Lenovo Group Ltd S/Adr

Good morning, good afternoon, and good evening. Welcome to Lenovo's earnings webcast. This is Lixi Yuan, Director of Investor Relations at Lenovo. Thanks everyone for joining us today. 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 Intelligence Devices Group. Ashley Grauparala, President of Infrastructure Solutions Group. Ken Wong, President of Solutions and Services Group. We will begin with Ernie's presentations, and after that, we will open the call for questions. Now, let me turn it over to our Chairman and CEO, Yuanqing Yang. Yuanqing, please.

Hello, everyone, and thank you for joining us today. I'm pleased to share that Lenovo just delivered the best quarter in our entire history. Record revenue, record adjusted profit, and record AI momentum. This once again validates our strategic foresight and the strength of our execution. Powered by our hybrid AI strategy, operational excellence, and relentless innovation, we are confident in sustaining this growth momentum and driving long-term profitability. Let's start with the Group level. We delivered a record revenue of $26.9 billion, up 43% year-on-year. Adjusted net income exceeded the $1 billion milestone for the first time, up 176% year-on-year. With adjusted net margin, significantly improved by almost 2 points year-on-year. Equally important, all Binz Groups delivered strong double-digit revenue growth and set new fiscal Q1 records. And all geographies delivered strong revenue growth ranging from 25% to 58%. With the consistent execution of our hybrid AI strategy, AI-related revenue accelerated to over US$9 billion, up 60% year-on-year, now accounting for 35% of group revenue. At the same time, we continue to invest in innovation, with R&D expenses up 30% year-on-year. Beyond the impressive numbers, I want to highlight the three historical breakthroughs worth attention. First, building on our position as the market leader in PC and smart devices, we are becoming global AI infrastructure leader as well. The last quarter's performance of ISG, our infrastructure solution business, proved that it has truly become a growth and profit engine for Lenovo. Our continued focus on investing in ISG's transformation Refining its BINS model and strengthening its capabilities has paid off. This has well positioned ISG to capture the surge in AI infrastructure demand. Second, as the only official technology partner of the FIFA World Cup 2026, we deliver AI technologies and solutions at a scale never seen before. Three countries, 16 cities, 104 matches are compelling proof points for AI democratization in action. We successfully elevated our brand from PC leader to AI leader. And through this incredible global platform, we significantly strengthened our customer relationship. Third, We accurately anticipated the supply shortages and cost increases. Through our scale, our resilient global supply chain built on our global-local model and strong supply relationships, as well as the agility and efficiency of our end-to-end self-controlled operating model. We successfully turned those industry-wide constraints into competitive advantages. This not only demonstrates our ability to seize opportunities, but also validates our differentiated strengths. These results go beyond just beating expectations. The market is increasingly recognizing that our strategy is working, our transformation is real, and our performance is built to last. AI is now embedded in our products, services, operations, and innovation. It is delivering value for our customers while reshaping our processes and driving tangible growth across our business and bottom line. Now let's look at each business group in more detail. IDG or Intelligent Device Group delivered an exceptional quarter despite significant market headwinds. For our PC and Smart Devices business, we achieved record fiscal Q1 revenue, up nearly 30% year-on-year, with industry-leading profitability. We further strengthened our global PC leadership, extending our lead over the No. 2 player for the 10th consecutive quarter by more than 5 points, Tablet revenue surged more than 80% year-on-year, and our smartphone business delivered its best-ever physical Q1 revenue, up 15% year-on-year. Now let's turn to ISG, Infrastructure Solutions Group. Last quarter, when ISG returned to profitability, many asked, was that a one-off? Can this profitable growth be sustained? This quarter, ISG delivered a clear answer. Not only can it be sustained, but the momentum is also even stronger. ISG nearly doubled its revenue to a record US$8.5 billion. Operating profit reached close to US$780 million, with operating margin exceeding 9%, surpassing The previous quarter's record highs. This is the result of continued investment in cloud, edge, AI, particularly AI inferencing, which enables us to capture the booming token economy and empower our customers' agent transformation. Our dual strategy in CSP, or cloud service provider, and enterprise and SMB, continue to drive extraordinary growth across both segments. Both CSB and ESMB revenue nearly doubled year-on-year. At the same time, we drove strong momentum in both traditional and AI compute. In traditional compute, we rose to number two in the global x86 server market with profitability accelerating rapidly. In AI compute, our AI server pipeline grew to US$54 billion, more than doubling from the previous quarter. SSG, or Solutions and Services Group, delivered another outstanding quarter with revenue up 28% year-on-year to US$2.9 billion. An operating margin up 2 points year-on-year to 24% Managed services and projects and solutions together accounted for over 62% of SSG revenue, reaching a new high. After the recently concluded FIFA World Cup, we delivered a 0-4 execution at a massive scale. From front-end applications like FIFA AI Pro, Referee View AI Stabilizer, and 3D Player, to our AI-powered command center working behind the scenes to manage venue operations across the tournament. But what excites us more is the big picture of AI democratization. We are taking these capabilities such as real-time data processing and AI-powered analytics and extending them deeper into other sports. We