Lenovo Group Ltd Ord

good afternoon ladies and gentlemen welcome to lenovo 2022-23 annual results investor presentation We are very thankful and happy to see you all in person and online once again. Let me introduce our management with us here today. They are Mr. Yang Yang-Chi, Chairman and CEO. Mr. Wong Wai-Ming, Executive VP and CFO. Mr. Ken Chan, Executive VP and President of Solutions and Service Group. Mr. Kurt Skelken, Executive VP and President of Infrastructure Solutions Group. Mr Lucas Rossi, Executive VP and President of Intelligent Device Group. Not least, Mr Sergio Buniak, Senior VP of Mobile Business Group and President of Motorola. Now, may I invite Yangqing to start the presentations and followed by Wei Ming on the financial performance. Yangqing, please.

Can I use this one? So for quite, hello? Can you hear me? Good.

For quite a while we haven't met our friends here in person. So hello everyone and thank you for joining us. Among all the uncertainties over the past year, the market conditions have evolved relatively in line with our expectations. Despite the challenging economy and the software device market demand, we continued to make steady progress in our service-led transformation and technology-driven innovation. For the full fiscal year, we maintained stable profitability thanks to our diversified growth engines and operational resilience. We believe that We believe that the overall PC market channel inventory digestion will come to an end, and the trends of shipment and activation will become more consistent. The entire smart device market is expected to resume growth in the second half of this year. And the IT service market will resume relatively high growth, driving the total IT market in 2023 full year back to moderate growth. In the mid to long term, digital and the intelligent transformation will continue to accelerate, leading to bigger growth potential for cloud and the entire computing infrastructure. Last year, we overcome tremendous challenges and achieved stable profitability. From a full-year point of view, our revenue was impacted due to device market softness, but thanks to our strong growth of solutions, services, and infrastructure businesses, Our net margin was keeping flat year on year on our now Hong Kong FRS basis. Non-PC revenue mix increased to nearly 40%, demonstrating the effectiveness of our efforts in building the diversified growth engines. At the same time, our cash position remains strong and we significantly improved our cash conversion cycle. With our healthy liquidity, we have been able to remain committed to our investment in R&D around the new IT to build our future competencies. And we continue to deepen our commitment to ESG. In fact, Anticipating the decline in PC and smartphone demand over the past few quarters, we proactively took actions to mitigate the risks. With our solid profitability, strong market position, resilient operations, and more importantly, reaching new milestones in our transformation from our device hardware company to our solution and service company, We are well prepared to achieve sustainable growth in the future. Now I will talk about each of our businesses. Let's start with SSG, Solution and Service Group. The new IT services segments within the trillion dollar IT service market continue to expand. By 2025, device as a service market and the cloud solution market are both expected to grow at the double digit category. Vertical solutions and the services spending will also keep a strong growth. Last year, our SSG delivered a strong revenue growth and a higher profitability to become both our growth engine and important profit contributor. Its revenue broke a record to reach 6.7 billion with operating margin standing higher at 21%. revenue mix of now hardware-driven solution and services has increased to more than half of our SSG business. Meanwhile, SSG has consistently invested in building scalable