Lenovo Group Ltd S/Adr

Good morning, good afternoon, and good evening. Welcome to Lenovo's Earnings Investor Webcast. This is Lixi Yuan, Director of Investor Relations at Lenovo. Thanks everyone for joining us. Before we start, let me introduce our management team joining the call today. Yuanqing Yang, Lenovo's Chairman and CEO. Winston Cheng, Group CFO. Luca Rossi, President of Intelligent Devices Group. Ashley Grapparala, President of Infrastructure Solutions Group, Ken Wong, President of Solutions and Services Group, and Sergio Buniac, Senior VP of Mobile Business Group and President of Motorola. We will begin with earnings presentations, and after that, we'll open the call for questions. Now, let me turn it over to Yuanqing. Yuanqing, please.

Hello everyone and thank you for joining our earnings quarter there. Our strategic foresight and firm execution enabled us to deliver the best year in Lenovo's history while navigating a complex and challenging external environment. Last quarter, despite the supply shortages and rising component costs, We committed to sustaining growth and improving profitability, leveraging our operational excellence. We delivered and achieved a significant increase in group revenue and net income, both reaching the highest year-on-year growth in the last 20 quarters. We promised to maintain our PC revenue momentum despite our slowdown in PC shipment due to rising costs. We delivered. We shifted our mix towards premium to improve average unit revenue and our PC shipment growth continued to outperform the market. Our PC revenue significantly increased by 28% year on year. Regarding our infrastructure solution growth, we promised to return it to sustainable, profitable growth. Once again, we delivered. Through business transformation, strategic restructuring, and by capturing the AI trend, we achieved not only revenue hypergrowth, but also record profit. Looking ahead, we are fully charged to lead in the era of AI democratization and create long-term value for our shareholders. Now, let me dive into our fourth quarter performance. On the group level, we achieved a record fourth quarter revenue of $21.6 billion, up 27% year-on-year, the highest growth since the pandemic. Adjusted net income doubled year-on-year, and Hong Kong FRS net income increased nearly six-fold. AI has become our leading growth engine. AI-related revenue grows added 4% year-on-year to account for 38% of the group total. IDG, or Intelligent Device Group, delivered exceptional results with strong growth momentum. Revenue increased 24% year-on-year. For our PC and smart devices business, we achieved strong revenue growth up 26% year-on-year, the highest in the past five years. Especially in PC, we maintained a significant profit lead against competitors while continuously outpacing the market by nearly 6 percentage points. We are the only vendor among the global top 5 to deliver consecutive positive year-on-year shipment growth for the past 10 quarters. Our PC market share reached a fourth quarter record high widening our lead of the number two player to a 15 years high. And our leadership was further solidified in AI PC, Premier PC, and Gaming PC. Taken together, this clearly proves the strength of our overall competitiveness from innovative product portfolio to excellent business model and operation. For our mobile business, Motorola Smartphone achieved record first quarter shipments with double-digit revenue growth ISG or Infrastructure Solutions Group delivered the turnaround as we expected with the highest ever operating profits and margins since we entered this business as well as record quarterly revenue of US$5.6 billion up 37% year-on-year. This is a significant inflection point for ISG. Our strategic transformation efforts are on track to turn our infrastructure business into another engine of both growth and profitability for company. And we are seeing robust momentum across the board. Our AI server business has a strong pipeline of US$21 billion, supporting continued growth momentum. Our new Lenovo Hybrid AI Advantage solutions with NVIDIA are accelerating enterprise AI adoption in cloud-scale deployments and enabling real-time inferencing. And the InfinityEd acquisition that was completed in early April strengthens our high-end enterprise storage capabilities. This unlocks additional long-term potential for margin expansion and broader market opportunities. SSG, or Solution and Services Group, sustained its double-digit year-on-year revenue growth to $2.6 billion, with a higher operating margin, above 20%. A record 62% of revenue comes from managed services and projects and solutions, reinforcing the shift towards value-added offerings and recurring revenue services. Our subscription-based true scale continues to gain momentum as enterprises increasingly demand more advanced, efficient, and cost-effective computing infrastructure in the AI era. Our solutions business also continued to grow rapidly across key verticals, including manufacturing, retail, and sport. That wraps up our outstanding performance in the fourth quarter, which brought the fiscal year to a strong conclusion. Now, let me also briefly talk about our full-year performance. Group revenue surpassed the $88 billion US dollar mark for the first time at $83 billion, up 20% year-on-year. Adjusted net income grew 42% year-on-year, twice as fast as revenue growth. All business groups achieved double-digit hyper growth. Especially, what's mentioned is ISG delivered a record revenue of $19.2 billion. successfully reaching full-year profitability with a significant 140 million year-on-year operating profit improvement. ISG is now on a clear path to sustainable, profitable growth. With R&D expenses up 9% year-on-year, we are committed to increasing our investment in AI-focused innovation. This January, at our Techwater CES event, we showcased our hybrid AI vision, strategy, and innovation, reinforcing our global leadership beyond the PCs as a full-stack AI leader. Looking ahead, while the external environment remains volatile, We view these challenges as opportunities for Lenovo to further strengthen our competitiveness and build on our advantages. Let the confidence start with operational excellence. Our balanced global business and manufacturing footprint combined with the global local model has given us structural resilience. And that same confidence is fueled by our forward-looking hybrid AI vision and strategy. This has put us at the forefront of AI inferencing and AI democratization. We are now ready to capture significant growth across both personal AI and enterprise AI. On the personal AI front, guided by our one personal AI, multiple devices strategy, Our on-device AI delivers secure, personal, and cost-efficient intelligence. In the coming year, we expect to deploy our personal AI superagents, Tianshi and Lenovo Kira, to millions more devices across form factors and platforms. We are also exploring a wide range of next-generation AI-native devices, These include next-generation PCs and smartphones specifically for AI agent use, AI wearables, as well as personal computing hubs. On the enterprise AI front, we continue to enrich our AI library under the Lenovo Hybrid AI Advantage framework. We are building repeatable AI solutions both vertically across key industries and horizontally across areas like hybrid cloud and the digital workplace. We are also actively expanding our true scale services to capture the surge AI inferencing demand. Our vision is to bring AI to every individual and every enterprise, everywhere, anytime. In closing, let me reiterate at Lenovo, We do what we say and we own what we do. This past fiscal year speaks for itself as the strongest proof. We delivered record revenue, record market share, and record AI momentum. But this is just the beginning of Lenovo's AI decade. Looking at the months ahead, Lenovo has a big role to play as the official technology partner for the FIFA World Cup and 22 Formula One Grand Prix races worldwide. These global stages will allow us to unleash our technology to support teams and bring fans the best viewing experience while landing our air strategy and elevating our brand at the scale. At our global employee kickoff event, we set a target to become a hundred billion company in two years. With operational excellence and innovation as our twin pillars, I'm fully confident in achieving this goal. We will continue to deliver strong shareholder returns and truly realize smarter AI for all. Thank you. Now, let me turn it over to our CFO, Winston. Winston, please.

