The News: Lenovo Group announced fourth quarter (Q4) and full-year results for fiscal year (FY) 2023 and 2024. Group highlights include year-over-year (YoY) revenue growth across all business groups in Q4, with Group revenue increasing nearly 10% YoY to $13.8 billion, net income doubling YoY to $248 million, and non-PC revenue mix reaching a historic high of 45%. Revenue for the full FY was $56.9 billion, with net income landing on $1 billion. From the second half (H2) of the fiscal year, Lenovo achieved YoY revenue growth of 6%, with net margin recovering from a first half (H1) YoY decline. Read more on the Lenovo website.
Lenovo Q4 FY 23/24 Insights: Growth Trendline with Hybrid AI Opportunities
Analyst Take: The Group’s Q4 and overall H2 performance demonstrates how Lenovo has navigated the past year’s industry downturn, seized on the growth opportunity presented by artificial intelligence (AI), and accelerated momentum across the business. Following its return to growth in Q3, the Lenovo group reported YoY revenue growth across all of its business groups in Q4, with Group revenue increasing nearly 10% YoY to $13.8 billion, net income doubling YoY to $248 million, and its non-PC revenue mix reaching a historic high of 45%. Revenue for the full FY was $56.9 billion and net income was $1 billion. From H2 of the fiscal year, Lenovo achieved YoY revenue growth of 6% and net margin recovered from a H1 year-on-year decline to flat in H2.
Pocket-to-Cloud AI Strategy and Momentum
Lenovo is clearly leveraging its pocket-to-cloud portfolio, strong ecosystem and partnerships, and full-stack AI capabilities to take full advantage of new AI-driven use cases and opportunities. Since announcing its AI strategy in October 2023 at its annual Tech World event, Lenovo launched a first wave of AI PCs while pushing AI capabilities to smart devices, smart infrastructure, and smart solutions and services. The Group expects the AI PC segment—defined by Lenovo as “PCs powered by personal AI agents based on natural interactions, heterogeneous computing, personal knowledge base, connected to an open AI application ecosystem, and with privacy and security protection”—to expand from its current premium position to mainstream over the next 3 years, driving a new refresh cycle for the industry.
AI PCs as Catalysts for the Impending PC Segment Refresh
Though not explicitly mentioned in its press release, next-gen AI PCs—dubbed Copilot+ PCs and introduced on May 20 in coordination with Microsoft and Qualcomm—could accelerate the PC refresh cycle by bringing powerful Windows on Arm AI PC capabilities to both the enterprise and consumer segments. These PCs, powered by Qualcomm’s Snapdragon X platform, come equipped with neural processing units (NPUs) capable of delivering upwards of 40 trillion operations per second (TOPS) in extremely portable form factors, with performance per watt capable of delivering 30+ hours of use on a single charge. Lenovo’s introduction of the Snapdragon X Elite-powered ThinkPad T14S and Yoga Slim 7x gives the company two solid next-gen Windows on Arm Copilot+ PC products to add to its AI PC lineup, further positioning it to hit the impending PC refresh cycle reset running.
The Hybrid AI/Distributed AI Ecosystem Opportunity
Hybrid AI is also driving greater demand for AI infrastructure and customers are increasingly asking for customized AI solutions and services, particularly consulting, design, deployment, and maintenance of AI.
In Chairman and CEO Yuanqing Yang’s own words, “Lenovo’s fourth quarter results clearly demonstrate that we have not only resumed growth across all our businesses but that our business momentum is accelerating, driven by the unprecedented opportunities brought by Hybrid AI. Fueled by our intelligent transformation strategy and years of investment in innovation, we’ve built a full stack of AI capabilities and are at the forefront of pioneering the revolutionary AI PC market. Our vision in the AI era is Smarter AI for All. Supported by our strong execution, persistent innovation, operational excellence, and ecosystem partnerships, we are confident we can deliver sustainable growth and profitability improvement in the coming year.”
Drilling into Results, Trends, and Opportunities
Lenovo’s business is segmented into three key areas: Solutions and Services Group (SSG), Infrastructure Solutions Group (ISG), and Intelligent Devices Group (IDG). Each segment demonstrated robust performance in Q4 of FY 23/24, contributing to the overall growth and profitability of the company. Let’s take closer look at all three.