are also scaling them across broader industries like smart cities and manufacturing, turning private data into tangible business value. And this is already reflected in our performance. Our true scale business grew 35%. Our AI library drove 50% revenue growth in projects and solutions. Looking ahead, our mission is clear, bringing AI to every individual. and every enterprise. On personal AI, we are building AI superagent Qira globally and Qianshi in China. They are orchestrated across devices and ecosystems, and with context awareness and privacy protection as the foundation, they deliver truly personalized, continuous and proactive intelligence for individuals. On Enterprise AI, we are helping customers turn private data into insights and business value, powered by the Lenovo Hybrid AI Advantage framework. Through years of consistent execution of our Hybrid AI strategy, we are fully prepared to seize the tremendous opportunities of AI democratization. Before I close, let me reiterate This quarter has once again proven that we not only deliver on our promises, but also have the capability to sustain the delivery. Operational excellence and relentless innovation are our foundation. Clear strategy and strong execution are our engine. They enable us to not only navigate the market cycles, but to seize the opportunities and win. Earlier this year, we set a goal to reach 100 billion in revenue within two years. Given the momentum we have built in Q1, I'm confident we are ahead of schedule and on track to achieve it sooner than planned. 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 results for the first quarter of fiscal year 26-27. This was a quarter that delivered our strongest performance on record with all-time high revenues and adjusted net profit. We delivered a record first quarter revenue of $26.9 billion, up 43% year-on-year, marking the highest growth in the past five years and delivering the strongest quarter in the Group's history. AI-related revenues grew 60% year-on-year and now represent 35% of Group revenues. Led by our hybrid AI strategy, we're uniquely positioned to capture AI opportunities through a comprehensive business portfolio spanning devices, infrastructure, and services, underpinning our broad-based performance in the first quarter. All three business groups deliver record-first fiscal quarter revenues and operating profits, bringing the Group's adjusted net profit to an all-time high. In IDG, we strengthen global PC leadership and widen the gap over the next player. While profitability remains stable, despite a challenging operating environment with ongoing component supply-demand imbalances impacting component costs, The smartphone business delivered double-digit year-on-year revenue growth. NISG revenue reached record high with both CSP and ENSMB revenues nearly doubling year-on-year and operating margin expanding to a record 9.1%. SSG achieved record revenues and continued to expand its operating margin. Adjusted operating income increased 141% year-on-year to $1.5 billion. while adjusted net income grew 176% year-on-year to $1.1 billion, surpassing 1 billion milestone for the first time. Adjusted operating and net margins expanded to 5.7% and 4%, respectively, supported by higher revenue scale and continued efficiency gains. Reported net income was a loss of $609 million, primarily due to the $1.7 billion non-cash fair value loss from Warren revaluation driven by strong share price performance during the first fiscal quarter and a $30 million notional interest from the convertible bonds. After adjusting for these non-cash and non-operating items, adjusted operating and net income results provide a better reflection of the operating results of the Group. Now let me walk you through the key highlights of our business groups. IDG delivered a record first fiscal quarter revenue of $17.1 billion, up 27% year-on-year. Operating profit also increased 27% year-on-year to $1.2 billion, while maintaining an industry-leading operating margin of 7.1%, reflecting our operational excellence, supply chain resilience, and continued innovation. Our global PC market share reached 24.2% in the first fiscal quarter, widening our lead over Next Player for a 10th consecutive quarter. We sustain market leadership across commercial and consumer segments and deliver a record first fiscal quarter high AIPC global market share of 25.1%. Against a challenging operating environment, Lenovo was the only one of the top three PC vendors to gain market share during the quarter while maintaining stable profitability. Our non-PC adjacencies deliver double-digit revenue growth, driving further premiumization and enhancing our portfolio mix. In smartphones, Motorola delivered the highest first quarter revenue since 2015, supported by double-digit year-on-year growth, and achieved a record premium revenue mix of 37%. A core competitive advantage for Lenovo is our broad and comprehensive device ecosystem, spanning PCs, tablets, smartphones, workstations, and other smart devices. Over the past two years, we have rapidly scaled our global install base, delivering 12.4% two-year CAGRs, significantly outpacing the overall device market over the same period. We continue to gain market share in our AI PC Premium smartphones, which builds the foundation for us to deliver our personal AI vision at scale. Looking ahead, we continue to drive growth and profitability through scale advantages, premiumization, and new monetization opportunities in adjacencies and other AI devices leveraging our global brand recognition and distribution capabilities. ISG continues to accelerate revenue growth with significant margin improvement. Revenue increased to a record $8.5 billion, up 98% year on year. Operating profit reached a record $777 million, driving operating margin to an all-time high of 9.1%. As demonstrated by our strong revenue growth and expanding profitability over the past several quarters, we are confident in our ability to lead the global AI infrastructure industry through our differentiated ODM plus strategy and unique end-to-end operating model, providing sustainable competitive strength. We saw broad-based strength across