Lenovo Q2 Earnings: Cloud Momentum, AI PCs, And Smartphone Growth Drive Revenue Beat

On Thursday, Chinese PC company Lenovo Group Ltd (OTC: LNVGY) reported a fiscal second-quarter revenue growth of 24% year-on-year to $17.85 billion, beating the analyst consensus estimate of $16.34 billion.

The Solutions and Services Group (SSG) posted revenue growth of 13% Y/Y to $2.17 billion, with an operating margin of 20.4%, up by 40 bps Y/Y. The segment accounted for 32% of the total operating profit of the three business groups. Managed services and Project & Solution Services revenue experienced double-digit growth, attributed to a solid contract backlog.

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The Infrastructure Solutions Group (ISG) revenue grew 65% Y/Y to $3.31 billion, driven by solid cloud momentum and strengthening enterprise business. High double-digit revenue growth for Storage came from aggressive cloud investment. Both the smartphone and tablet businesses delivered high double-digit revenue growth. The segment operating margin loss improved to (1.1)% versus (2.7)% Y/Y.

Intelligent Devices Group (IDG) increased 17% to $13.51 billion, driven by substantial market share gain in PC and smartphones and the rapid popularity of five feature AI PCs. The PC business expanded its market leadership to almost 24% market share. The segment operating margin stood flat at 7.3%.

The non-PC revenue mix during the quarter stood at 46%. Gross margin reached 15.7% versus 17.5% a year ago. The expenses-to-revenue ratio was 12.0% vs. 13.9% the prior year. 

Net income grew by 48% Y/Y to $404 million. EPS per ADR rose to $0.0278 from $0.0199 a year ago.

As of September 30, 2024, cash and equivalents stood at $4.2 billion. 

Dividend: Lenovo’s Board declared an interim dividend of 8.5 Hong Kong cents per share.

Outlook: Lenovo plans to focus on boosting net income margin in the medium term and capitalize on digital transformation for sustained growth. The company finds itself well-positioned to lead the Hybrid AI shift, offering comprehensive solutions from devices to edge and cloud. It expects ongoing growth momentum across all three business units, with plans to enhance profitability.

Recently, Lenovo Group has partnered with Meta Platforms and Nvidia Corp to boost its AI capabilities in markets beyond China.

At its Tech World event in Seattle, Lenovo launched “AI Now,” a personal AI assistant for PCs outside China. Built on Meta’s Llama 3.1 open-source large language model, the AI operates locally without internet access.

Lenovo also expanded its collaboration with Nvidia to roll out enterprise AI solutions. The Lenovo ThinkSystem SC777 V4 Neptune server now integrates Nvidia’s Blackwell GPUs alongside Lenovo’s water-cooling technology.

Facing risks from geopolitical tensions affecting supply chains, Lenovo employs its AI-driven Supply Chain Intelligence solution, which has already cut logistics and manufacturing costs by 20%.

Price Action: LNVGY stock closed higher by 1.14% at $24.78 on Thursday.

Photo by Robert Way via Shutterstock

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