and repeatable horizontal solutions or building blocks. that can be deployed in vertical solutions or industries. Definitely leveraging our own IP. In addition, we have been continuously enhancing our digital workplace solutions and developing true scale hybrid cloud solutions portfolio. Our infrastructure solution group, or ISG, continues to benefit from the ongoing ICT infrastructure upgrade. By 2025, the server market will surpass $132 billion U.S. dollars. Storage, $36 billion. And the edge infrastructure, $7 billion. Last year, our ISG delivered a historical full-year performance and become a profitable high-growth engine. Its total revenue grows 37% year-on-year to almost 10 billion US dollars and achieved the all-time high. We also achieved a record high revenue in server, storage, and software, respectively. We have moved up from the fourth to be the third largest server provider in the world and have jumped from number eight to number five in global storage market. Meanwhile, we have been consistently improving our in-house manufacturing capabilities, cost competitiveness, as well as the full-stack product capabilities that cover both cloud service provider and enterprise SMB segments. We have also made a significant investment in infrastructure innovations empowered by artificial intelligence, such as AI powered edge computing, hybrid cloud, and intelligent operation. For our intelligent device group, or IDG, its business performance was impacted by continued device market softness and channel inventory digestion in the first half of 2023. But the given PCs are still the essential productivity tool in this digital era. So we anticipate the PC market will return to year-on-year growth in the second half of 2023. accelerated growth in 2024. Meanwhile, driven by digitalization trend and hybrid work model, smart space solutions continue to see steady growth. Faced with a severe market headwinds, IDG revenue declined year on year. but successfully maintained our PC market leadership and industry leading profitability. We increased the revenue mix of premier products to 30%. Our mobile business continues to be profitable for three consecutive years and achieved premier to market revenue growth in most of the markets. And our Smarter Spaces solution continued to demonstrate great growth potential. We will continue to take actions to manage expense and further sharpen our operational excellence in IDG. And we will keep investing in innovations, focusing on premier offerings and adjacent areas. while enhancing smart space solutions for hybrid work model. Let me also briefly cover our fourth quarter performance. It was the most challenging quarter of the year, facing pressures from both device market and the global economy. Our IDG revenue declined due to severe downturn in both PC and smartphone markets. But both SSG and ISG maintained a high double-digit year-on-year growth momentum, which helped to offset the device market softness. Last quarter, our non-PC revenue mix reached a historical high of for that 3%. Furthermore, we have recognized one-time restructuring and other charges along with various other actions to deliver about 850 million annual round rate group expense savings onwards. helping to establish a solid foundation for our operation in a challenging market and the position ourselves for future growth. Finally, I'd like to highlight Lenovo's solid performance in the face of industry downturn over the past year. We are already seeing positive signs of market stabilization. Our strategy has been proven to be working, and our operations continue to demonstrate resilience. And most importantly, even in a challenging market, we have increased rather than decreased our commitment to innovation, solutions, and services. Lenovo is now fully prepared in a strong position than ever before to capture the next wave of growth opportunity. Thank you. Now let me turn it over to our CFO.

