Lenovo Group Ltd Ord

Good morning, good afternoon, and good evening. Welcome to Lenovo's Earnings Investor Webcast. This is Jenny Lai, Vice President of Investor Relations at Lenovo. Thanks, everyone, for joining us. Before we start, let me introduce our management team during the call today. Mr. Yang Yuanxin, Lenovo's Chairman and CEO. Mr. Wong Wai-Ming, Group CFO. Mr. Luca Rossi, President of Intelligent Devices Group. Mr. Chris Galgian. President of Infrastructure Solutions Group, Mr. Ken Wong, President of Solutions and Services Group, and Mr. Sergio Buniyak, President of Latin America and Mobile Business Group, and President of Motorola. We will begin with an earnest presentation and shortly after that, we will open the call for questions. Now, let me turn it over to Yuanqing. Yuanqing, please.

Hello, everyone, and thank you for joining us. Once again, despite the challenges of the pandemic and supply shortage, Lenovo has delivered another record-breaking quarter. Our clear focus on profitability and innovation, supported by strong execution, has driven historical results across our businesses. We are also pleased that last week, Lenovo has been added to the Hansen Index, providing market recognition of our continued strong results. The accelerated digital and intelligent transformations in the new normal continues to generate significant opportunities. Investments in digital transformation are expected to increase over 16% annually over the next three years. Lenovo's new IT technology architecture of client, edge, cloud, network, intelligence prepares us well to capture these opportunities. Last quarter, Lenovo delivered another quarter of record profit and revenue. Our net income reached an all-time record of $640 million, up 62% year-on-year. This is the sixth consecutive quarter of over 50% year-on-year net income growth. Net margin also increased by almost one point year-on-year. We are on track to doubling within three years. With 17% year-on-year growth, our quarterly revenue achieved $20 billion for the first time. Thanks to double digital growth in all key businesses and the balanced growth across all geographies. Going forward, we will continue to double our R&D investments along the new IT architecture. enhance our digital foundation to support business growth, compete as one Lenovo with pocket cloud offerings, global footprint, and organizational efficiency, and continue to deliver our ESG commitments. Now, I will talk about each of our businesses. Let's start with the solution and the service group. The trillion-dollar global IT services market through 2025 presents big opportunities for growth. Almost half of global workers are currently working remotely, driving demand for premium support and customerized fulfillment. As a service penetration in PC and the data center is only 2%, providing substantial room for growth. And the enterprise spending is expected to grow faster in cloud and digital services. Last quarter, Lenovo SSG continued to deliver high growth with a higher profitability. Its operating margin exceeded 22%, a nearly three-point increase year-on-year. Revenue continued a strong growth of over 25% year-on-year. Support services, 21%. Managed service, 50%, driven by our true scale as a service offerings. Project services and the solutions, 23%. with a breakthrough in smart retail. Looking forward, SSG will capture the remote work trend and leverage our global service footprint to provide accessibility and flexibility to our customers. SSG will also invest in true-scale offerings, hybrid cloud solution, and other software and services with our own IP and expand sustainability offerings. Our infrastructure solution group, ISG, continues to benefit from the ICT infrastructure upgrade, a $250 billion market globally through 2025. By 2025, the edge infrastructure market alone is expected to grow quickly to 41 billion US dollars. Last quarter marked an important milestone. Our ISG became profitable for the first time since the IBM x86 acquisition in 2014. Meanwhile, our revenue grew at a double-digit premium to market for the fourth consecutive quarter. Our cloud service provider and enterprise SMB revenue grew by 38% and 7%, respectively, year-on-year. Over the years, ISG has invested in building a full stack of data center portfolio. as well as the in-house design and manufacturing capabilities. We can now cover customers of all scales from tier 1 CSP to tier 2 Enterprise and SMB. In the long term, this customer coverage will give us unique advantages to balance the scale and the profitability as well as customers demand for security, reliability, and agility, flexibility. We will meet all kinds of customer requirements from on-prem, infrastructure as a service, all the way to private, public, hybrid cloud. For the intelligent device group, IDG, smart device markets continued to benefit from the new normal of a hybrid working model. The PC market is focused to remain strong and stable, shifting to commercial and the premier segments. In smartphone, the market reshuffling will bring more growth opportunity to Lenovo. At the same time, The penetration of 5G and the development of edge cloud network intelligence will provide more growth potential for the emerging smart devices like embedded computing IoT, AR VR driven by Metaverse, as well as smart home and smart collaboration solutions. Last quarter, IDG delivered another record quarter in profit and revenue. Its revenue grew 16% year-on-year, and the profit grew even faster, up 21%. In PCs, premier segments delivered high growth. In non-PCs, smartphone business has been healthy profit for seven consecutive quarters. Last quarter, its revenue grew strongly at 46% year-on-year and was the fastest-growing major vendor. Meanwhile, we saw some emerging smart devices like smart collaboration solutions. Revenue nearly doubled year-on-year. Going forward, in PCs, we will continue investing in innovation. premium segments, and core components. In mobile, we will strengthen our smartphone portfolio and invest in expanding new markets in Europe and the Asia Pacific. We will also continue to invest in IoT, metaverse-driven AR, VR, smart home, and smarter collaboration solutions to capture the emerging opportunities. In summary, Our market coverage is expanding. Potential is growing. Our capabilities are developing. And our performance is stronger than ever. We are on track to doubling both R&D investment and land margin by the end of fiscal year 2023-2024. So we are confident in delivering strong, sustainable, profitable growth while also meeting our ESG commitments. Thank you. Now, let me turn it over to our CFO, Wei Ming. Wei Ming, please.