Thank you, Yuanqing. I'm pleased to walk you through Lenovo's fourth fiscal quarter and full year results of 2025-26, a year that delivered record revenues with margin expansion and accelerating momentum in AI-driven growth across our entire product and services portfolio. We delivered record fourth quarter revenue of $21.6 billion, up 27% year-on-year, the highest year-on-year growth rate in the last five years. This exceptional performance with broad-based strength across all business groups was driven by the strong AI-driven demand and underpinned by our resilience and operational excellence, despite rising component costs and the war in the Middle East. AI is at the heart of our multi-year growth trajectory. Our AI-related revenues grew 84% year-on-year, representing 38% of total Group revenues for the quarter. This acceleration reflects strong demand across AI-enabled devices, infrastructure solutions, and enterprise services, underpinned by our global reach, scale, broad product portfolio, and continuous innovation. Across our business groups, IDG achieved record global PCE market share for the fourth fiscal quarter. while maintaining stable operating margins with industry-leading profitability despite component cost pressures. Motorola smartphones deliver its highest quarterly shipment volume for the fourth fiscal quarter with operating margin expansion. ISG demonstrated solid transformation progress, achieving record quarterly revenue and operating profit of $202 million. The business delivered full-year profitability while establishing a clear, sustainable roadmap to capture future AI infrastructure opportunities. SSG achieved revenues of $2.6 billion, with a record 62% of revenues from managed services and projects and solutions, reflecting continued portfolio shifts toward higher-value recurring and solution-led offerings. These strong results and profitable growth across all business groups clearly demonstrate our operational excellence, enabling us to turn macroeconomic challenges into opportunities while further reinforcing our core competitiveness in the AI era. This has been a record year in our 40 years of history, and we will continue to drive higher revenues with profitability improvement. In a year of macro headwinds with tariffs, higher component prices, and a war in the Middle East, we have delivered on what we promised, leveraging the strengths of our experience, global supply chain, manufacturing, strong execution, and product innovation. We surpassed the $80 billion revenue against a challenging macro environment, and we have a clear ambition to become a $100 billion company in two years. In fiscal year 26, all business groups deliver solid double-digit year-on-year revenue growth and further expanded market share across PC, smartphones, infrastructure services, and solutions. AI-related revenues more than doubled, growing 105% year-on-year. In IDG, we strengthen our market leadership in all PC segments, while PC adjacencies continue to deliver double-digit year-on-year revenue growth with a clear uplift in margins. In smartphones, we achieve record shipments and activation for Motorola, with the highest premium shipment mix of 19%. ISG is well positioned for future growth and accelerated profitability improvement. We are experiencing accelerating growth momentum from AI training to enterprise inferencing. This financial year, ISG achieved record revenues and profitability with a strong AI server pipeline for continued future expansion, supported by an expanding global customer base who increasingly value Lenovo's ability to deliver an optimized AI portfolio. We continue to see strong demand across CSP and E&SMB, with AI infrastructure becoming a key growth engine for the year ahead. In SSG, we reached a revenue milestone of $10 billion, and more than doubled operating profits over five years. We entered the next year with strong momentum driven by growing demand for TrueScale as customers increasingly look for financial flexibility and services in accelerating enterprise adoption of hybrid AI solutions. In the fourth quarter, our adjusted operating income delivered 73% year-on-year growth and operating margins expanded to 3.9%. Our adjusted net income doubled during the quarter and grew to $559 million, growing at nearly four times the rate of topline. Adjusted net margins increased to 2.6%. For the full financial year, we delivered both operating and net margin expansion, driven by operating efficiency gains, higher scale, and strategic revenue mix improvements across the group. Adjusted net income grew 42% year-on-year, more than doubling revenue growth. For FY25-26, basic earnings per share reached 15.63 USD. The Board declared a final dividend of 33.7 HKD per share, combined with an interim dividend of 8.5 HKD per share. The total dividend for the fiscal year will be 42.2 HKD per share, our highest dividend