Analyst: Olivier Blanchard, Daniel Newman
Publication Date: August 18, 2025
Lenovo Q1 FY2026 earnings posted record $18.8B revenue (+22% YoY), with ISG’s AI infrastructure more than doubling, SSG’s 22% operating margin, and IDG’s record 24.6% PC share—positioning the company for durable growth and margin expansion as Hybrid AI demand accelerates.
What is Covered in this Article:
- Q1 financial performance highlights, including record revenue, profit growth, and cash flow strength.
- Devices momentum: AI PC leadership, premium mix, and smartphone growth in key markets.
- ISG’s AI infrastructure scaling: strong revenue growth and near-term profitability trade-offs.
- SSG’s high-margin flywheel: as-a-service momentum, deferred revenue visibility, and TruScale bookings.
- Outlook and guidance: execution on Hybrid AI strategy, R&D investment, and mid- to long-term profitability goals.
The News: Lenovo reported Q1 FY2025/26 revenue of $18.8B, up 22% year over year (YoY), setting an all-time high for a first fiscal quarter. Net income attributable to equity holders (HKFRS) was $505M, up 108% YoY. On a non-HKFRS basis, net income rose 22% YoY to $389M. Non-HKFRS adjustments primarily excluded a $152M non-cash fair value gain on warrants and a $28M notional interest from convertible bonds. Gross profit was $2.8B with a 14.7% gross margin, operating profit was $785M, and the operating expense ratio improved to 10.6%.
By segment, Intelligent Devices Group (IDG) delivered revenue of $13.5B (+18% YoY). PC revenue grew 20% YoY with a record 24.6% global PC unit share and #1 position in Windows AI PCs; smartphone revenue rose 14% year over year with record share outside China and leadership in foldables. Infrastructure Solutions Group (ISG) delivered revenue of $4.3B (+36% YoY), with AI infrastructure revenue more than doubling. Neptune liquid cooling revenue was also up 30% YoY. ISG did record an $86M operating loss, attributable to strategic investments in AI infrastructure and E/SMB transformation. Solutions & Services Group (SSG) revenue reached a record $2.3B (+20% YoY) with a 22.2% operating margin. Support Services grew 12%, Managed Services 36%, and Projects & Solutions 18%, together comprising 58% of SSG revenue. Deferred revenue stood at $3.5B. All geographies delivered strong YoY revenue growth, including:
- The PRC (+36% YoY)
- Asia Pacific ex-China (+39% YoY)
- EMEA (+14% YoY)
- The Americas (+9% YoY, with continued PC share gains).
Cash flow from operations was $1.2B, and free cash flow rebounded to $751M. Cash equivalents were $4.5B (+15% YoY). Net finance costs decreased 9% YoY. On a non-HKFRS basis (excluding notional interest), net finance costs were down 23% YoY. R&D investment increased 10% YoY to $524M, with the R&D technical workforce nearing 20,000 employees (28% of total headcount).
“By leveraging the resilience and flexibility of our supply chain and operational excellence, we overcame challenges brought by tariff volatility and the geopolitical landscape and achieved significant growth in both top and bottom lines. These record Q1 results underscore our ability to deliver on our promise to preserve competitiveness and continuously grow our business. Looking ahead, we will continue to firmly execute our hybrid AI strategy towards the vision of Smarter AI for all, relentlessly drive innovation in personal AI and enterprise AI products and solutions and consistently strengthen our operational competitiveness so that we can realize sustainable growth and profitability improvement.” — Yuanqing Yang, Chairman and CEO
Lenovo Q1 FY2025/26 Earnings: Record $18.8B Revenue, 22% Growth on Hybrid AI Momentum
Analyst Take: Lenovo’s Q1 FY2025/26 earnings highlight balanced growth across devices, infrastructure, and services, underpinned by disciplined execution of the company’s ambitious Hybrid AI strategy.
Most notable in the quarter was IDG extending its share leadership in the PC segment by not only capitalizing on AI PC momentum but also leveraging adjacent products and services in a cohesive hybrid-AI attach motion. ISG also capitalized on surging AI infrastructure demand despite near-term profitability impacts, while SSG delivered another high-margin quarter with expanding recurring revenue visibility. Flexible liquidity, cost controls, and a $524 million R&D investment also position Lenovo to maintain momentum for sustained share gains as AI adoption scales across client, edge, and cloud.
Devices Momentum and AI PC Leadership
IDG’s $13.5B revenue (+18% YoY) and PC revenue growth of 20% reflect broad-based strength across the commercial and consumer PC segments, notably with China returning to double-digit revenue growth. This is reflected in Lenovo’s 24.6% global PC unit share (a record), with AI PC penetration now exceeding 30% of Lenovo shipments to secure the #1 market position in Windows AI PCs.