Thank you, Yuanqing. I will take you through Lenovo's financial and operational performance in Q3 fiscal year 2022. We delivered more than $20 billion in revenue this quarter with multiple financial records. Our net profit grew 62% year-on-year to an all-time height of $640 million, with 17% revenue growth year-on-year. We are excited to see balance growth across different markets. Our growth net margin advanced 89 basis points year-on-year to near record level. All three of our business groups contributed to profit expansion. ISG, in particular, turned profitable for the first time since its acquisition in 2014. IDG and SSG continue their strong double-digit growth trajectory. With profit expansion, we are on pace to achieve our medium-term target of doubling our net margin. The basic earnings per share came in at 5.50 US cents, representing 66% growth year-on-year. In line with the digital transformation and new IT opportunities, we leverage our Climb, Edge, Cloud, Network, Intelligence architecture to create devices, services, and infrastructure to enhance our digital foundation to support business growth. As part of our commitment to double our R&D investment, during the quarter, our R&D expenses grew 38% year-on-year. This includes investing in talent acquisition and development, our R&D headcount was up 40%. We also invested in broadening services and intellectual property, driving innovation with a focus on ESG, and designing for premium segment and edge computing. Every aspect of our R&D investments, ranging from devices, services, infrastructure, to AI and operation efficiency, has helped contribute to the 36 basis point increase in both our record operating margin as well as our long-term competitiveness. For fiscal Q3, our operating cash flow remains strong at 606 million. This is in spite of the higher working capital requirement due to our buy-ahead action of strategic component in response to supply challenges. Q5 sales were also unusually back-end loaded because of late arrival of components and longer logistic lead time, leading to higher balances in both account receivable and payables. Receivable credit conditions remain healthy, although Q4 will also see similar sales skew towards the end of the quarter. Nearly 80% of account receivable are within 30 days, and the overdue ratio is at record low, We expect to mitigate the impact from the above factors gradually and continue to accelerate our cash flow. The group financial position continued to be strong. In Q3, finance costs were down by 17% year-on-year, and we finished the quarter with net cash position. This was achieved by reducing our net debt and perpetual securities by $3.2 billion over the past 10 quarters. Going forward, we are confident in our ability to stay in a net cash position. SSG reported another stellar quarter with strong revenue and profit growth. Structural catalysts, including opportunities arising from the new IT trend, hybrid work model, a motor recovery, and increasing ESG awareness are powerful drivers to our service expansion. its revenue increased by 25% year-on-year to US$1.5 billion. Booking and deferred revenue grew a strong double-digit, indicating a larger recurring revenue base. SSG boosted operating profit by 44% year-on-year to $332 million, and operating margin revised 2.9 points to 22.2%. By segment, Support services revenue rose 21% year on year, posting the highest profitability in the group. Working alongside with other business groups, SSG is broadening service penetration in PC. We made significant progress in premier and customer fulfillment services, while customer interest continue to grow for sustainability services, such as asset recovery. We are actively developing six more sustainability service solutions. Many services posted a strong 50% revenue growth with improved profitability. On the back of the increasing popularity of as-a-service model branded under TrueScale, we won a number of deals while also expanding its geographic presence and customer base. Project services and solutions also reported solid revenue growth of 23% year-on-year. Despite the pandemic creating challenges in project delivery, the total contract value more than tripled with important deals signed for smart retail amid increasing adoption of our in-house IP solutions. ISG staged a successful turnaround, leveraging its enriched architecture and technology solution, as well as successful project wins and industry partnerships. As a result, its operating profit increased $28 million year-on-year. ISGL grew the market with new projects and acquisition of new Next Wave customers looking to build their cloud platform. In response to increased emphasis on a streamlined, fully integrated supply chain, our unique ODM Plus business model provides a holistic solution encompassing a vertically integrated operation. ESMB revenue reached a