ever. Now let me turn to IDG. In the fourth quarter, IDG delivered 24% year-on-year revenue growth to $14.6 billion. Operating margin was 6.9%, supported by disciplined execution, operational excellence, and continued innovation. PC shipments delivered a record fourth quarter global market share of 24.4%, up 1.3 percentage points year-on-year. Premium PC Shipment Mix reached 50% in the fourth quarter, with shipments up 29% year-on-year, reflecting strong execution in the higher value segments. In smartphones, we delivered double-digit revenue growth year-on-year in the fourth quarter, expanding the year with record revenue. Looking ahead, smartphone profitability expansion will continue to be driven by scale economics, premiumization, AI and software ecosystem integration, and monetization opportunities. Our devices product roadmap continues to reflect focused innovation in areas where we see rising customer demand and market opportunities. In PCs, we launched our latest ThinkPad T-Series, designed for longer productivity with a high-density battery. We also enhanced the services offering to deliver greater lifecycle value for enterprise deployments. On the gaming side, We introduced Lenovo's first Legion gaming laptop built on a unified memory architecture, bringing a matched battery life and performance featuring pure sight OLED display for better visual experience. To capture demand from agentic AI, we launched a ThinkCentre Neo50Q with open-call functionality designed for SMB customers seeking AI-driven productivity and enhanced performance for AI-assisted workloads. In PC adjacencies, our signature ultra-wide ThinkVision P40WD monitor delivers 34% lower energy consumption. Its energy-efficient features enable a three-year payback and zero cost of ownership, demonstrating how innovation can drive both customer value and sustainability outcomes. In smartphones, the Razer family and signature FIFA World Cup edition is titanium reinforced with exclusive tournament features, further strengthening our premium portfolio and brand appeal. In personal AI, Lenovo and Motorola officially announced the rollout of Kira in April, 2026, our personal ambient intelligent super agent that captured the industry's broadest cross ecosystem footprint spanning PCs, tablets, smartphones and wearables. Built with privacy by design, hybrid AI architecture prioritizes on-device processing to keep personal data local, preserving personalized context-aware assistance and connected user experiences across AI devices. Through a growing partner ecosystem, Kira also creates ongoing opportunities for premiumization and monetization through value-added services on premium devices. Now moving on to ISG. Our hybrid AI strategy is providing a clear and differentiated path to capture both AI training and enterprise inferencing opportunities. The strategy is now translating into the strongest performance in ISG history. ISG's position as a key player in the AI investment super cycle reflected in record fourth quarter and four-year results. With hyper growth at a clear premium to the market, we continue to expand server market share, standing out as the only vendor ranked amongst the top three both globally and in China. In the fourth quarter, ISG delivered a record revenues of $5.6 billion, up 37% year on year, while operating profit reached a record $202 million. We will continue to strive for further margin improvements benchmarking against the industry. Third-year revenue reached a record high of $19.2 billion, up 32% year-on-year, and operating profit rose to $73 million. This is the major milestone for the business, marking not only the best revenue performance, but also a clear proof that our transformation is driving sustainable profitability and long-term value creation for Lenovo shareholders. We are seeing strong demand across CSP and E&SMB, and AI infrastructure is rapidly becoming a material growth engine for ISG. Our AI server revenue delivers high double-digit full-year year-on-year growth, supported by a strong $21 billion pipeline and more than 5,800 AI customer deployments, with demand continuing to outpace available supply. We are turning AI momentum into real customer value through faster time-to-first token, scaled initial rack shipments, and continued innovation across our AI infrastructure roadmap. Last quarter, we shipped our first GB300 MVL72 racks, and we are preparing Reuben-based platforms for targeted time-to-market in the second half of this year. We believe this is just the beginning of a multi-year growth cycle and Lenovo is well positioned to benefit. Our product innovation, customer focus, resilient supply chain, operational excellence, and expanding production capacity give us the ability to scale with customers and navigate a dynamic AI data center environment. In early April, we completed the acquisition of Infinidat, a strategic