The News: Lenovo Group (HKSE: 992) (ADR: LNVGY) announced its fourth quarter (Q4) earnings and full-year results ending on March 31, 2023. For its fourth quarter, the company’s revenues were US$12.6 billion versus US$16.7 billion, down 24 percent on a year-over-year basis. For its full year, the company posted revenues of US$62 billion versus US$72 billion versus the prior year, or a 14 percent decline. Despite facing macroeconomic headwinds and anemic growth in the worldwide personal computer and smartphone markets similar to other organizations operating in those segments, the company continues to diversify its business. Read the Lenovo Press Release here.
Lenovo Q4 2022-2023 Full Year Earnings: Continued Diversification Despite Challenging Market Conditions
Analyst Take: For its fourth quarter of 2023, the Lenovo Group posted a 24 percent revenue decline coupled with a 14 percent decline for the full year. Similar to other organizations with heavy exposure to the personal computer and smartphone markets that have also seen anemic demand, the company continues to diversify its revenue mix in markets that are predicted to have higher growth over the next few years and also have been more insulated from negative market forces that are being exhibited in the device markets. In fact, for the quarter, on a year-over-year basis, non-PC revenues accounted for 43 percent of revenues, which was up in low double-digits. On a more positive note, for the device segment, the management team indicated that inventory corrections are occurring, and growth is expected in the second half of 2023. Likewise, the company also indicated that technology segments such as cloud, enterprise computing, and the IT services markets should help diversity and help propel the company further in the future.
Lenovo SSG Q4 2022-2023 & Full Year: Widening TAM & Margin Accretive
For the Lenovo Group’s Solutions & Services Group (SSG) business unit, for its full year, the unit grew its year-over-year revenues by 22 percent with operating profit up 16 percent year-over-year. On a year ago quarter basis, the division grew to US$1.7 billion from US$1.4 billion or an 18 percent year-over-year growth rate.
From a sub-segment perspective, the unit grew its managed services revenue by 67 percent year-over-year followed by support services (+14 percent) and project and solution (+13 percent). The managed services and project and solution business accounted for 51 percent of revenues for the year.
Our viewpoint on the SSG unit is it is well-positioned to capture a decent chunk of the massive IT service market over the next several years as it is highly fragmented and ripe for growth as many organizations are looking to digitally transform themselves in the areas of cloud, artificial intelligence, edge computing along with other areas. In recent months, the SSG unit has launched AI-powered offerings such as its Premier Support Plus and its Digital Workspace Solutions. The recently launched Digital Workspace Solutions offering is designed to help CIOs better manage their hybrid worker environments which continues to be challenging for many.
Lenovo ISG Q4 2022-2023 & Full Year: Primed for Continued Growth
For the Lenovo Group’s Infrastructure Solutions Group (ISG), on a full year-over-year basis, the division achieved US$9.8 billion versus US$7.1 in the year-ago period, or 37 percent growth. For its most recent fourth quarter, the company grew its revenues to US$2.2 billion versus US$1.4 billion in the prior year’s quarter, or 56 percent year-over-year growth. Although the division is not immune to headwinds, it has consistently performed well and achieved its 8th consecutive quarter of year-over-year profit improvement. The management team indicated that strength was seen across all customer segments which include Cloud Service Providers (CSPs), Enterprise, Government, small-to-medium size businesses (SMBs), Communication Service Providers and the High-Performance Computing (HPC) segment. Along with executing well during the quarter, the ISG division also launched new products which include its new enterprise storage solutions. Our viewpoint is the ISG unit is in an excellent position to capitalize on key trends such as organizations investing in infrastructure solutions empowered by artificial intelligence and moving to hybrid infrastructure. The division has an excellent indirect partner ecosystem where it can continue to drive solutions in key vertical markets such as financial services, retail, government, healthcare, and manufacturing which are key for enterprise storage.
Lenovo IDG Q4 2022-2023 & Full Year: Weathering the Storm and Continued Push into Higher Margins.
Lenovo Group’s Intelligent Devices Group (IDC) continues to be negatively impacted by anemic demand for personal computers and smartphones which have been plagued by macroeconomic headwinds, inflationary pressures, and inventory gluts to name a few. For its full year, the IDG division declined to US$49.4 billion from US$62.3 billion, down 21 percent from the prior year. For its fourth quarter, the division also declined to US$9.8 billion from US$14.7 billion in the prior year’s quarter, or a decline of 33 percent.
Despite a challenging environment, the company continues to maintain its dominance in the market with the number one share position. During the quarter, the company continued to push further into more premium PC segments (e.g., high-performance workstations) that also have a tendency to drive additional up and cross activity on the enterprise storage side due to heavy graphics along with targeting job functions that are expected to growth faster than normal. In another vein, the company continues to diversify its revenue base by pushing further into the smartphone market. In fact, the management team indicated that it recorded its third consecutive year with strong premium-to-market growth in most major markets with its smartphone business. The company has recently launched its new ThinkPhone that is targeting business-to-business environments that have a heavy hybrid or remote work base that also have BYOD policies.
Lenovo Q4 2022-2023 & Full Year: Key Takeaways
Our viewpoint for Lenovo Q4 2022-2023 and full-year earnings is relatively simple. At this time, the company is heavily weighted towards the personal computer and smartphone market segments that are going up against an unprecedented negative cycle that we believe will correct itself at the end of calendar 2023 or early 2024. The company remains steadfast in offsetting its over-dependence on the personal computer market and remains laser-focused on growing its higher-margin and high-growth non-PC business segments as evidenced by the growth of its Solutions and Services Group (SSG) and Infrastructure Solutions Group (ISG) segments.
We believe that Lenovo should make a sales and marketing push which emphasizes the robustness of its existing AI assets, in accord with ongoing AI development initiatives, and how they can further energize portfolio-wide innovation and sharpen its competitive advantages. Lenovo has an excellent channel strategy where the company can continue to sharpen the blade in key partner segments with exposure to vertical markets that are prime to drive demand for enterprise storage, edge computing, artificial intelligence other categories.
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.
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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.