five-year high led by high-margin storage, surface, and software sales. The group maintained number two in global entry storage market, as well as continued as the largest provider of supercomputers globally. IDG achieved another record quarter, with revenue and operating profit up 16% and 21% year-on-year, respectively. The shift towards commercial and premium segments continue to accelerate. Commercial demand benefited from digital transformation and transition to a hybrid work model on a global scale, growing at the third highest rate since 1998. This commercial strength, together with the strong growth in premium segments, go well for increasing our average selling price and profitability. Our PC business thus saw a 19% increase in ASP and improved margins. marking the 17th consecutive quarter of year-on-year profit margin expansion for IDG. Non-PC products contributed to 19% of IDG's revenue in the quarter. Smartphone revenue grew 46% year-on-year, and its operating profit stayed at a record level of $89 million. Our portfolio expansion strategy to increase product differentiation was well-executed. IDG smartphone shipments increased 53% year on year, according to IDC, substantially ahead of the market, with share gains across key markets. In North America, we posted triple digital growth in revenue, while strengthening our number two position in our stronghold markets in Latin America. Speaking of our ESG initiative, in December 2021, Lenovo was rated at the leadership level for the first time in both the CVB water and climate surveys, respectively receiving an A and A- in these widely recognized surveys. We broaden our sustainability services and true scale portfolio at the ESG related features such as CO2 offset option to our products and increase our adoption of green materials. On the group level, We are exploiting the path to net-zero emissions by 2050, completing the road test of sign-based target initiative methodology and becoming a founding member of the China Net Zero Network. On governance, Lenovo has received recognition from Corporate Knights, Bloomberg, and the Hong Kong Institute of CPA. Other impactful, sustainable initiatives include Lenovo 360 ESG Circle, and the Ecovirus Rating 2. Strategic opportunities in digital and surface-led transformation continue to accelerate. We are investing to build Lenovo's surface-led transformation, take advantage of infrastructure demand proliferation, drive sales in high value at the products, and ultimately achieve the growth medium-term financial target of doubling our net margin. Looking forward, SSG is building a broader service portfolio to take full advantage of remote working environment. New business model of as a service is growing fast and the resulting rapid penetration into PC and infrastructure sectors will support its future hyper growth. SSG will play a key role in driving recurring revenue and increasing Lenovo's profitability. For ISG, the infrastructure upgrade opportunity remains strong, and Lenovo is one of the fastest-growing infrastructure providers globally. We are committed to building full-stack offerings and to surfacing both CSP and ESMB segments. We will continue to develop offerings to meet regional demand and capture growth opportunities, including S-Surfer portfolio to address the proliferation in data and AI accommodation at edge. In CSB, we are migrating to our ODM Plus model for improved profitability and greater supply chain and procurement agility. In ESMB, we will continue to expand our product portfolio from surface into storage, storage-defined infrastructure, software, and services to pursue higher profitability. In doing so, we will create new business opportunities and expand our customer base. IDG will continue to lead and grow at premium to the markets. The global PC sector should remain strong and stable, thanks to the hybrid work model and digital transformation driving demand in commercial and premium segments. PC business will further invest in the premium segment to drive profitability through innovations in the area of ESG features and green materials. The smartphone business will focus on portfolio enhancement and differentiation to take advantage of accelerated 5G adoption and the changing competitive landscape. The group will address the expanding Internet of Things opportunities to grow its non-PC business. The Hansen Index Company announced last week that, effective from 7 March 2022, Lenovo Group will be included as a constituent stock of the Hansen Index. which is a reflective of our stellar operational performance in recent years. Our strong financial position provide a solid foundation on which Lenovo can proactively pursue growth opportunities ahead. Finally, as always, we remain committed to driving sustainable profitability growth for our shareholders. Thank you. And now we can take your questions.