step that strengthens Lenovo's position in high-end enterprise storage. This allows us to capture the $38 billion addressable enterprise storage market with critical IPs to capture the full value across key verticals. Infinidat brings industry-leading innovation capability while Lenovo brings global scale competitive infrastructure portfolio and a proven execution engine. Together, We are expanding our reach to deliver high-end storage solutions worldwide and create a stronger path to higher margin growth over time. Turning now to SSG. SSG has continued to deliver consistent double-digit year-on-year revenue growth, growing significantly faster than the broader IT services industry. In fiscal year 2025-2026, SSG has reached a new revenue milestone of $10 billion and operating profit more than doubled in the last five years, reflecting the advantage of our tech-led labor light delivery model. In the fourth quarter, SSG grew 19% year-on-year to $2.6 billion, while operating margin reached 22.4%. Demand for consumption-based solutions remains increasingly strong as customers navigate inflationary pressures in a more complex macroeconomic environment alongside a surge in AI-driven compute demand. TrueScale is a key thought driver enabling customers to move from infrastructure to AI in production through an end-to-end offering spanning design, build, and operate. We're seeing strong DAS and infrastructure as a service demand as enterprises and cloud providers look for greater cost predictability, supply assurance, and more flexible ways to scale AI capabilities. As agentic AI drives exponential growth in inferencing demand, enterprises increasingly need validated hybrid AI platforms that can deliver superior economics at scale. One of the biggest barriers to AI adoption globally remains uncertain return on investment, and this is exactly where a hybrid AI advantage is differentiated. Combining private-public environments to accelerate time to first token, improve token efficiency, and maximize value per token. Lenovo Hybrid AI helps enterprise customers shorten time to ROI to less than six months while delivering production-ready AI environments in as little as 90 days. The Rubin-based platforms deliver up to 10 times lower cost per token versus previous generations, helping customers bring AI workloads on-premises with greater efficiency and stronger control over data and clear, repeatable business outcomes. With Lenovo's hybrid AI advantage at its core, our AI library now includes more than 60 enterprise-ready use cases across sectors such as manufacturing, retail, and sports, with repeatable and measurable outcomes. Our AI-driven lights-out contact center improves customer experience and also enhances operational efficiency by 60%. Built on our expansive manufacturing footprint and partnership, we have deployed AI-powered RoboDocs across more than 50 utility sites globally, improving detection accuracy, cost savings, and safety. In sports, FIFA AI Pro demonstrates how our enterprise AI capabilities can scale across one of the world's most data-intensive environments. The solution analyzes more than 2,000 metrics to deliver real-time insights, supporting all 48 teams in the FIBA World Cup 2026 across three countries, delivering faster, more data-driven decisions. The Group's long-standing commitment to strong governance, sustainability, and inclusion continues to earn global recognition. In 2025, Lenovo was named to CDP's corporate A-list for climate leadership, maintaining a AA plus rating in the Hang Seng Corporate Sustainability Index and retains the EcoVadis Platinum medal, placing the group amongst the top 1% globally for ESG performance. Building on this recognition, Lenovo continues to deliver concrete progress across operations and products. We remain on track to reach net zero emissions by 2050. have converted 90% of electricity used across global operations to renewable sources in the past six years and now include post-consumer recycled materials in 100% of our PC products. Smartphone packaging now uses 60% recycled materials and has reduced single-use plastics by 50%. Beyond environmental leadership, Lenovo's people-first culture continues to be recognized by Forbes as one of the world's top companies for women and one of the world's best employers. Sustainability and responsible growth remain foundational to our long-term success in shareholder value creation. Looking ahead, our strategy remains focused and highly disciplined. With our proven operational excellence and agile supply chain, we continue to execute to outperform even in volatile markets. As we enter the next fiscal year, we're confident in our ability to capture multi-year opportunities and to accelerate into an era of growth with profitability expansion delivering greater value for our shareholders. Thank you. We will now answer any questions you may have.

