The Six Five team discusses Lenovo Q1FY24/25 Earnings
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Transcript:
Patrick Moorhead: Lenovo. No, that’s not a typo. They do call this the Q1FY24/25 earnings. I thought it was a typo, but I went and checked, and that’s how they characterize it.
Daniel Newman: Yeah, everything different in those markets. Some of them, there’s parts of the world where they only report twice a year. There’s parts where they have multi-year threaded fiscal years, Pat. You and I had the chance to spend some time with their executive teams across their services group, solutions group. I think I’m talking to, I think you probably are too, the infrastructure co-presidents later today. Look, the parts of the Lenovo business that everybody has needed to keep eye on has been its distribution of growth outside of the PC. Now, all the tailwinds coming together at one time after a tough couple of years for pc, a tough past year for parts of its infrastructure. It’s had some new leadership. It’s been very dependent on a few big hyperscalers buying its data center servers. Then of course, it’s trying to grow this one Lenovo around it where these infrastructure that the device groups and the services group are working more collaboratively, but these are big unique business units that oftentimes I don’t really care if it’s all under one label. It’s very hard to build seamless integrations for them.
They’re showing some good progress there. They had 20% year-on-year growth, and a really big uptick in their earnings, Pat. 65% jump on a one-year basis. They saw their non PC revenue hit, I believe it was a record high for non PC revenue, getting to 47%. So if that’s one of the bellwethers, then they’re making really good progress in that particular area. The PC business, look, Pat, you and I have had a lot of conversations about this, but where does this AI PC trendline land. And I think we’re seeing volume ramp. It’s very consistent with what we’re seeing with AI as a whole, is that it is sort of a slow at first, and then what I call all at once. I think they’re slowly ramping up. The early adopters are buying. Companies are proof of concepting these things. They’re starting to get them into the design flow. The early consumers have run out and bought. I think we’ll see the holiday numbers in the next quarter. That’s going to be pretty encouraging. But the PC business was up 11%, which is solid. They noted their 23% market share right now. And I think AI PC is more of a first half of next year boom. But again, that’s my call. I think there’s arguments to be made that we could see a very, very strong fourth quarter this year.
Last thing I’ll say is that 65% number shown through a few times in their Lenovo earnings. Infrastructure was 3.2 billion with a 65% jump in revenue. Massive. Absolutely massive. Now, the thing about that business unit is its only made a profit on a couple of quarters since its inception. So this is a big bet for the company. They’re seeing big growth, not just in data center GPU, but also high performance compute, 30% jump. And by the way, they have some very, very strong technology around liquid cooling, Pat, something you’ve spent a lot of time talking about. And that’s been very strong, 55% jump in that area. Does not surprise me at all. Services saw a steady 10%. I’d like to see that business growing faster. You’d think that as they’re deploying all this AI, the systems and server and solutions should be tying together very, very closely. But it was an overall encouraging quarter. That company trades thinly. So the market doesn’t have a ton of reaction, but it’s a very interesting company to watch. If you’re watching Dell, if you’re watching HPE, if you’re watching Cisco, you really should be watching Lenovo too.
Patrick Moorhead: Yeah, what a great quarter. I mean, just the fact they’ve got a two in front of their revenue from a growth perspective, and with net income going up 65%, that is a monster quarter. It was kind of weird that the stock didn’t pop, but I think you talked pretty well through that. And I’m going to drill down. So for IDG, Intelligent Devices Group, PCs, they were up, which was amazing, but 28% smartphone improvement and tablets up 33%. My gosh, the success story that the company has in smartphones is super impressive. And I think on the PC unit market share they hit an all market share high. So just a very positive quarter. Yeah, and I agree with you on AI PC, they believe that it’s going to be over 50% of their sales by 2027. By the way, why that might seem super small to people is because the roadmaps for AI PCs are unclear on desktops. And desktops are half of the volume out there. And then in notebooks, it’s pretty much a premium game. Christiano came out and made some announcements around AI PCs on X. I think he said $800 coming up. And that will drive even more sales. Heck, I went to Best Buy this weekend, it literally looked like the Copilot+ PC store. It was pretty crazy.
On ISG, this is their infrastructure solutions group, is peeling back the ending on that. Yep, 65% growth. It’s huge. Hyperscalers, that’s the biggest driver there. Some other highlights, storage software and services up 59%. Neptune liquid cooling up 55%, HPC up 30% to a record high. Again, really good numbers coming out. The company’s biggest challenge is to go from hyperscaler to the big enterprise. And that requires a different marketing, different content, a different sales motion, particularly inside of the channel, maybe simplifying the way that companies buy to get a little bit of velocity, improving profitability in there.
Services, yeah, like you said, would like to see over 10%, but double-digit is good in the areas that Lenovo participates. They actually are doing better than the market. They’re claiming that their growth in AI services, an example was twice as fast as the overall market. Good growth percentages. That’s based on a smaller revenue number. But I think strategically, I do think the services group is focused on the right things that a company like Lenovo could be taken seriously for. And don’t forget they made a services company acquisition of an Asian company to give them even more capabilities in that space.
Author Information
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.