traditional compute, AI servers, and storage. Excluding the impact of international GPU sales in China in the prior year, global AI server revenues delivered triple digit year-on-year growth. Our AI server pipeline expanded to $54 billion up 157% quarter-on-quarter driven by accelerating AI infrastructure momentum and a rapidly expanding customer base. We've also expanded our North Carolina Smart Campus, adding meaningful new server manufacturing capacity to capture rising demand from hyperscalers and enterprise customers. This expansion reinforces our commitment to our global-local approach, a key advantage We have built over the years to deliver greater efficiency, agility, and speed. The exceptional results reflect the success of our dual-engine business model, with both CSP and enterprise SMB revenues nearly doubling year-on-year. Our strengthened go-to-market capabilities and leading technologies, including Neptune liquid cooling systems, are driving higher value opportunities and accelerating profit growth. Through our deepened strategic partnership with ecosystem leaders including NVIDIA, AMD, and Intel, we are scaling our AI infrastructure portfolio to capture opportunities across both training and inferencing workloads. We are also scaling GB300 deployments to capture growing AI demand while accelerating VeraRubin rack solution readiness and time to market. At the same time, AI adoption among enterprise customers is gaining meaningful momentum. Our enterprise and SMB business is strategically positioned to capture the growing AI inferencing opportunity, leveraging a scalable transactional model and simplified pre-validated enterprise solutions. Our momentum in AI infrastructure continue to drive customer wins across CSP Enterprise and SMB underpinned by the strengths in our unique ODM Plus model, global operating scale, supply chain agility, and leading liquid cooling technology. In CSP, we deliver an AI factory with over 7,000 GPUs for a leading AI cloud provider and support a rapid AI expansion of another AI infrastructure provider with the deployment of thousands of servers. In Enterprise and SMB, We helped an enterprise AI innovator to reduce model training and inference time by 70% while enabling another AI video analytics provider to deploy intelligence edge AI operational platform enhancing security through real-time analytics and cost-effective deployment. Enabled by our Neptune liquid cooling solutions, we deliver high-density AI factory solutions with 18.3 exaflops of performance. while also helping a leading university to build high-performance computing platform with improved energy efficiency, enabling advanced scientific research at scale. These wins reinforce Lenovo's position as a leading AI infrastructure partner for our customers and the strength of our execution across diverse segments. Turning to SSG, SSG delivered record quarterly revenue of $2.9 billion, up 28% year on year. with operating profit increasing 39% year-on-year to $697 million and operating margin expanding to a record 24.2%. AI services revenue grew at triple-digit year-on-year driven by accelerating customer adoption and higher returns from their AI investments. Revenue mix for managed services and project and solutions expanded to a record 62.4% of SSG revenues. Bookings in TrueScale's Infrastructure-as-a-Service deliver hypergrowth driven by AI factory success across both AI cloud and enterprise customer segments. Projects and solutions revenue growth gained momentum, supported by a robust multi-quarter booking backlog. SSG is strategically positioned in the fast-growing segments defined by AI solutions and services. During the quarter, SSG continued to outperform the market, growing nearly twice the market growth rate. AI is fundamentally expanding SSG's addressable market, adding over $200 billion of incremental opportunity in this fiscal year alone. We expect total SSG TAM to grow to more than $850 billion by FY2930, with AI-led TAM growing meaningfully faster and nearly doubling over the same period. Through its full-stack enterprise AI framework, SSG brings together infrastructure, platforms, services, and industry solutions to help customers move from AI experimentation to production. To conclude this quarter's results, highlights, and build on Yuanqing's comments about the FIFA World Cup, I would like to add more color on how Lenovo's full-stack AI capabilities were deployed at global scale and the impact this partnership delivered. We deliver 99.99% solution uptime across all tournament operations while deploying and managing more than 25,000 Lenovo and Motorola devices across more than 600 FIFA sites. This partnership also became a powerful platform for customer engagement. We hosted 16,000 guests throughout the tournament, including Fortune 500 CEOs, investors, partners, and customers, creating meaningful opportunities to deepen relationships and showcase our innovation firsthand. The brand impact has been significant. The tournament generated billions of social media impressions and tens of thousands of media stories, and we outperform in share of voice among all FIFA partners. A powerful new platform for telling the story of Lenovo AI at global scale. Our strategy is clear. Our execution is focused and disciplined. This quarter's results on the back of a record fiscal year marked by record revenue, record profitability, and AI-related revenue that now represents 35% of the Group are not just a one-time event. They reflect the compounding effect of our clear strategy, capabilities we have built over decades, and execution across every business group and geography. With our global scale, operational excellence, and innovation leadership, we are converting growth into higher shareholder returns. As we enter an accelerated era of AI-driven growth, we remain confident in our ability to sustain this momentum and deliver durable, profitable growth with even greater resilience and executional strength. We are confident in our ability to deliver the 100 billion revenue target in the near term and are on a strong path toward achieving a net income margin of over 5%. We will now answer any questions you may have.