The News: Lenovo Group Limited announced second quarter (Q2) FY 2024 results, reporting group revenue of $14.4 billion and net income of $273 million on a non-Hong Kong Financial Reporting Standards (HKFRS) basis. Gross profit margin improved year-over-year (YoY) to 17.5%, a record high for a second quarter. The group’s diversified growth engines continue to deliver strong performance, with revenue from the non-PC businesses accounting for 40% of overall group revenue, up three points YoY. The full press release is available on Lenovo’s financial results hub site.
Lenovo Q2 FY 2024 Earnings
Analyst Take: On the whole, Lenovo’s Q2 FY 2024 numbers reflect a broad trend toward recovery across the technology sector, and the group’s confidence in its ability to resume YoY growth in the next year is consistent with industry consensus. In its reporting, Lenovo highlighted opportunities created by AI, which the company is well positioned to leverage thanks to its focus on its hybrid IT and AI solutions portfolio, pocket-to-cloud architecture portfolio, and strong partnership ecosystem.
As with most other technology companies, Lenovo’s AI investments present a strong competitive baseline for sustainable growth and profitability stemming from the AI market’s cloud-based and on-device potential. Additionally, we want to highlight Lenovo’s impressive gains in storage, innovative services and solutions portfolio, leadership in the PC market, strong razr sales, operational discipline, and ecosystem leadership as key contributors to its positive quarter-over-quarter (QoQ) performance.
Q2 FY 2024 group revenue of $14.4 billion and net income of $273 million were a significant QoQ improvement over Q1 FY 2024’s more modest revenue of $12.9 billion and net income of $191 million, reflecting a slow but consistent rebound across the sector as inventory bloat burns off and demand for AI-ready solutions accelerates. The sector is not yet out of the woods, however. Even with the worst of the tech sector’s 2023 dip in the rearview mirror, most tech companies, Lenovo included, still have some way to go before resetting to pre-dip performance. Compare Lenovo’s Q2 FY 2024 group revenue of $14.4 billion against Q2 FY 2023’s $17.1 billion just a year ago, for instance.
Overall, the consistent sector-wide positive QoQ numbers being reported in the past few weeks, which now include Lenovo’s own strong business performance, is our top-line takeaway from this earnings period. Lenovo’s unique trajectory coming out of this rough patch demands closer scrutiny, however, as the company has used the past year to not only differentiate itself further but also distinguish itself, particularly through the execution of well-timed bets in AI, hybrid IT solutions, and storage.
Lenovo Q2 FY 2024 Group Performance Breakdown
Solutions and Services Group (SSG): Lenovo’s SSG broke both revenue and profit records in Q2, with revenue of $1.9 billion and operating margins of 20%. Core profit engines for the group were support services and software, with managed services and project and solutions services expanding during the quarter to make up 56% of SSG’s revenue, up 3% YoY.
SSG also shows strong momentum for Digital Workplaces Solutions (DWS), Hybrid Cloud, and sustainability solutions and services. One of the key strategies helping SSG gain both traction and momentum here is the group’s focus on targeting key verticals with specifically tailored smart solutions and services, which has proven effective in winning breakthrough customer deals in multiple markets for SSG’s hero solutions. Lenovo’s new hybrid AI Professional Services Practice could be a growth driver for SSG in the next several quarters, and one of the offerings we will be keeping a close eye on.
Infrastructure Solutions Group (ISG): Lenovo’s ISG revenue declined YoY, settling at $2 billion due to persistent macroeconomic and industry headwinds, but ISG delivered especially strong numbers in storage (Lenovo’s storage business reached an all-time revenue record and made Lenovo the third largest storage provider in the world) as well as in software and services. High-performance computing (HPC) and Edge also showed signs of growth, which is consistent with industry demand and signals that Lenovo’s positioning is on target.
Lenovo made significant strides in the datacenter space, particularly through its recent AI-focused announcements. The company’s strategic foray into AI has elevated its position as a formidable player in the industry, especially in the private enterprise AI segment. By leveraging AI technologies in its datacenter solutions, Lenovo has not only enhanced the efficiency and performance of its offerings but also addressed the growing demand for AI-driven capabilities in the enterprise sector.
We also want to highlight Lenovo’s shift toward a flexible consumption-based model with its TruScale offering, which allows customers to consume IT resources as needed (aligning costs with actual usage). TruScale caters to the scalability requirements of modern enterprises while being cost-effective, flexible, and adaptable. Lenovo’s ability to adapt to changing market dynamics and offer innovative consumption models solidifies its position as a leader in the datacenter space, making it a noteworthy choice for businesses seeking cutting-edge solutions. Though this denotes a growing trend across the sector, Lenovo’s pivot to its own version of an annual recurring revenue (ARR)-focused model is starting to be reflected in earnings, and we expect to see this trend continue.
We note that Lenovo, given its rich portfolio of infrastructure products and solutions, is well positioned to help drive both growth and diversification in the global ICT infrastructure market as hybrid AI continues to gain ground, which lays the groundwork for a return to growth and profitability sometime in 2024.