Thank you, Wamin. Now we will open a line for questions, and this section will be in English only. Please be reminded to limit yourself to two questions at a time. Operator, I will now turn it over to you. Please give us your instructions.

To ask questions, you will need to press star 1 on your telephone. To withdraw your question, please press power or hash key. Please stand by while we compile the Q&A roster. The first question comes from the line of Christian from UBS. Please go ahead.

Thank you. Thank you very much for taking my call, and congratulations on your strong results. First question is about the guidance. Can you give us the guidance by different segments and uses per year? And the second question is, actually I was surprised to see the little share price fell. in the afternoon session today after reporting such good numbers. I think this actually happened a few times in recent quarters. Could you help us understand what drives this connection here? Thank you.

Thank you, Grace. So definitely we delivered a very good result last quarter. So all our businesses grow at a double-digit level. And also our profits increased by more than 50% for six consecutive quarters. So that's the last quarter. Definitely we are very confident. So these growths are can continue. So not only ISG will drive the hyper growth. SSG will drive high growth with higher profitability. Even for IDG, we are confident we can continue to drive the growth. So although the PC market is and not grow as fast as last year, but it will keep at the current shipment level, so that means 350 million units every year. And also we see the segment shift. It's shifting from... low-end to the premium segment. It's shifting from consumer to the commercial. So all these trends will help improve the average selling price. So that means even though the unit achievement will be flat or easy to grow, but the revenue will will keep growing, so we are confident on that. Meanwhile, our ITG is not just relying on VC. It will more rely on non-VC business growth. For example, MOVA. So we see a strong 48%, 46% year-on-year growth last quarter. So we definitely think this trend... We have come here because we were expanding to the new market in Europe and Asia-Pacific. We will double down on some markets to drive the growth. And also, with 5G development and with the new IT, the current edge cloud network and intelligence architecture, development. We think there are more emergent devices. So, for example, embedded computing, IoT, for example. AR, VR are created by Metaverse. Smart Home and Smart collaboration solutions. So those are definitely a fast-growing area. So we will take that opportunity to further grow. So we are confident. So from all the company point of view, we will continue to drive the growth. So in short term, we will still be able to drive the double-teaser growth. So, I don't know whether I answer your question. Oh, I share a price. So, probably, we mean you'd better to answer the question, right? Okay.

All right.

