IT upgrades and digitalisation fuels Lenovo's Q1 119% net income growth

Lenovo's latest financial results are the first time the company has reported under its new organisational structure.

Lenovo has delivered more than double its net income for the first quarter of 2022 financial year as opportunities created by digitalisation and IT upgrades in devices, infrastructure, and applications continued to fuel the group's overall profitability.

On Wednesday, the Chinese PC maker reported net income spiked by 119% to $466 million while group revenue lifted 27% from $13.3 million to just shy of $17 million during Q1. For the same period, pre-tax income was $650 million, up 96% year on year.

"The accelerated digital and intelligent transformation has created significant market opportunities globally. Lenovo is successfully seizing these as we transform from a device company to a services and solutions provider. The proof is in our performance -- this quarter alone we've doubled profitability year-on-year while net income margin reached the highest in many years," said Yuanqing Yang, Lenovo chairman and CEO.

This quarter was also the first time the company reported under its new organisational structure, which it announced earlier this year. It now compromises the solutions and services group (SSG), infrastructure solutions group (ISG), and intelligent devices group (IDG).

SSG saw revenue increase 38% year-on-year to $1.2 billion, which Lenovo said was due to strong growth across its three product segments -- support services, managed services, and vertical solutions -- and across all regions. 

"Targeted at the fastest-growing 'new IT' service segment, SSG made a successful debut in the first fiscal quarter with strong revenue growth and superior profitability. The financial results of SSG underscored the group's strategic focus on service-led transformation which has started to bear fruits," Lenovo said.

As for the company's bread-and-butter product business, IDG, it saw operating profit lift by 43% and revenue by 28% to $1.1 billion and $14.7 billion, respectively. The company said the boost was fuelled by a combination of growth in PC segments such as gaming and workstation, and non-PC segments, which accounted for 18% of IDG's total revenue. Its non-PC segments included Lenovo's smartphone business, which reported a 64% annual growth due to market share gains in America and Europe.

"As a major beneficiary of the recovery in enterprise spending, commercial PC in IDG was a bright spot with a 23% year-on-year growth in revenue. Together with the buoyant demand for high growth and premium products including gaming notebook PC, thin-and-light, and Yoga-series within the consumer PC segment," Lenovo highlighted.

ISG, according to Lenovo, achieved its "best results in five years", since its acquisition of IBM's x86 server business, delivering revenue of $1.8 billion, a 14% year-on-year increase. The company outlined the growth was made possible through improved profitability in the cloud service provider and enterprise and small and medium business segments.

In a bid to enhance competitiveness, Lenovo's ramped up R&D expense by 40% year-on-year to $86 million during the quarter. This was mainly in AI, 5G, product designs in what the company labelled as high-margin products including smarter PC, smart office, hybrid cloud, and green datacentre. 

"Going forward, we will continue to increase R&D investment, aiming to double it over the next three years; we will further improve our operational excellence; and we remain committed to green innovation and corporate citizenship to achieve long-term sustainable profitability increases," Yang said.

Other areas of focus, according to Lenovo will be in business areas such as vertical solutions, infrastructure solutions, premium PCs, and adjacent non-PC devices such as tablets, smartphones, embedded computing, and other smart devices.

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