SSG Q4 and Full Year FY23/24 Performance
A highlight of Lenovo’s quarterly and FY 23/24 reporting is SSG’s position as a growth engine and profit contributor with 10% YoY revenue growth to $1.8 billion and high profitability. Revenue for the full SY was $7.5 billion, growing at 12% YoY with an operating margin of nearly 21%. The Managed Services and Project and Solutions Services revenue mix grew five points YoY, accounting for 55% of SSG’s total business for the quarter. Hero offerings such as Digital Workplace Solutions and TruScale for Hybrid Cloud have also both delivered rapid growth.
Looking ahead, SSG looks well set to continue to meet growing customer demand by moving fast to build AI-native and AI-embedded solutions and services. The Care of One platform, Cyber Resiliency as a Service, and the impressive Lenovo Intelligent Sustainability Solutions Advisor (LISSA) decisioning tool all use AI to deliver hyper-personalized employee experiences, increased productivity, enhanced security, and sustainable IT choices, and look like credible—even exciting—growth engines for the group.
IDG Q4 and Full Year FY 23/24 Performance
IDG delivered another solid quarter, strengthening Lenovo’s global market leadership for PCs (22.9%), which the company rightly sees as a significant premium to the market. (Note that Lenovo’s PC business was number one in 4 out of 5 geographies and achieved record high market share in North America.) Revenue for the quarter was $10.5 billion and $44.6 billion for the year. The group’s smartphone business, for its part, delivered double-digit YoY growth in both shipments and revenue. Growth in demand for on-device AI capabilities, particularly in the PC and Mobile segments should continue to fuel IDG’s growth. Given Lenovo’s advanced semiconductor partners, the group is well positioned to ride the wave of demand for AI PCs (including, increasingly, Copilot+ PCs) and AI-capable handsets. The real question on our minds is whether Lenovo will be able to create enough differentiated value in the market to grow its market share—and if yes, to what extent. (More on that in a moment.)
Lenovo qualifies IDG’s profitability for the full year as “resilient in spite of a weaker than expected market in the first half of the fiscal year,” but that feels like an understatement. Now that the industry-wide downturn that acted as a weight on H1 revenue and profitability has passed, Lenovo has negotiated the market’s return to growth (PCs, tablets, and smartphones all resumed growth in H2) with discipline. Resiliency seems like the right word for the H1 downturn, but H2 puts IDG’s profitability on a much clearer path to acceleration.
Looking ahead, the PC market volume is expected to recover to pre-COVID levels, with smartphones already having returned to what Lenovo qualifies as “double-digit YoY hypergrowth.” We also agree with Lenovo that AI PCs will begin expanding from premium to more mainstream price and performance tiers starting in the coming year. We are also interested in seeing how Lenovo will leverage its own product ecosystem to build more seamless collaboration between devices and enhanced UX with its Smart Connect software solution.
Quick Sidebar About the Difference Between AI PCs on the Whole and (Snapdragon X-powered) Windows on Arm AI PCs Specifically
If you find yourself wondering if the hype around AI PCs is deserved, and therefore question the validity of the impending major PC cycle refresh narrative, here are a few quick insights to consider.
You are correct in observing that actual real-world use cases for the AI PC segment have yet to be clearly defined let alone articulated through the introduction of “killer apps” or other vector of aggregate AI-accelerated value for users. Therefore, looking at the AI PC category through the lens of a “AI is going to revolutionize how we work and create” value proposition still seems too forward-looking to create a demand swell in the next few quarters. Even with Microsoft taking a leadership role in steering AI PCs toward Copilot+ PC branding, the AI PC’s value proposition remains loosely anchored in the future, not in the present. “Why do I need an AI PC?” remains the primary question still being asked by users and IT decision makers (ITDMs) alike, and PC OEMs (not just Lenovo) have yet to give anyone a compelling answer that focuses specifically on on-device AI features.
You would also be correct in observing, however, that AI PCs are the future of PCs and that distributed AI (broadly, Lenovo’s pocket-to-cloud model) is already beginning to become the technology sector’s new reality: AI in the cloud + AI on the edge + AI in devices. Every user and organization will soon be using a mix of AI-accelerated PCs, mobile devices, and other wearables and hearables, and their capabilities will improve quickly. That disruption is already happening, and ITDMs need to get on it as quickly as they possibly can regardless of whether the AI-centric value proposition for AI PCs has been articulated yet. It will come. The imperative at this juncture is for ITDMs to start working on future-proofing their organizations for AI. Beginning to replace traditional PCs with AI PCs is a critical element of that strategy. In other words, the killer apps are coming. Start buying the hardware now.