So, well, thanks for the question. I think great. I believe that it probably is the market may not fully understand immediately. I think our very strong result because of the very volatile environment. I think, Chris, if you recall, I think Lenovo is probably the first company, maybe even a few quarters, or begin after the COVID-19 that we actually have the insight of the continuing growth of the IT business. And the market obviously was a little bit suspicious. And as you noted, we actually have been consistently delivering, I think, what we actually call a few quotas. That's really number one. The second one that I would probably want to, I think, draw your attention is Our share price, unfortunately, did not immediately reflect the very strong growth. But with the experienced investor, I think such as yourself, after one or two days when you actually have an opportunity to study, I think the underlying strength of our business, if I recall, most of the analysts report, in fact, actually have a recommendation of buy as well as uplifting our target price. And very slowly, the share price actually returned, I think, to another high level. I think, thirdly, I would say that clearly there was some sort of short-term trading. As you recall, last Friday, Lenovo was – I think it was announced that Lenovo was actually included in the Hang Seng Index. On Monday and Tuesday, there are tremendous amount of buying, and the share price actually went up by nearly 5% for the last two days. So maybe there are some short-term, I think, trading mentality, especially in view of, I think, the latest unfortunate, I think, Ukraine-Russia event that triggered, I think, some short-term investors taking profit. So I would expect that, I think, with the analysts having more time and more experience and more expert understanding of the business process, I'm sort of patiently waiting for your research report and your recommendation, and I actually am very confident that I think the institution invested in particular, I think they will study very carefully of your analysis, and we will see the return of the share price to another high level.

Thank you. My pleasure.

Thank you, Wameen. Now, yeah, operator, we are now ready for the next question, please.

The next question comes from the line of Howard Gao from Morgan Stanley. Please go ahead.

Thanks for taking my question, and congratulations on a good quarter. So before I ask my question, though, can I just clarify something? In terms of your comment on Outlook for the PC business, did you say that you guys are expecting – shipments to be flatter or down, but revenues will keep growing because of the shift from consumer to commercial.

So, Luca, it will be... Yes, Ian Schinger.

Good morning. Yeah, okay. Thank you for the question. Good morning and a good afternoon to everyone. So I think you are asking whether our view is the market, the PC market, will be stable, kind of flat in the next fiscal. The answer is this is our view, and also supported by most of the analysts and also our industry partners. We all see the market to be stable, but with an higher... AUR due to improved mix, premium, more commercial, and also compared with the previous year, there is certainly a slowdown of Chrome, so the total volume perhaps the same, but the value increasing significantly, as demonstrated by our AUR recently.

I see. Thank you. So, Sorry, two questions for me. One is can you talk a little bit about your channel inventory situation in the PC market? I think earlier this year you guys had seen channel inventory creeping up a little bit to around four to five weeks, which is still below your healthy level, but just wanted to see how that has changed over the past couple of weeks. And in terms of the server business, I just wanted to ask, Two-part question. One is in terms of your third quarter numbers, it seems like revenue were down a little bit on a sequential basis, whereas I think a lot of other companies within the server supply chain reported pretty strong calendar year fourth quarter numbers. So I just wanted to ask what was the reason for that. It seems like cloud revenues were down on a quarter-to-quarter basis. and can you guys provide, you know, outlook and commentary about your ISG business in the next coming quarters? Thank you. Okay.

So, first, probably I go first. Yes. Thank you, YY. Yeah, yeah, yeah. So, look, the inventory profile is still materially below the pre-COVID situation, and particularly in the commercial segment for the so-called transactional part of the commercial segment is significantly below the pre-COVID levels. And you also need to think that we are now in a market with a bigger total available market. Additionally, just maybe to give you a little bit more color of our business model, not all of our business all an inventory by design. So we have several segments, relationship, government, global account, that in most of the cases have no inventory at all. So this is a kind of end-to-end direct kind of concept. The consumer inventory on the other side is growing a little bit, still below pre-COVID, but I would say that it's normalizing to a reasonable level because During the peak of pandemic, it was just too low, to the point that we lost or the industry lost opportunities to sell. So I would not consider this a worrying situation. On the contrary, I would conclude saying that we are not concerned about our inventory levels. Hopefully I answered your question.