Intelligent Devices Group (IDG): Despite soft demand in the market for PCs in the past year, Lenovo’s IDG held on to its global Number One position in Q2 FY 2024 for both PC shipments and activations. Revenue did drop to $11.5 billion YoY, which, again, is consistent with sector-wide demand softness, but Lenovo managed to deliver profitable operating margins of 7.4%. Lenovo’s smartphone business, uplifted by strong razr sales performance and a higher mix of premium products, managed to achieve double-digit premium to market shipment growth YoY despite a depressed mobile market in recent quarters.
Looking forward, we naturally see AI and generative AI as primary growth drivers for IDG, and Lenovo’s next generation AI devices, which will include AI PC launches next year, will be an opportunity for the Lenovo brand to leverage AI-powered user experiences to expand on its market differentiation objectives.
Environmental, Social, and Governance (ESG) Milestones: Lenovo also reported on some notable ESG accomplishments in Q2, among which are inclusion in the 2023 Hang Seng Corporate Sustainability Index, being awarded Champion status in the Canalys Global Sustainability Ecosystems Leadership matrix, being named as an EPEAT Climate Champion (with more than 400 products registered as part of the first EPEAT Climate+ designated products listing). In September, Lenovo also joined the UN Global Compact Forward Faster initiative to accelerate private sector action in support of the organization’s 2030 agenda.
Key Observations and Takeaways
Overall, Lenovo’s Q2 FY 2024 numbers reflect the company’s ability to execute on its strategy despite sustained industry and macroeconomic headwinds. Strong QoQ performance further suggests that the company’s recovery might be accelerating slightly faster than sector average. The question for us is not whether some of the company’s core businesses will return to pre-slump growth but rather when. Nothing stood out to us as a red flag. On the contrary, Lenovo’s numbers were generally either right on target or ahead of consensus expectations for the quarter.
One of the highlights of Lenovo’s Q2 FY 2024 earnings is its remarkable ascent to becoming the third-largest vendor in enterprise storage. This achievement highlights not only the company’s commitment to providing robust and reliable storage solutions to meet the evolving needs of businesses but also Lenovo’s ability to consistently make the right bets ahead of market shifts to meet the market where it will be. Lenovo’s strategic partnerships and innovative storage solutions have propelled the company to the forefront of the competitive datacenter market, but we caution that the meteoric success of this strategy over the past few years might be difficult to sustain in the quarters ahead without injecting a significant acquisition into the mix.
On the Intelligent Devices side, we feel that demand for AI PCs will begin to accelerate in H2 2024 and represents a significant (and welcome) sea change in the PC market — one we expect will act as a demand tailwind both in the consumer space and the enterprise. Next-generation on-device AI features, both in the PC market and in the mobile handset space (as well as adjacent intelligent devices ranging from XR to smart speakers), will fundamentally change computing, productivity, collaboration, gaming, retail, entertainment, and everyday-life technology integration over the next few years, and Lenovo’s leadership in the devices space, particularly in PC and handsets, provides an ideal on-ramp for Lenovo’s own take on what the future of AI-powered experiences could look like.
Overall, Lenovo looks solid and focused coming out of Q2 FY 2024, and its momentum in AI, datacenter, services, and profitability, combined with a steady hand on the PC and handset rudder just as on-device AI is about to transform those markets, is encouraging as we enter the holiday season.
Daniel Newman and his co-host of The Six Five Webcast, Patrick Moorhead of Moor Insights and Strategy discussed Lenovo earnings in their latest episode. Check it out here and be sure to subscribe to The Six Five Webcast so you never miss an episode.
Disclosure: The Futurum Group 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 The Futurum Group as a whole.
Other Insights from The Futurum Group:
Lenovo Q1FY24: Service-Led Solutions and AI Are Primary Growth Vectors
Lenovo’s AI Milestone: Updates, Announcements, and New AI Capabilities Revealed
Lenovo Tech World 2023: Advancing AI for All Vision
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.
Olivier Blanchard has extensive experience managing product innovation, technology adoption, digital integration, and change management for industry leaders in the B2B, B2C, B2G sectors, and the IT channel. His passion is helping decision-makers and their organizations understand the many risks and opportunities of technology-driven disruption, and leverage innovation to build stronger, better, more competitive companies.
Regarded as a luminary at the intersection of technology and business transformation, Steven Dickens is the Vice President and Practice Leader for Hybrid Cloud, Infrastructure, and Operations at The Futurum Group. With a distinguished track record as a Forbes contributor and a ranking among the Top 10 Analysts by ARInsights, Steven's unique vantage point enables him to chart the nexus between emergent technologies and disruptive innovation, offering unparalleled insights for global enterprises.
Steven's expertise spans a broad spectrum of technologies that drive modern enterprises. Notable among these are open source, hybrid cloud, mission-critical infrastructure, cryptocurrencies, blockchain, and FinTech innovation. His work is foundational in aligning the strategic imperatives of C-suite executives with the practical needs of end users and technology practitioners, serving as a catalyst for optimizing the return on technology investments.
Over the years, Steven has been an integral part of industry behemoths including Broadcom, Hewlett Packard Enterprise (HPE), and IBM. His exceptional ability to pioneer multi-hundred-million-dollar products and to lead global sales teams with revenues in the same echelon has consistently demonstrated his capability for high-impact leadership.
Steven serves as a thought leader in various technology consortiums. He was a founding board member and former Chairperson of the Open Mainframe Project, under the aegis of the Linux Foundation. His role as a Board Advisor continues to shape the advocacy for open source implementations of mainframe technologies.