Good afternoon, everybody. I will now take you through Lenovo Financial and operational performance for the fiscal year 2023 and its fourth quarter. Next slide, please. For the fiscal year 2023, the Group Diversified Growth Engine set multiple performance records. The non-PC business made up nearly 40% of the combined revenue of the three business groups, signaling a quick shift in our exposure towards the growth areas. ISG and SSG spearheaded our group transformation. Their combined revenue and operating profit increased by 31% and 24% respectively. IBG remained a strong sector leader in both market share and profitability. Notwithstanding sector-wide challenges, ranging from channel inventory digestion, persistent macro headwinds, to extreme exchange rate fluctuations during the year, IDG revenue declined 21% year-on-year. Thanks to its operational excellence and its premium mix, IDG maintained a robust operating margin of 7.3%, down just a mere 30 basis points year-on-year. Group revenue declined by 14% to $61.9 billion or down 9% on constant currency. Gross margin and operating margin delivered 18-year highs thanks to the non-PC strength helping transcend the cycle. We recognized the one-time restructuring and other charges of $249 million among various other actions to deliver an annual runway group expense saving of about $850 million. We aim to establish a solid foundation to operate in a challenging market and position ourselves for future growth. Excluding the non-recurring charges, our non-GAAP net profit margin remains stable at 3% flat year-to-year. We remain committed to achieving our target of doubling net margin in the medium term. Profit attributable to equity holders was $1.6 billion, down 21% year-on-year. Today, the Board declare a final dividend of 30 Hong Kong cents per share. Taking into consideration of the interim dividend of 8 Hong Kong cents per share, total dividend for fiscal year 23 will be 38 Hong Kong cents per share. Next slide, please. In Q4, notwithstanding the market challenges, the non-PC business continued to grow 12% year-on-year, and its revenue contribution rose to 43% of the combined revenue of the three business groups thanks to a resilient and well-executed transformation strategy. ISG and SSG combined revenue grew by 37% year-on-year, setting a new milestone. The strength of non-PC revenue reflected our market advantages in capturing digital and intelligent transformation opportunities and helped mitigate IDG's revenue decline of 33%. Non-recurring restructuring and other charges of 249 million mainly impacted our Q4 performance. Non-GAAP net profit was 284 million, down 44% year-on-year, and the growth profit attributable to equity holders was 114 million. We continue to optimize group operations for greater business agility and long-term growth. Our cash and cash equivalent balance reached $4.3 billion in March, up 8% year-on-year. We also finished the year with a net cash position for the eighth consecutive quarter, with a balance of $366 million. The group improved its cash conversion cycle by 12 days on a year-on-year basis to a negative two days, returning to the pre-COVID period. where such figures was negative. Since Q1, we have seen continuous improvements in cash conversion cycle, a testament to our prudent working capital management. At the same time, we also put in significant effort to decrease our inventory level by over 1.9 billion on an annual basis. Next slide, please. Thanks to the increasing demand for the end-to-end solutions across hardware, software, and services, as well as subscription-based model, SSG performance continues its upward trend since the business group inauguration in April 2021. His full-year revenue and operating profit grew 22% and 16% year-on-year to $6.6 billion and $1.4 billion, respectively. His full-year operating margin of 21% topped all business groups. In the fourth quarter, revenue was up 18% year-on-year, while operating margin was 20%, down around 2% point year-on-year, off a very high base. The solid performance was underlined by double-digit growth across all three business segments led by management service. We reported year-on-year revenue growth of 67% thanks to the strong asset service adoption. Our project and solution services segment with a broad base of solutions leveraging Lenovo IP reported year-on-year revenue growth of 13%. Attached and supported services revenue also increased 14% year-on-year with a record PC surface penetration rate. Full-year deferred revenue reached $3 billion, echoing the growth focus on enlarging and sustaining its recurring revenue base. ISG delivered exceptional revenue and profit growth, with revenue growing 37% and operating profit surging to a new high of $98 million. Fiscal year 23 marked the third consecutive record-setting year. ISG was one of the world's fastest growing infrastructure solution providers and achieved premium-to-market growth across several product lines. such achievements was built on years of investment in creating a full stack portfolio this product strategy together with the broad customer coverage and a unique fully integrated odm plus business model were effective in driving revenues of server storage software and ai edge to an all-time high latest third-party statistic affirmed isg strong market positions It started off the fiscal year with its market share by revenue in worldwide surfer at number four position, but finished the year at number three position. At the same time, it entered the year with its global share in storage at number eight and exited at number five. ISG is also capturing emerging opportunities in AI and building the most diverse AI portfolio in infrastructure. 