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.