do we differentiate in the cloud service provider market versus the ODMs? So I think certainly there's no one in technology, I think, that's not affected in some way by the chip shortages. However, I think we've done an outstanding job multisourcing across our portfolio. We just had, for example, record AMD shipments in our server technology with all of the latest Milan announcements we just made with AMD. We've announced 18 new platforms this quarter in Think System and Think Agile, and we're multi-sourced across just about everything. So we don't see that being a major impact to having a significant double-digit premium to market and growth as we move forward here. As our supply chain is a little bit more nimble, I mean, we are bringing in inventory for the cloud service providers based on future orders. I think we're excited that we're not just winning the server business, but we're also winning significant storage orders, eight-way orders, high-performance computing in the cloud orders. It's improving our profitability. And so we're able to pre-stage that and build that equipment because we're not just doing the system integration or just the rack integration. We're also doing the motherboard design. So we get to get a start on that much earlier than And candidly, we don't need to worry about ODMs because we're now designing our own motherboards in-house, manufacturing them in our own motherboard factories, and integrating them in our own system factories around the world. In fact, we've recently talked about significant new motherboard factories in Mexico, expanding in China, as well as expanding in Europe and in Hungary to increase our capacity based on the demand we see. So I don't think the chip shortage... changes that. You know, our strategy for the cloud, for the public cloud is what we call ODM plus. So we have, you know, $40 billion a year procurement power. So we have much larger procurement power, especially in a shortage than most ODMs. Unlike the multinational traditional OEMs, we can build our own motherboards. We're not outsourcing those to someone. So that improves our profitability and our agility. And we're in 180 markets. So as we take China cloud providers global or we take, you know, US-based cloud manufacturers global. In either sense, we have the ability to get to every corner of the globe, from India to Brazil to South Africa to anywhere in the world. So this is our supply chain, which was just ranked, you know, number 16 by Gartner of all companies in the world and number five in tech. is proving to be a significant advantage for us, both in procurement and in supply chain. So I think, you know, 73% growth, this is just the beginning because we know the design wins in cloud are coming, and we know that those design wins are even going to have a better mix with improved profitability in the future. Thank you.

Thank you. Thank you, Kurt. So although we have to conclude this session, session, I still regret how we didn't get any questions about our fantastic and exciting performance of solution and service business, which was growing twice as fast as our overall performance and also we believe that give us much better margin and profit. It can demonstrate our success of the transformation, intelligent transformation. So you know We have made our strategy very clear, so we will try the three M's strategy, smart IoT and smart devices, smart infrastructure and smart verticals. So definitely our solution and the service business will be key to realize this transformation. So we will drive a high attachment of the attached service. We will drive hyper-growth for the management, for the managed service, including device as a service and the true-scale or data center as a service business. And meanwhile, we will drive multiple smart verticals in manufacturing, education, retail, et cetera, et cetera. So you know Lenovo has very strong execution capability. Once we have the clear strategy, we will drive the results. Actually, a couple of years ago, you were worried whether we could turn around our mobile business and data center business. So we couldn't give you an answer immediately. But over the past couple of quarters' performance, you could see clear progress in these two businesses. So that can demonstrate the execution capability and also it could demonstrate our first step of success of diversification of our business. Definitely for the next step, driving the intelligent transformation will be our strategy and I hope with Lenovo's proven record, you can believe we can deliver. Thank you.

Thank you, Yanqing. And we thank you very much for joining today's call. If any of the investors or analysts have any further questions, please feel free to contact me or the IR team directly. And the replay of this webcast will be available in the next couple of hours on our investor relations website. Thank you again for joining us. Bye-bye now. Bye. Ladies and gentlemen, that concludes the conference for today. You may now disconnect.