Yeah, so probably Luca can help you to explain this situation. So our inventory level, channel inventory level, probably is higher than last year. So it's lower than before pandemic. And also, so a reasonable channel inventory is nicer. That will help to drive the sales up. Because in the last year and the past period, so if we have 10 models offering, probably we only have five in front. Another five is in shortage. So for those customers, they want to buy another five, so they cannot buy. So that's the issue. So that's why we think the reasonable channel inventory will help the sales. So that's our current channel inventory situation. So our past inventory probably is higher than before the pandemic. So that's the reason you could understand. So that's because of the shortage. We have to buy ahead for some components. So that drives the parts inventory higher. Okay. So, Kirk, would you like to talk about the ISDs now?

Sure, Wai Wai. So I think we're very excited about the growth in server and storage. But since your question was regarding server, I think some of the calendar fourth quarter analyst data is now just coming in preliminary, and we're expecting the formal revenue share numbers to be out across the next several weeks. I think we're confident. given our increasing average unit pricing based on an improved mix that we'll see a premium to market when that happens. We're in a unique position because we are participating both in cloud and in enterprise SMB. In cloud, I've had a significant premium to market, double-digit premium to market, and we have not only acquired some new billion-dollar class customers in the Tier 1 space, but we've grown our NextWave account base more than 100% year-on-year in a supply-constrained environment. So as that supply continues to free up, we're confident that that growth will just accelerate further, and we have the design wins in place to make that happen. In Enterprise SMB, this was our highest revenue in five years for a Q3. And we're seeing strength in records across all of our profit engines. So records in our Microsoft software, our VMware software, our Nutanix software, in Edge, in communication service providers, all of those hit new records. And I think our product innovation speaks for itself. We were just awarded this quarter the AI product of the year by HPC Wire. CRN storage product of the year, and now we have a new ThinkEdge product that is the most GPU-rich Edge server. So all of that shows servers are strong, and in storage I think we're confident that in the price bands one through four will grow from previously not even being on the radar to being the number one entry storage provider in price bands one through four, which make up about 60% of the units in the storage market. So I think hopefully that gives you some optimism for the future and the supply point is that I think things will get better from there. We did have an exceptionally strong Q2, which was a 30% year-to-year growth. So in this cloud business, when you've got very, very large customers, it can be a little cyclical, but I would just There's no, from my perspective, there's no concern I have. We see exceptionally strong growth for the future and continued profitability. Thank you.

So actually, our ISG business is still constrained by the supply. If we can have better supply, so definitely, even last quarter, we could deliver even stronger performance. but we definitely are optimistic on the current quarter and the future on the ISG business. And also, as I said at the beginning, Lenovo is a very unique company in the ISG area, so we can cover all kinds of customers, all the way from tier one service provider to tier two enterprise SMB. So this coverage will give us a unique advantage to balance scale and profitability. And also we can meet our customer's requirement. We can meet our customer's requirement security, reliability, and flexibility, agility. So we have laid out the strategy very solidly. So we are confident that we will continue to drive the growth in that business. Next question, please.

Thank you. The next question comes from Albert Hong from J.B. Morgan Securities. He's got it here.

Hi, I'm . Thank you for taking my question, and congrats on a great result. My first question is the service business, which has gained a lot of good traction. Did you consider any MMA point to accelerate the service business development? If yes, What's the consideration when doing MMA for service? My second question is on mobile. You mentioned that you're going to enter Europe and Asia again. I remember a couple years ago Lenovo changed their mobile strategy to become more focused and turn profits. So I wonder what's the competition level in Europe and Asia versus that in a couple years ago. What's the difference in the strategy this time, and is there any impact on the new strategy, profitability side? Thank you.

Thank you, Albert. So those are two questions for Ken and Bunyaku, respectively.