The PC refresh cycle is not just about AI, however. This often gets missed in AI PC discussions. It is also, and perhaps more so, about entirely new system performance benchmarks, improved TCO and ROI, and multi-day battery life. Let us draw a clear distinction between non-Arm-based AI PCs and new Snapdragon X-powered Windows on Arm AI PCs, and what Microsoft’s Copilot+ PC launch revealed about how the AI PC space is about to change. The introduction of Arm-based Windows PCs into the AI PC space opens the door to Apple-like system performance on Windows-native machines for the first time. We aren’t just talking about TOPS and NPUs. We are talking about 20-30+ hours of in-use battery life.
We are talking about processors so fast that they can bring 2x or greater improvements in process speed compared with non-Arm-based PCs. Faster bootups; systems that don’t get bogged down by multitasking; silent, slim form factors; and thermally calm, these PCs deliver such obvious raw performance improvements and TCO advantages that ITDMs are likely to give them serious consideration even outside of purely AI-focused use cases, which means ITDMs and users are likely to begin adopting them purely for how much better they are, regardless of on-device AI. This isn’t to say that Intel and AMD won’t eventually be able to match Snapdragon X Copilot+ PCs a year from now, or whenever they start shipping their own next-gen SOCs, but Snapdragon X-powered Windows on Arm PCs are here and should accelerate the PC segment’s recovery starting in the coming quarter. Lenovo has already announced two such PCs—the ThinkPad T14S and the Yoga Slim 7x—and is therefore set to take advantage of this opportunity right out of the gate.
ISG: Q4 and Full Year FY 23/24 Performance
ISG regained momentum with double-digit YoY growth of 15% in Q4, bringing its revenue to $2.5 billion—a record high for a fourth quarter. The storage, software, and services businesses within ISG achieved hypergrowth, with combined revenue increasing by more than 50% YoY. High Performance Computing (HPC) revenue also hit a record high. For the full fiscal year, ISG achieved QoQ revenue growth for three consecutive quarters, underscoring its resilience and adaptability.
Note that AI servers are expected to grow nearly 2x the pace of the broader server market, positioning ISG to capture new opportunities in AI infrastructure. ISG seems on a trajectory to broaden its portfolio and adjust its pipeline to capture the “new” opportunities opened up by this shift while continuing to leverage strength in traditional servers, edge, storage, software and services, all of which should help the group pursue growth vectors and inject more profitability into the overall business.
Additional Considerations
Lenovo’s continued commitment and investment in innovation—which includes AI—helped the group achieve a record high percentage for both R&D headcount (26.2%) and R&D expense-to-revenue ratio (3.6%). This focus will become all the more crucial as pocket-to-cloud AI use cases continue to drive demand for an ever-expanding ecosystem of interoperable next-gen devices and solutions.
AI is transforming the technology landscape, driving significant changes from devices to cloud deployments, and as companies continue to rapidly pivot to cloud, edge, and device solutions to leverage AI’s potential, they will find Lenovo operating at the epicenter of this transformation. Bear in mind that the shift toward AI is not just about raw computational power. It is also about integrating AI capabilities across the entire spectrum of technology, from devices to cloud infrastructure. Because Lenovo’s approach involves a comprehensive portfolio that includes AI-enabled devices, smart infrastructure, and robust cloud solutions, it can meet the diverse needs of its customers, providing seamless AI integration across various platforms—a critical differentiator that Lenovo continues to leverage to its advantage.
This unique market position also enables Lenovo to differentiate from competitors such as Dell and Hewlett Packard Enterprise (HPE). From AI-powered smartphones and PCs to edge computing and cloud servers in hyperscalers, Lenovo’s comprehensive approach ensures it can capitalize on the tailwinds of AI across key market segments. Additionally, Lenovo’s strategic partnership with NVIDIA to incorporate GPUs into its server range underscores its commitment to delivering HPC solutions. This collaboration is crucial as GPUs are essential for AI workloads, providing the computational power needed for machine learning )ML) and data processing tasks. Looking ahead, we are encouraged by the group’s performance and momentum in H2 and agree with its optimism about the outlook for the year ahead, particularly relating to the hypergrowth and sustainable profitability opportunities that a hybrid, distributed AI ecosystem approach to the broad AI opportunity can inject across all of Lenovo’s business units.
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 Q3 Earnings: The AI-Accelerated Tech Sector Recovery Is Here
Lenovo’s New AI-Powered LISSA: The Era of the ESG Accelerator
Lenovo Empowers Hybrid AI from the Pocket to Cloud with NVIDIA
Author Information
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.