Premium mix tailwinds and innovation across ThinkPad, Yoga, and workstation families also supported profitability. Smartphones grew 14% YoY and reached record share outside of China, with leadership in foldables. Note that this extends Lenovo’s cross-device ecosystem advantage, and advances both the company’s “One AI, Multiple Devices” strategy and its agent-native experiences roadmap.
ISG AI Infrastructure Scaling: Growth Now, Profitability Later
ISG’s $4.3B revenue (+36% YoY) underscores Lenovo’s traction across CSP and E/SMB, with AI infrastructure revenue more than doubling. Neptune liquid cooling also sees impressive traction with up to 30% YoY growth.
Management did, however, flag near-term profitability pressure (an $86M operating loss) due to strategic investment in AI infrastructure, R&D, and channel build-out – all consistent with mix and deal dynamics in AI servers. Trending-wise, we highlight hypergrowth in China, a robust pipeline, and a next-gen LLM training server roadmap (slated for 2H CY2025), as share-growth drivers for Lenovo in a rapidly expanding market where power/cooling efficiency and ODM+ manufacturing have beccome critical differentiators.
SSG’s High-Margin Recurring Mix Accelerates
SSG delivered a record $2.3B revenue (+20% YoY) with 22.2% operating margin (+1.2 pts YoY), marking 17 consecutive quarters of YoY growth.
Key highlights:
- Managed Services and Projects & Solutions rose to a remarkable 58% of SSG revenue.
- TruScale IaaS bookings surged triple digits.
- Deferred revenue reached $3.5B.
Taken together, these three trends enhance revenue visibility and profit durability for the group. With demand centered on Digital Workplace Solutions, hybrid cloud, and AI-led verticals (like financial services and supply chain), SSG remains both Lenovo’s profit flywheel and a catalyst for multi-segment AI monetization, all under the Lenovo Hybrid AI Advantage framework.
Balance Sheet Strength, Regional Execution, and ODM+ Resilience: Key data points and insights
- Lenovo’s $1.2B operating cash flow, $751M FCF, and $4.5B cash balance (+15% YoY) provide strategic flexibility to invest through cycles.
- Net finance costs declined 9% YoY, and non-HKFRS net finance costs improved 23% YoY.
- All regions grew, with PRC +36% and Asia Pacific ex-China +39% highlighting broad momentum; Americas and EMEA continued to gain share and scale services.
- Lenovo’s global/local model and ODM+ manufacturing underpin supply chain resilience. This also helps mitigate tariff volatility and supports rapid response to AI demand across client, edge, and cloud infrastructure.
Guidance and Final Thoughts
Management reiterated firm execution of the company’s overall Hybrid AI strategy: advancing agent-native devices and super agent ecosystems in Personal AI, while scaling AI model factories, agent platforms, and full-stack AI infrastructure for Enterprise AI.
- ISG will continue investing to capture AI server demand and expects mid- to long-term growth with improved profitability.
- IDG will extend AI PC leadership and premium mix.
- SSG will deepen recurring services under Lenovo Hybrid AI Advantage.
With disciplined liquidity management, a growing R&D base, and a robust product roadmap (including next-gen LLM training systems in 2H CY2025), Lenovo is positioned to compound share and operating leverage as AI adoption broadens globally.
See the full press release on Lenovo’s Q1 FY2025/26 financial results on the company website.
Declaration of generative AI and AI-assisted technologies in the writing process: This content has been generated with the support of artificial intelligence technologies. Due to the fast pace of content creation and the continuous evolution of data and information, The Futurum Group and its analysts strive to ensure the accuracy and factual integrity of the information presented. However, the opinions and interpretations expressed in this content reflect those of the individual author/analyst. The Futurum Group makes no guarantees regarding the completeness, accuracy, or reliability of any information contained herein. Readers are encouraged to verify facts independently and consult relevant sources for further clarification.
Disclosure: Futurum is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of Futurum as a whole.
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Author Information
Olivier Blanchard is Research Director, Intelligent Devices. He covers edge semiconductors and intelligent AI-capable devices for Futurum. In addition to having co-authored several books about digital transformation and AI with Futurum Group CEO Daniel Newman, Blanchard brings considerable experience demystifying new and emerging technologies, advising clients on how best to future-proof their organizations, and helping maximize the positive impacts of technology disruption while mitigating their potentially negative effects. Follow his extended analysis on X and LinkedIn.
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
