Lenovo's AI "gamble" scored a brief victory.
On May 23, 2024, Lenovo Group announced its financial results for the fourth quarter of the 2023/2024 fiscal year (first quarter of 2024) ending on March 31, 2024.
Due to weak demand in the PC and server markets in the first half of the fiscal year, Lenovo's revenue for the full fiscal year of 2023/2024 decreased by 8% year-on-year to $56.864 billion, a narrower decline compared to the 14% drop in the previous fiscal year. The annual net profit was $1.011 billion, down by 37% year-on-year.
However, in the latest quarter, Lenovo showed clear signs of recovery. The company achieved a revenue of $13.833 billion in the quarter, a 9% year-on-year increase, significantly higher than the 3% growth in the previous quarter; net profit attributable to shareholders was $2.48 billion, a staggering 118% year-on-year increase.
"The toughest period for the IT industry is behind us," said Yang Yuanqing, Chairman and CEO of Lenovo Group, at the performance briefing on May 24, 2024.
Focusing on specific businesses, Lenovo Group's core businesses cover three main segments: Intelligent Devices Group (IDG), Infrastructure Solutions Group (ISG), and Solutions and Services Group (SSG). IDG mainly includes personal computers (PCs), tablets, and smartphones; ISG focuses on servers; and SSG, established in 2021, integrates service businesses from various sectors.
In the 2023 fiscal year, IDG, as Lenovo's main source of revenue, generated $44.599 billion in revenue, a 10% year-on-year decrease, accounting for 78.43% of total revenue. Lenovo pointed out that excessive channel inventory at the beginning of the year and industry challenges affected the full-year performance. However, IDG achieved a revenue of $10.463 billion in the quarter, a 6.8% year-on-year increase, marking two consecutive quarters of growth.
ISG reported revenue of $9 billion during the reporting period, a 9% decrease from the previous fiscal year, with a full-year loss of $2.48 billion. Global strategic shifts towards artificial intelligence and adjustments in IT budgets were the main influencing factors, along with declining demand for general-purpose servers and shortages in key component supplies.
Similarly, ISG saw a rebound in revenue in the quarter, reaching $2.533 billion, a 15% year-on-year increase, ending three consecutive quarters of decline.
SSG, as Lenovo's solutions and services division, performed well during the fiscal year, with both revenue and profits increasing. The annual revenue reached $7.5 billion, with a profit of $1.5 billion, representing 12% and 11% year-on-year growth, respectively. The department's quarterly revenue was $1.82 billion, a 10% year-on-year increase.
From the financial data, it is evident that Lenovo's three main businesses began to recover in the recent quarter, with artificial intelligence (AI) playing a crucial role in this transformation, benefiting all three business segments significantly.
Taking the IDG business as an example, especially its PC division, market research firm Canalys data showed that global desktop and laptop shipments declined by 11.5% and 7% year-on-year in the second and third quarters of 2023, respectively, which was a major reason for IDG's previous weak performance.
However, by the fourth quarter of 2023, the global PC market began to show signs of recovery. According to Canalys, shipments of desktops and laptops grew by 3% and 3.2% year-on-year in that quarter and the first quarter of 2024, respectively.
AI played a significant role in this, with market research firm Counterpoint predicting that by 2024, 45% of new laptops shipped will have AI capabilities, marking the beginning of the AI PC market.
Since announcing the comprehensive promotion of the AI PC strategy at the global TechWorld conference in October 2023, Lenovo and its CEO Yang Yuanqing have emphasized increased investment in the AI field several times in just a few months. This strategic shift has been a key factor in the recent quarter's recovery in IDG's performance.
However, despite Lenovo's active investment in AI technology, its competition in the AI field is not isolated. Chip manufacturing giants such as NVIDIA, Intel, and AMD have all introduced new products this year, intensifying competition in the upstream of the industry chain.
At the same time, in the end-user market, Microsoft recently released its AI PC powered by Windows 11, while Lenovo and other manufacturers such as Dell, Acer, ASUS, and HP have also launched a series of new AI PCs. Currently, the industry has yet to unify the definition of AI PCs, making the battle for market dominance exceptionally fierce.
Looking at the overall financial report, while Lenovo showed growth this quarter, the sustainability of this growth remains a question. Fluctuations between quarters may be short-term phenomena, and whether Lenovo can sustain this high growth trend in the coming quarters requires further observation.
Furthermore, although AI is a potential growth point, Lenovo's reliance on it as a key variable for performance recovery poses significant risks in this "gamble" strategy.