70% of new ISG products from edge to core data center products in the fiscal year 2024 will be AI ready. This includes its popular liquid cooling Neptune technology for a high GPU loading AI server training. By customer segment, ISG exposure to CSP and ESMB segments gave the group a unique advantage in balancing scale and profit. Both segments saw double-digit revenue growth to record levels. In Q4, ISG yet again set another revenue record with a growth of 56%, thanks to its comprehensive product portfolio, an important catalyst for significant premium-to-market growth. Next slide, please. IDG was impacted by the sector-wide headwinds, including lower demand and excessive inventory. Full-year revenue declined 21% year-on-year, but remained markedly higher than fiscal 2000 pre-COVID levels. Operating profit for the fiscal year dropped by 24%, with operating margin down 30 basis points year-on-year, reaching 7.3%. This was significantly above the pre-COVID level, thanks to our operational excellence and a favorable mix shifting, enabling higher margin sales. In the fourth quarter, revenue declined 33%, while the business makes significant progress in cleaning channel inventory. This inevitably has a negative impact on our operating margin, which was down 90 basis points year on year to 6.7%. IDG made great progress in seizing growth opportunities beyond PC products. Non-PC sales made up 19% of IDG's revenue, up 0.4 percentage point year-on-year. Our smartphone revenue declined from overall market demand weakness. Nevertheless, it has outperformed in multiple markets such as EMEA and AP by a notable margin. Smartphone business also maintained profitable for three consecutive years with a growing 5G mix. Within non-PC business, smart collaboration solutions also deliver double-digit growth year-on-year with key wins across regions and global accounts. Next slide, please. Now, let me shift gears and talk about our R&D investment. As we continue to invest in innovation, R&D spending as percentage of revenue rose to 3.5% from 2.9% last year. Digital transformation has never been more important to our growth as we invest in new IT infrastructure spanning across client edge cloud network intelligence. Our investment will accelerate the development of the high value added products and key components, including edge storage and cloud in responding to significant growth in the data creation and data consumption. We will also drive innovation to propel our AI, smartphone portfolio, scenario-based solution and ESG initiatives, as well as expand our services scope. Every aspect of our R&D investment has contributed to our record operating margin and long-term competitiveness. Next slide, please. In fiscal year 23, the group has made remarkable progress in ESG. Our commitment to reach net zero by 2050 was validated and approved by the Sign-Based Target Initiative, or in short, SBTI, a partnership between the UN Global Compact, CDP, World Resources Institute, and Worldwide Fund for Nature making us the first PC and smartphone maker and one of the only 139 companies in the world with a net zero target validated by SBTI. The group ESG effort have been well recognized and have received many accolades. MSCI upgraded our ESG rating to AAA, the highest level. CDP also recognized us as a leader in climate change, water scrutiny, and supply engagement for the second consecutive year. Additionally, the NOFO was highlighted in the Bloomberg Gender Equality Index for the fourth consecutive year. While the prevailing external challenges could extend well into the future periods, the Group will continue to invest in innovation and high-value-added products and components, while fostering the development of the new IT architecture within the Client Edge Cloud Network Intelligence Framework. Looking forward, SSG will benefit from the mega trends such as digital transformation, infrastructure upgrades, and strong demand for hybrid cloud and remote work and collaboration. SSG will continue to broaden its service offerings, which include digital workplace, hybrid cloud, and sustainability services, while protecting its core business with product-related services, as well as strengthening channel tools and cooperation with business partners. Given its strong growth outlook, SSG will further enhance its financial contribution to the growth. ISG has built industry-leading end-to-end infrastructure solutions and expanded to full-stack offerings that include server, storage, and software solutions. The ESMP segment will also capitalize on growth opportunity in AI PowerEdge, hybrid cloud, high-performance computing, and solutions for the telco communication sectors. For the CSP segment, ISG has a unique ODM Plus business model to address the growing demand for vertically integrated supply chains. The business will continue to diversify its customer base and capture new accounts through design win across technology platforms. The approach will achieve an optimal balance between general purpose and customized offerings, while ensuring an appropriate scale and efficient cost structure to enable revenue growth and profitability expansion. The PC and smartphone markets will resume their growth trajectory in the second half to 2023 and accelerate their growth in 2024. IDG will continue to drive efficiency within its lean operations, maintain healthy cash generation, and invest in innovation. IDG will lead the global race in device innovation by enhancing features for hybrid working, gaming, entertainment, and ESG designs. Scenario-based solutions, including smart collaboration and smart home devices, will continue to grow at a stable pace. The commercial upgrade cycle and the trend of premiumization will help IDG drive premium-to-market growth. Its maximum business will focus on portfolio expansion with differentiation to take advantages of accelerated 5G adoption. Meanwhile, the Group's try to reinforce its number one position in the PC sector, with leading profitability and accelerate the innovation-led growth in the non-PC and adjacent areas, including accessories. Our strong financial position provides solid foundation to proactively pursue growth opportunities ahead. Finally, as always, we remain committed in driving sustainable growth and profitability for our shareholders. Thank you. We now take your questions.