Thank you, Winston. Now we will open the floor for questions and this session will be English only. Please be reminded to limit yourself to two questions at a time. To submit a question, please type your question in the Q&A box on the right and click Submit. While we are waiting for the questions, allow me to introduce the management team again. Other than our Chairman Yuanqing Yang and CFO Winston Chen, we also have the following business leaders with us today for Q&A Luca Rossi, President of Intelligence Devices Group Ashley Grapparala, President of our Infrastructure Solutions Group Ken Wong, President of our Solutions and Services Group and Sergio Buniac, Senior VP of Mobile Business Group and President of Motorola

Now we'll begin our Q&A session. The first question is from Tony Zhang from CLSA. The question is asking what's your long-term revenue target and plan to drive sustainable margin expansion? I would like to invite our Chairman and CEO, Yuanqing, to answer this question, and perhaps also our CFO, Winston Chen, to address the margin question part. Yuanqing, please.

Thank you, Tony, for the question. Definitely our strong Q4 and full year results are the best testament to our commitment to hybrid AI innovation and operational excellence. Based on this foundation, Our long-term goal is to reach the 100 billion revenue target. So actually it's not that long. We want to achieve that in two years. We will continue expanding our margins to an even more decent level. We will achieve this goal through three clear strategic pillars. First, we will expand our leadership in devices while maintaining industry-leading profitability. Despite the challenging operating environment, we continue to grow above the market, powered by innovative products, excellent business models and operational excellence. I particularly want to mention our excellent supply chain. gave us a lot of advantage. So we leverage our scale, diversify the sourcing strategy, strong vendor's relationship to support our business. to overcome the supply shortage and increasing material costs. We are very confident we can navigate through these challenges and become even stronger than before. Stronger means... We can further gain market share while we can further improve the profitability. Second, we will capture the multi-year AI infrastructure opportunity. Demand for both AI training and inference is accelerating. We are expanding our Cloud service provider customer base, not just in the hyperscale but also in the near cloud. We are also seeing enterprise AI adoption pick up a real momentum. Lenovo is a very unique company to address all these markets in the AI infrastructure area. We are top three vendors in both China and the rest of the world. We can leverage our ODM Plus model to address hyperscale and Neon Cloud. Meanwhile, we have been an enterprise and SMB business for more than 10 years. So that will give us a very unique strength to deliver strong growth. To turn this demand into sustainable and profitable growth, we are focused on two priorities. Strong go-to-market capabilities and optimize the AI portfolio that delivers clear value to our customers. Third, we will scale our service business with a tech-led, labor-like model, building recurring revenue streams. There is a strong demand for AI-driven, consumption-based solutions. With our true scale end-to-end offerings and our AI library, we are well positioned to deliver value in production and at scale. Taken together, these three engines will give us the confidence and the roadmap to reach our long-term vision and goal.