Okay, thank you, YY. Thank you, Evan. I think this is a great question regarding services. First of all, I think we are very happy to see the strong growth and solution and services group, SSG. I think this is the third consecutive quarter where we see our revenue growth is faster than the group and also maintaining at a high level of profitability. I think this, once again, you know, giving us confidence that our service-led transformation strategy is actually executing well, right? Just like YY said at the opening, I think we definitely see, you know, our customer is asking for more help because of new IT is powerful at the same time also very complex, right? So a lot of customers are actually looking for help like Lenovo, where we have the full portfolio of hardware from pocket to the cloud, software, and now services as a solution to help to unleash the full power of technology and also to help them to bring in the desired services outcome. This is a big trend for the overall services market. In terms of growth, I think we're looking at... all strategy, including both organic and inorganic way to grow SSG, and we are very confident our strategy, and also I think Wai Ming can cover, I think we are, in terms of our balance sheet, we are much healthier ever than before to support any kind of tactics in terms of growing SSG. Thank you.

Hi, hello, can you hear me? So I think, look, a few differences, right? I think our scale has improved globally. So our plan has always been protecting Latin America, North America, where we are growing fast in the market, and rebuilding our capabilities in different regions like Europe and Asia. Our approach is going to be very focused. We are not going broadly in those markets, but starting to get relevant globally. in key markets we have selected carefully. Our time to market in product development has gone down 30% to 40% since three to four years ago, what allows us to play much better in those markets. Our software platforms, and I think also we leverage a lot the One Lenovo capabilities in markets like B2B and commercial markets. So, I mean, we're going to keep growing in North America and Latin America. We see growth coming from selected markets in Europe and Asia that will represent a strong percentage, and our approach is going to be very careful. And we are seeing very early positive indications that we can sustain profitable growth both in selected markets in Europe and no different in Asia. Thank you.

Yeah, so regarding our mobile business, so I think we have successfully realized our first stage objective to make this business healthy, profitable. So actually we have been in this position for six or seven consecutive quarters. So now we changed the strategy to the So definitely, we will make sure this business will continue to be profitable at the current level. So if we can make more money from this business, definitely we will reinvest the money into expansion of the market. But we will not expand the market everywhere. We will only choose selective countries or markets to double down on that. Then we can quickly get a 5% or 10% shift. So that will be our strategy for the future. So we are pretty confident. So Last year, we shipped 50, 60 million units of the smartphone. So this year, we will keep the hyper-growth as we delivered in the past two quarters. Next question.

Thank you. Again, if you wish to ask questions, please press star 1 on your telephone and wait for your name to be announced. Next, we have the questions from Jack Hsu from President's Security. Please go ahead.

Thank you. Can you hear me? Okay. Thank you. Congratulations for the financial results. And I have two questions. My first question is about, still is about the server. And I'm interested in what's our strategy for AI server in the future? Can we collaborate with more opportunities with the chip companies, the chip companies Nvidia or other chip supplier in the future? And this is my first question. And my second question is about our mobile. Our mobile market, because it seems we have done a great job, and so I'm still interested in what's our strategy in the Chinese market and in the India market. These two biggest markets in the next two years. Thank you. Okay. Another ISD mobile combination. Kirk, you go first. AI server. Sure.

Definitely, we see AI and AI everywhere as a growth opportunity for us. As I mentioned, and I think also why Ming mentioned, we've maintained our position as number one in the global top 500 supercomputers and have actually over the last year now installed the largest supercomputers we've ever done in more countries than any person in the world or any OEM in the world. So about one in three of the world's supercomputers and more Many, if not all of those, are putting an AI element into their compute engines. But the other large growth area is at the edge, and we've created now an end-to-end portfolio with a new product called ThinkEdge. And as I mentioned, we were just awarded by HPC Wire, who gives out the awards as having one of the best AI products or the best AI product. And we now have a new portfolio with the SE450 product that's the world's most GPU-rich server. So we can actually put four GPUs in an edge server. As a result, we just won one of the largest global retailers in fast food chains in the world using our edge servers with the GPUs there to help automate and make their drive-thrus more resilient. So definitely we're seeing AI as a significant growth engine. As Wawa said earlier, over a $40 billion market coming up. And we now have a brand new ThinkEdge product line. And internally we just announced a new ThinkEdge division to do everything from the Edge device to the Edge gateway to the Edge servers. And this was a record quarter, by the way, for our Edge business. So we've put together several record quarters in a row now. and are continuing to grow that portfolio. Thank you for the question.