Thank you, Wai Ming. May I invite Wai Wai, Ken and also Lucas to come on stage. Please be seated. Thank you. We'll now open the floor for questions. If you wish to ask a question, please raise your hand and we'll pass you a microphone. For those who are joining online, please submit your questions to the Q&A box. To make sure all of us, including our participants on the webcast, can hear the questions, please wait for the microphone before you speak. And also, please say your name, your company name, and limit your question to two at one time. So we welcome the first question from the floor. If there's any question, please raise your hand. Yes.

Thank you for the opportunity to ask questions. This is Tony Zhang from CRSA. So I have several questions. The first one is how is our review in the global PC market in terms of the inventory cycle? How is our plan to issue the new product models in this year? Thank you.

so thanks for the question so I think your question is one on the how is the market how is the inventory and then what is the product development or innovation so regarding the market obviously we have seen witnessed uh softness in the demand in the end demand but there is a I think an important deep dive to do. So that is the difference between the weakness in shipments and the weakness in activation, which is the Windows activated devices every day. We check every day and you can see a difference of a significant difference. The shipments are declining more than 20%, but the real end user demand is declining much less. So this is clearly a sign of a much healthier end user demand than demonstrated by the shipment. And that is the correction of the inventory that has been generated by the overshipments during the COVID period when the shipments were superior to the end demand. Now, the inventory is gradually being digested in the channel. And when it comes to our inventory, we think this quarter, this is basically the last quarter with this adjustment and our global channel inventory is basically back to the pre-COVID inventory levels by the end of the current quarter. So we think our level of inventories now normalized will will, that is why we are confident that we resume in the second half and moderate girls and that growth should should accelerate in 2024 and obviously innovation. is part of the reason why we are confident there will be new devices, new form factors, AI-enabled PCs, so a lot of new things that will accelerate and attract demand. Additionally, we are confident of the end demand because of the Windows 11 transition cycle in the end of 2023, and particularly in 2024, should accelerate. And there also should be the replacement cycle of the devices that have been accelerated shipment in 2021 that will arrive to the third or fourth year of life. So the total market, we believe, is increased. Now, to be more specific, when we look at the end demand measured by the Windows activation, we believe that the end state will be bigger than the pre-COVID end demand, approximately by a high one digit. Thank you.

This cycle has been very clear. So COVID triggered the booming of the PC demand. Then probably in 2021, we face the supply shortage so that that period activation is much higher than the shipment then it triggered the channel to accumulate the inventory so 2021 to 2000 first half of 2022 so that period shipment is high since the second half of last year. So shipment declined significantly. by 20%, 30%, but the activation didn't decline that much. So that means the activation has been much higher than the shipment. So we forecasted by the end of this quarter, So the shipment and the consistent shipment and activation will be more consistent over time. But definitely as Luca introduced, so we have a good chance to keep at a higher than pre-COVID level.

And if I may add one thing that I forget to complete your question, within this activation scenario, it's important to highlight that Lenovo activation share is gaining market share significantly at the high one digit premium to market compared to pre-COVID, meaning we are at the record level of worldwide device activation with the Lenovo brand in the world. Thank you.

Thank you. Thank you, Luca and YY. Next question? Yes, please.

Thank you. I'm Edison from Jefferies. So I have two questions for the server section, for the server segment. Number one is that can you share with us what is your revenue distribution from key markets in server? And number two is that in terms of AI server, what is the proportion of your server sales in AI and what kind of trend are you seeing in 2023 of the AI servers contribution?

Thank you. So we'll ask our ISG president, Kirk Scoggin, to answer the question. Kirk, please.