Thank you, Yuanqing. Winston, would you like to add any additional points?

I think just to the point of the $100 billion goal and margin expansion, we clearly have opportunities both in terms of our scaling effect on the gross margin front. As you can see from ISG this quarter, that scale and operational excellence has led to a significant dollar gain and margin expansion there. Clearly, as we continue to enter that area in terms of ISG profitability, I think that industry normal margins there is actually quite high in terms of the potential and so I think that brings us a path that potentially could exceed someday our IDG business which also continue to have opportunities there as well. So I think from that perspective, alongside the opportunity of AI infrastructure spent, as Yuanqing mentioned, in terms of TrueScale, which is in our SSG business, that continues to offer customers today an alternative to the CapEx and OpEx with respect to additional services that gives them the agility to plan their infrastructure spent. So I think from that perspective, our path is towards an increasing margin expansion story as we capture the AI opportunity. Thank you.

Thank you, Winston. Second question is from Kina Wong from Citi. So it's for PC business. Did the company see major pull-in happened in the first quarter of calendar year 2026 to support a stronger result? Will there be any risk to the coming quarters on the demand side? Given the CPU and memory shortage, we see many peers lower their calendar year shipment target. Does Lenovo experience similar situation that the shortage is worse than originally expected? I would like to invite our IDG president Luca to address this question.

Thanks Kina for the question. So in calendar Q1, our last fiscal Q4, we definitely observed strong demand which might partially be linked to some pull-in but I don't think that it will be a substantial number. Our sell-out Both were and are still very strong and we also maintain the right level of inventory when we enter into the new fiscal year in April. Definitely we are seeing some tight supply on certain components, particularly as you probably know in the semiconductor area. However, we feel confident about our ability to procure the parts we need. and we did not adjust our full year target based on supply constraint. Rather, we will align the Schemen target based on the real market and demand in order to maintain an healthy channel inventory and with the goal of maintaining a solid premium to market like we did now for the last 11 consecutive quarters. So we anticipate that Units will be down year over year in this fiscal year but at the same time we expect to maintain or very likely grow our revenue linked to the significant growth of the AUR and we are confident that we will also maintain our industry-leading profitability with our strong supply chain and definitely with our operational excellence and the global local business model. Thank you.

Thank you Luca, that's great. Third question is coming from Tony Zhang from CLSA. What is your IDG business margin outlook for the coming quarters? Why are PC and smartphone margin maintained so well regardless of the cost increase? Which is more resilient between PC and smartphone business and make the BOM cost increase? I would like to invite Luca and perhaps also Sergio to address this question.

Luca, what do you think? Our Chairman and CEO just mentioned we definitely have a very strong supply chain and I think we are uniquely positioned to navigate this inflationary cost environment thanks to that supply chain capability, thanks to our procurement scale and last but not least I also say thanks to our design to cost capabilities. With this in mind, I believe we will navigate this cycle like we just did many times in the past Sustaining our margins, protecting our profitability, which includes the margin side, but also includes a tight discipline on expenses, as we usually do. And I think you can apply this logic and this kind of philosophy to all our devices business, so that includes PCs and the smartphones as well. Thank you.

