Lenovo Group Struggles for Turnover

In fiscal year 2023, Lenovo Group is still struggling in the quagmire. On May 23, the financial report data released by Lenovo Group showed that in the 2023/2024 fiscal year ending March 31, 2024, Lenovo Group's revenue was $56.864 billion, a year-on-year decrease of 8%, and its net profit was $1011 million, a year-on-year decrease of 37%. As for the decline of net profit, Lenovo Group said that it reflected the overall regression of the whole industry in the first half of the year.

Since 2022, the PC market has entered the stage of "de stocking", and the global cooling of the consumer electronics industry has inevitably affected this leading PC enterprise. Data shows that in the 2022/2023 fiscal year, Lenovo Group's revenue was $61.947 billion, down 14% year on year, and its net profit was $1.608 billion, down 21% year on year.

In that year, the total shipment of personal computers in the world was 285 million, a decrease of 16% over the previous year, and the shipments of major PC manufacturers also declined to varying degrees. Although Lenovo still won the first market share, its annual shipment volume was 68.1 million units, down 17% compared with 2021.

Wang Peng, associate researcher of the Beijing Academy of Social Sciences, said to the reporter of Beijing Business Daily that in the past few years, the traditional PC industry has experienced a dilemma of sluggish sales. The main reasons include the decline in consumer interest caused by slow technology updates, mobile devices (such as smartphones and tablets) The popularity and function enhancement of PC have eroded the influence of some PC markets and changes in the global economic situation on consumers' purchasing power. "These factors work together to stagnate the growth of the traditional PC market.".

Lenovo Group has three major businesses: Intelligent Device Business Group (IDG), Infrastructure Solution Services Group (ISG) and Solution Services Group (SSG). Among them, the IDG business, which consists of personal computers, tablets, smart phones and other smart devices, is Lenovo's absolute pillar.

Lenovo Group also mentioned in the financial report that IDG revenue decreased by 10% and segment profit decreased by 12% in the whole fiscal year, mainly due to excessive channel inventory at the beginning of the fiscal year. Although the challenges faced by the whole industry at the beginning of the year were short, they seriously affected the overall performance of the whole year.

Now, with the passage of time and the arrival of the AIGC wave and the replacement cycle, the PC market has shown signs of recovery, and Lenovo has also shown signs of breaking away from the quagmire. According to the latest released data, in the fourth fiscal quarter of the 2023/2024 fiscal year, Lenovo Group's revenue was $13.833 billion, up 9% year on year, and its net profit was $248 million, up 118% year on year, hitting the third highest level ever in the fourth fiscal quarter.

Specifically, for IDG business, revenue in the fourth fiscal quarter increased by 7%, operating profit increased by 17% year on year, and operating profit increased by 64 basis points to 7.4% year on year, which is the upper limit of its historical range. In terms of market share, the last quarter saw a year-on-year growth of 2.2 percentage points to 27%.

On the same day, Yang Yuanqing, Chairman and CEO of Lenovo Group, sent a letter to all members, saying that Lenovo has successfully passed the downward cycle of the industry and is seizing new growth opportunities.

This new growth opportunity is AI. On the one hand, in April this year, Lenovo officially released the first AI PC product in the Chinese market. On the other hand, it was the hybrid AI that Yang Yuanqing mentioned many times.

On April 1 of this year, Yang Yuanqing mentioned that hybrid AI will be the trend in the future at the pledge meeting of Lenovo Group for the 2024/2025 fiscal year. "Personal AI twins" and "enterprise AI twins" will coexist and complement with public AI models, so that hybrid AI can be truly implemented and popularized.

The growth of SSG business and ISG business may confirm Yang Yuanqing's judgment. For example, the turnover of ISG business has achieved quarter on quarter growth for three consecutive quarters of the year, and has set the second highest annual turnover level in history. The reporter of Beijing Business Daily contacted Lenovo Group about the sales volume of AI PC and the plan of hybrid AI, but no reply has been received as of press release.

But for the future, it may not be the time for Lenovo Group to "celebrate". If the opportunity of hybrid AI still needs time to verify, then the challenge of AI PC is already in the open.

Recently, Microsoft released Windows 11 AI PC, claiming to have reconstructed the entire PC form. Its built-in AI assistant Copilot even uses the GPT-4o model just launched by OpenAI. Earlier, Dell, ASUS, HP and other PC manufacturers also launched many AI PC products to seize the PC market.

Wang Peng said that at present, many of the world's top PC terminal manufacturers are actively laying out the AI PC market, which undoubtedly brings tremendous competitive pressure to Lenovo. The intensification of market competition may lead to adverse effects such as product price decline and profit space compression. At the same time, competitors' technological innovation and market strategies may also pose a threat to Lenovo's market share and brand image.

However, he also mentioned that Lenovo has many advantages in the competition, such as a deep brand accumulation and broad market recognition in the PC field, a strong R&D capability and technical team, and a sound sales channel and after-sales service system.

The fierce competition means that Lenovo cannot take it lightly. The high price of AI PC and the unnecessary feeling of AI PC brought by the lack of popular applications also doomed that this road may not be as smooth as expected. It is worth mentioning that Lenovo Group also mentioned in its financial report that its revenue in Greater China fell by 15% in the whole fiscal year, but the fourth fiscal quarter showed a significant improvement.

Beijing Business Daily reporter Yang Yuehan