Yeah, so I think the growth of our business is very widespread. And in fact, the previous quarter, we had over 60 different records. So it's impossible to talk about this. But the key message is it's not just one part of the business. We have records in server and storage and software and edge and as a service. Our strongest geography right now is actually North America, which is also the largest total available market for the infrastructure business. And our weakest market has been China for obviously some of the macro issues that we've seen. But our exposure to China is the lowest it's been in five years. So hopefully that answers your first question. As you can see, we grew 37% year on year. So, you know, we're talking about high double-digit premium to markets. If you look at the distribution of our business, you know, about 29% growth in server, over 200% growth in storage, and that's widespread across mid-range storage, all flash arrays, entry storage, where we became number one in the world, and in cloud data. And then software is growing 25% year-on-year. So really broad-based business. From an AI perspective, definitely one of our strong growth areas. About a year ago, we consolidated about five different divisions into an edge division, which I would really say is edge AI. I mean, what we're seeing is that the amount of data in the world is exploding. Most of the statistics say that the amount of data in the world will double over the next three years, and we're only computing percent in our edge growth actually for the whole fiscal year and a lot of that is ai driven workloads things like food safety and fast food retail optimizing drive-throughs line queues in major stadiums um you know making manufacturing more effective etc so i would say the first thing on ai is is edges exploding um number two in supercomputing or international supercomputing this week in hamburg a larger and larger portion of supercomputing is ai driven to solve some of the biggest challenges of the world like cancer research things like that i'm proud to report this week as the world leader in the top 500. And also, we're number one in the number one position of the most sustainable supercomputer in the world, meaning we have the greenest supercomputer in the world at the Flat Earth Institute of New York. Third, if you just think about omniverse, metaverse, digital twins, as Jensen Wang at GTC stated, we're in collaboration with Microsoft and NVIDIA, and we are currently installing and building And I think we're very excited about that. We're working with some of the largest automotive companies in the world as they're building factories for their electric vehicles, new digital twins for their factories, planning next generation smart cities, planning next generation 5G networks. Metaverse, Omniverse is a critical part of our AI story. And of course, you know, Lenovo is unique because we can do edge to cloud and pocket to cloud. So we have the AR, VR devices, we have the workstations, we have the servers, and we have the storage, which means we're simplifying that for our end users. And then lastly, obviously, generative AI, ChatGP 2E, we're seeing, you know, more than a 30% compound annual growth rate on that, a huge amount of server and storage infrastructure being created we have over 60 ai enabled products now in the market and 70 percent of our new products that we're announcing are ai ready so this is going to be a huge growth area for us in the future and i think we're well positioned thank you thank you thank you next question please

I want to ask one more question. My question is how about the current bomb structure, especially with the decline of some semiconductor IC and also the memory price. What is the impact to our current outlook for our margin? Thank you.

yeah i think so okay my answer will be for pc maybe kirk will have a so definitely there is uh some deflationary trend for certain of the components uh well that's potentially that's a good news uh it will depend then on the market competition how much it will be able to help but obviously we believe is a is a is positive for our gp going forward uh together i think with uh with other elements which make us confident on the sustainability of our gp definitely our design in capabilities so our ability to build a kind of more effective cost structure in the pc segment mix sustaining the gp and also premium mix so but your answer is your question is about the commodities there is a moderate the fresh deflationary trend which we believe will not continue for long because as soon as the demand will rebound which we said we believe it will gradually happen from the second second half that is probably coming to an end yes thank you thank you

Now let us move our questions to, and let us take some questions from the webcast online. Our first question is from JP Morgan, Albert Hong. The question is like, why ISG operating profit margin drops dropped in Q4 FY23, while revenue remained strong. What is the demand outlook amid weakened IT budget? Shall we expect a slowdown in server revenue near terms? What's the implication for profitability? And also the second question is, could we have more colors on the restructuring please? Shall we expect more restructuring costs in the coming quarters? What could we see the cost benefit from this restructuring?

To cook, you answer the first question that we mean, probably second. Sure.