Thank you, Kirk. So, Bunyak, you continue. Mobile in China.

Yeah. So, we recognized our business in India two, three years ago. We are seeing good progress, solid. We are seeing consumer ratings very positive, strong, fresh sales. So we will continue to grow in India. We are coming from a small base, but growing in a sustainable way. We believe this is going to hold, and probably our expectation is to gain shares, to grow three, four points of share in the next few months, years. So we see the progress very healthy and sustainable and profitable in India with a special focus on online. In China, we reignited our business a year ago. We cleared the channel. We launched our Razor family very successfully. And now the Edge family is still very small. They're going to be very careful. It's a big market. But we are seeing small progress in a very slow way. So India did a little faster and going in a good direction, both brand and channel. Our stock and channel are very low in those markets, and our sellout keeps surpassing our selling in the last few months. So careful approach. We see steady growth, and I think we'll continue to sustain that over the next months and

Thank you, Bunyako. So let me add something here. So actually in the mobile world or industry, so probably there are three different games. The first is the U.S. and the mature market. So it's driven by the premier product or premier brand. So But meanwhile, consumers or customers want to pay a premium price as well. So you can see there are different players in those kind of markets. So Apple, Samsung, Motorola, possibly LG. So that's the first game. The second game is like Latin American market. So it's mainly driven by the mainstream product. Not a premium, but a fair price. So that's another market. So actually China, India probably are the third market. That's the price performance trigger market. So people want to have the latest technology, but meanwhile they want to pay less to be more aggressive on the pricing. So Those are three different games or battles. So definitely, with Lenovo's strategy, we want to win the first two first. But meanwhile, we started to prepare the capabilities in the third game, in the third market. So that was Lenovo's strategy. Okay, next question.

Thank you, YY. Because due to limited time, we are going to attend our last question. And this is an online submission by Mr. Bai Shuang from Pacific Securities Research. His question is, this year, the economy and geopolitical issues are resulting a lot of market uncertainties. Would this impact your PC market outlook? And could you also elaborate and share more details regarding to your ASP trend for your PC products?

That's a question for Luca, right? Yes. Yes.

Yes, Yanxin. So thanks for the question. So I think talking about 2022, a little bit as I said before, The view is that the market will stabilize with better AUR. Now, I think we can make, I want to make two reflections. One is that when we say the market will stabilize, we also need to recognize that from the pre-COVID to the post-COVID PC market, this market will be adding $100 billion of revenue. which obviously is a very significant number and opens a lot of profit opportunities, given the larger size. This is one. The other reason why we are confident is that the digital transformation, work from home, all these things are naturally driving more demand for the PC technology, and I just want to say that remote collaboration, which is probably the killer application, this is the one which runs the best on PC. So I think there are many, many reasons to feel confident about a stable market with increasing average and unit price, and consequently a little bit of improving on the revenue versus already a high number, which will be the 2021. Obviously, just to add some more color, this 2022 market, we believe, will be stronger in commercial, which is very positive, not only because our exposure in commercial is traditionally higher, approximately 65% of our last quarter revenue was in commercial, but also because this mix is more favorable in terms of penetration rate, of service penetration rate, which obviously comes with good margins. And additionally, you have the accessory attach, which also comes with good margins. And if you think about the work from home, many users want to have now two PCs from a work perspective and want to have a rich portfolio of accessory and even services. to use their product and to work with their product at home. So I think there are many good reasons to have a good view on the market, plus our traditional ability to drive a premium to market. So even with a flat market, we'll continue to grow and better than the market. Thank you.

Yes. Thank you, Luca, and thank you, everyone online. And this will conclude our webcast today. If you have any further questions, please feel free to contact the IR team of Lenovo directly. 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. Thank you. Bye-bye now. Thank you. Thank you. Bye-bye.

This concludes today's conference call. Thank you for participating.