Great. Thank you, Luca. We're going to move on to the next question, which is from Albert Huang from JP Morgan. Could you share more colors on how Lenovo managed to improve the ISG business? Is it mainly driven by scale or product mix change? Ashley, would you like to answer this question, please?

Sure, thank you. I think there's a couple of questions that are probably combinable here for me to answer. First of all, I'll talk a little bit about the market. The AI infrastructure market and the customers that we have are really at an inflection point. Many are transitioning well beyond pilot for AI and into implementation. And enterprise use of AI agents coupled with the economics of more efficient tokens but literally hundreds more token usage is really poised to grow The addressable market in hybrid AI for our industry to $1 trillion by 2029. We have an awesome opportunity in front of us. In order to capture that opportunity, since I've joined Lenovo, we've been laser focused on transformation into a world-class AI technology partner. We're quite confident and how these changes are going to position us and have positioned us to assist our customers with their digital and their AI transformation. Just some examples. We've completely revamped our internal delivery process to operate at AI speed now. Over today, going from zero to now over 40% of our engagements are now handled in minutes, sometimes hours instead of weeks. We have had the biggest refresh of our product line in our entire history of the Think Series portfolio around AI inferencing and how to optimize token economics. We've used AI internally to accelerate our go-to-market engagements with our partners. The workflow is now simpler, it's much faster. And as we discussed last quarter, our sales and technical engineering teams have gone and extensive skills transformation into the AI expertise domain. We've added state-of-the-art rack-level manufacturing capacity into our network in order to meet the demand that is accumulating in our AI pipeline. We've introduced unique Gigafactory partnership with NVIDIA as a partner to deliver data center-level capability to customers that require scale and speed to first open. We've combined what is really Lenovo's unmatched HPC and Super Compute IP expertise and legacy, for example, Neptune Liquid Cooling, which is now on its seventh iteration, with a commitment to day one availability of NVIDIA, Vera Rubin, and AMD Helios to give our customers the most robust AI portfolio from edge to data center to cloud. So transformation for me is an infinite game, but we are very confident that we are on track. So our AI focus combined with our world-class supply chain, and as we mentioned before, our true scale model and flexibility is really what is driving our 20 plus billion dollar pipeline with literally thousands of customers that are new and long-term to Lenovo.

Thank you, Ashley. Since we're talking about the AI Server Pipeline, we've got a question from Lilin Huang from Huanghai Security. It's asking the 21 billion AI Server Pipeline is impressive. Can management provide more color on the customer mix, specifically the split between CSP, Enterprise, and SMB, and sovereign AI customers? On the product type mix, what is the mix between training and inference?

Sure, thanks for the question. Because Lenovo and the hybrid AI advantage is able to actually address the entire marketplace from edge to data center to cloud. Our customer mix actually follows the market dynamics. We've seen an incredible rise over the last, say, 18 months of training at scale, mostly delivered through our CSP unique delivery model. and Capability. And now we're seeing this inflection of enterprise AI capability that is mostly at the enterprise level, global account level, large enterprise level. Small medium businesses are beginning now to move from pilot to production with AI and maybe are in the later part of this shift. We also interestingly see a very I think we're uniquely positioned across the industry to be able to help transform customers Today, I think we are probably going to see the mix shift heavily over the coming year towards inference and token economics. And that's why we're preparing both our product line for inference, our true scale capability to help customers with flexibility, and our product set to be able to span from data center to edge to cloud.

Thank you, Ashley. There's another question on ISG from Pina Wong from Citi. How would the Infinidat acquisition contribute to the ISG business? Could you share the revenue expectations and synergy amplifying?