So I think let me expand it because I think it also relates to the question on memory earlier. I think certainly we still see actually growing demand in as people build private clouds and hybrid clouds. So I think our view is that there's stronger demand in the enterprise SMB market than in the public cloud market right now. Having said that, we've also told you that we have growing design wins as we move to the next. The gross profit going forward is that our SMB market will be stronger in the future. of positive operating profit but now eight consecutive quarters of year-on-year profit improvement so I'll say what I've said every quarter our goal is to drive hyper growth and improve operating profit year-on-year each and every quarter but we're investing in things like true scale as a service edge AI hybrid cloud infrastructure and AI so as a result you know we're right now for IDC, that's a 25 point premium to market. If you look at our storage growth in Q4, we grew 433% and 208% for the year in a market that's low single digit. So, I mean, we're not talking about small premium to market. So we're aggressively investing for hyper growth. And that's why part of the GP issue is, or the profit issue is there. that I think everybody follows. We did launch a new brand called Wen Tian for in China, for China. And while we're using Intel CPUs in that, we will use local memory, local drives to be even more competitive in the China market. And we've committed to be number one server vendor in China within five years. So that's also very aggressive growth at a significant premium to market. Again, we're expanding the server and storage. Remember in the Gen 3 products for both the Intel and the CPUs, all of that development was done in-house. So we're being paid through our OEM plus model for the board design, the board manufacturing, for the system integration, as well as for the rack level integration. And so across the board for both our ESMV products and our cloud products, and that will drive more profitability. And of course, you know, we talked about software growing at 25% as well. So the margin engines are continuing to grow at a premium for us. But the core answer to your question is we're investing for the future and hyper growth. which we did again this quarter for eight consecutive quarters.

So we actually improved almost 100 million year of ISG regarding of the operating profit. But definitely in short term, so for this business, the growth is still is the primary objective. But we also confident. year over year, profitability will be improved. So probably next fiscal year, we have a good chance to double the operating profit again.

So one day I'm restructuring. Yeah, okay. The restructuring expense $250 million all hit our Q4 and there are no other sort of charges. The result of that $250 million involve, I think, some rebalancing of resources action result and annual operating savings of at least $850 million.

Thank you. Next question comes from Ben Carbonate from Technology Business Research. Can we get some more colors on MBG's performance? For example, what's the stage of channel inventory? Can you provide a mixed split on 5G device versus non-5G devices? Any geographical mixed context? Where are you seeing to the strongest demand? How's the deflationary commodity impacting margin?

I think we are, as YY mentioned during his presentation, profitable for the last three years.

We are now, last quarter we grew seven points premium to market. We came from number nine in the beginning of the year to number five in IDC sales outside China. We are seeing a significant growth market holding 21% market share. And the only negative premium to market was in North America. But the new reason, as the same as PC, we saw declining issuance, but our activations year over year were to come back to premium to market in the second quarter of this fiscal year, Q3. We expect overall the business next year to be double-digit premium to market. We are now growing in new segments. Besides we are growing in Asia and Europe faster reasons from a smaller base. We see a lot of demand for the new devices, especially the premium with the Edge. We have a very important launch next week with Foldable. We expect this third generation to sell at least three times more than the two previous generations combined. More to see next week. And we are also growing where we are leveraging the Lenovo channel infrastructure with a set of devices and a Thinkphone that we consider the best pair with your Thinkpad. If you just think about the base of Thinkpads, if you can attach 10% of that, you can almost double our premium sales. It's still in that stage, but with very good feedback from the channels, some major wins. And last but not least, we started, but potential so the same way we develop the b2b infrastructure to plug into lenovo hopefully through the next year to the end you'll see major improvements in our internet of services numbers and then also leverage the footprint on ssg and merging that business so asian europe hypergrow protect latin america and north america a b2b a premium with a special focus on foldable special opportunity, but not the highest range we have in many years. Probably a range in every market we decide to range the product. And also our edge sales that were 3% of our business two years ago, it's already

Thank you. Thank you, Sergio. The next question is about ISG and SSG. This is from Jerry Xu from Credit Suites. For ISG, what's your expectations on the ESMB versus CSP growth for the coming year with enterprise and CSP controlling their CapEx? With the increasing mix of AI server with higher pass-through costs, what will this impact your margin? The second question says, for the 22% year-on-year sales growth for SSG, what is the organic growth excluding Lenovo PCCW solution acquisition? How should we think about the growth outlook for SSG in the financial year 2023 to 2024? Yes.

I go first. All right. Thank you, Jerry. So I just want to recap. So overall, I think we are encouraged to see the SSG performance as YY shares. This is the eighth consecutive quarter of double-digit year-to-year growth, and also with record high revenue and also profitability. The second thing is when we look at the market, I think there are at least two opportunities that we see, even in a challenging situation. One is opportunity around how can we provide services for our hardware so that we can continue to enhance the experience. This is starting from support services all the way to enhanced services. One other example is a month ago, we just announced what we called a Premier Support Plus Services. This is for our hardware devices and is an AI-powered predictive support services package, which we have seen a lot of positive feedback and also financial growth for our business. So this is one growth that we continue to see in the market, even with the overall dynamic situation. The other part is as a service. We just did a global CIO research, which we survey more than 700 CIO on a global basis. Gintare Karolina Dziugaitea, SRA22 Panellist, 79% of them, number one, they will continue to invest in IT services and IT technology, even with the challenging situation. Gintare Karolina Dziugaitea, Second is that they continue to see the benefit and hence the demand on overall asset service. from devices and also infrastructure. So that also reflected in our strong growth, if you look at our managed services, which is primarily driven by the asset service demand. We do not disclose our PCCW solution performances, but there are some color I can share. The venture started from August last year, and there's a clear complementary competence from both business. One from Lenovo, I think we have a very strong pocket to cloud hardware and software, where in this part of the world, PCCW solution have a very strong IT services capability, right? So we have already seen pipeline building up, and also some win cases, which is combining the best of both. For example, we just signed a contract with one of the leading transportation customers in Asia Pacific, which is to provide a cloud solution for that customer by combining the cloud hardware and software of Lenovo and also the capability of PCCW in building a cloud infrastructure for that customer. So we continue to see that synergy to contribute to our growth, and we are positive about the demand in the market.

So, Kirk, you want? Kirk?

That's it.

Can you hear me? Yes. Great. So I'll answer the question on the data center side. So, I think the question is really about versus cloud and where we see the demand. So on, I think we, we do agree with that. You see that the market's in a bit of contraction. for lenovo you know we're launching over 50 new products around our v3 platforms think system think agile think edge so we think we'll be at a significant premium to market as we look in the next year even though the market is certainly contracting a bit due to the macroeconomic situation in cloud i think we've seen softness in general compute but we're very diversified across We know we have new design wins and storage and AI, as I mentioned earlier, are very robust. While general compute, I think people are optimizing the inventory that they have. On storage, again, we're seeing tremendous growth. We achieved the number one position in the world in a strong growth area within that, not just as a server company, but as one of the fastest growing storage companies in the world. And then Edge, again, for smart retail, smart manufacturing, smart city, we're seeing this is our third consecutive quarter of triple digit growth in Edge. And I think that'll be a market that's growing to $37 billion by 2025, really larger than the entire storage market. And I think we're positioned as the industry leader there.

Thank you. Due to the time constraint, if there's any quick questions from the floor, we may take one last question. Okay, I think we have a very comprehensive explanations and presentations from the management. Thank you very much. Thank you everybody and all the participants. That's the end of our presentation. Thanks again for joining and for all the investors on site and online. To our guests on site, please stay behind and check out our new products, which are stationed outside the venue. If you have any questions, please contact the Lenovo IR team. Thank you and wish you all a good evening. Thank you.