Sure. Thanks for the question. First, let me say how excited and happy I am to have the Infinidat team join the Lenovo family. especially if you're listening to everyone, this is our first earnings announcement and one of the few questions we have is about you and so you should know the importance that you have within our family as I've told you many times. I'd also like to welcome all the Infinidat customers to Lenovo family. Your reliance on Infinidat's incredible performance, mission critical storage capability, Incredible latency capability and cyber resilience backup and recovery is in good hands and we look to expand the capability that we have with Infinidat. So what is important from an Infinidat standpoint is twofold. One, incredible IP and capability with Infinibox and the Infuse OS. We are a scale company. We help customers across the spectrum with AI and now we have the capability to bring mission-critical storage into our Lenovo Hybrid AI Advantage layer. The data layer is incredibly important. We've addressed this with our mid-range storage product set, but we understand that there is a set of customers that require mission-critical capability that Infinidat brings to us. will be scaling that capability as Lenovo has a history of bringing technology forward, driving incredible scale to that. On the other hand, the Infinidat team brings incredible IP capability, but also customer engagements that now are within the Lenovo family. And so we look forward to being able to have addressable 85% of the entire market, which is a $38 billion TAM, and the highest value portion of the TAM in the AI industry. So again, early days, just closed last month, but already the teams are working as a family and we're very excited about this going forward.

Thank you, Ashley. We've got questions on SSG from Randy from UBS and also Jun now from DBS. So the question is about AI related service. Are you scaling up The AI related services the fastest today and when can they start to drive the service revenue? And also from Jim, what percentage of the SSG revenue is now recurring or contract-based and what's the growth outlook of AI related services compared to true scale and managed services?

Ken, please. Thank you, Rindy and Jim for the question. So let me address the AI question because this is the most Thank you for that interesting question to me. So for sure, I think everyone is talking about AI and especially in the services market, AI is resetting the whole landscape. When we talk to our customer, I think the challenges or the requirements are longer about experimentation. AI into production fast, efficiently and at scale with real business outcomes. And I think this is what SSG is built for. So with our Lenovo Hybrid AI Advantage, we focus on three things. Number one, time to first token using our AI factory to integrate our global supply chain and also our infrastructure solution from Ashish Organization and also access to Accelerator to help our customer to achieve the shortest time to first token. The second thing that we focus on is actually value per token using our AI library and our set of AI lifecycle services to help our customer to deliver measurable outcomes. And last but not least, both are underpinned by our upgraded, our new TrueScale offering, which making deployment and operation scalable, flexible and predictable. I think the predictability as of now is super important when we talk to our customers because with all the fluctuations in commodity costs, uncertainty in terms of supply, this offering resonates really, really good with our customer because we're true scale offering across our devices. Our edge and also our infrastructure, of course, right? With TrueScale, we give peace of mind about supply assurance and also a predictable cost for the overall equation. Now, there's a question about the mix between Recurring Revenue and the other revenue. We don't disclose revenue in that way. But I think to me the most important thing and the good news is that how are we creating, generating the intimacy with our customer? How are we creating the stickiness with our customers so that we can continue to grow our business? And this is exactly TrueScale can offer that because, you know, TrueScale offer the full hardware, software and services in a consumable manner. With that, I think we can get to the customer to create outcomes. The better we understand the customer, the more services and solutions and hardware that we can provide to our customer. We continue to see a very good demand with our customers because the TrueScale solution resonates with the customer and we continue to see a very high renewal rate for our existing TrueScale customers when they renew the contract and also a very good momentum in terms of executing land and expand meaning understanding more about customers and selling more of the novel technology to our customers. Thank you.

Thank you, Ken. Next question is from Jordan Pong from Franklin Templeton. The question is on Middle East Unlocked. During the update on the partnership with Unlocked, for the Middle East conflict, do you see any impacts in production and development plans? What's the CAPEX outlook for the coming financial year? I would like to invite our Group CFO, Winston, to address this question.

Thank you, Jordan. First of all, it's a long-term partnership for us, so it's a very long-term strategic vision and we're making Thank you very much. Thank you. really the acting CEO just visited us as part of the board member duties. And so continue to be very much of a strategic partnership, an important partnership for LALAT as well in terms of Lenovo. So overall, I think we're still keen in terms of AI initiatives for the kingdom and for the region, and we're well positioned to capture that long-term opportunity there in the market. In terms of CapEx outlook, There are some additional capex given the strong growth of ISG. And so I think from that perspective, there will be investments as part of the potential capture of additional opportunities in the ISG business that we will be spending to support that business. So thank you.

Thank you, Winston. Given the time that we have, we will not take further questions. There are still questions at the back end. If you would like to reach out to our company and its management, please contact our IR team. Thank you very much for attending today's earnings webcast. Goodbye.