Yang Yuanqing finally felt a sense of relief. For a long time, the chairman and CEO of Lenovo Group had been under significant public scrutiny and criticism. Faced with mounting pressure, he made a promise in the second half of 2017 that "the company would soon return to a path of profitable growth." After the release of the latest quarterly earnings report, Yang told a reporter from 21st Century Business Herald, "The heart is solid."
On February 1, Lenovo Group (00992.HK) announced its third-quarter results for the 2017/18 fiscal year. According to the report, as of December 31, 2017, the company achieved total revenue of $34.712 billion in the first three quarters, representing a 4% year-on-year increase. The single-quarter revenue rose by 6% to $12.9 billion, marking the highest level in the past three years and the best performance in recent history.
In terms of profit, the company faced a net loss of $222 million for the first three quarters and $289 million for the quarter, primarily due to the impact of the U.S. tax reform bill, which reduced deferred income tax assets by $400 million. However, Yang emphasized that this was unrelated to the company's daily operations. In fact, pre-tax profit for the third quarter reached $150 million, a 48% increase compared to the previous year—marking the first time in five years that Lenovo saw year-on-year growth in pre-tax profit.
Yang said, "During transitions, companies may face short-term pressures, but it’s important to identify areas for improvement and continue investing in infrastructure, team building, and technical development. Financial performance will naturally follow."
The third wave of business has entered a growth track. According to Yang, Lenovo's performance is now on a steady upward trajectory.
In the personal computer and smart device segment, Lenovo generated $24.638 billion in revenue for the first three quarters, up 5.31% year-on-year. The single-quarter revenue increased by 8% to $9.25 billion, accounting for 72% of the group’s total revenue. The strong performance was attributed to innovative products and a better product mix, leading to higher average selling prices.
In the data center business, revenue for the first three quarters fell slightly by 1.46% to $3.172 billion, but the single-quarter revenue hit $1.225 billion—the highest in the past two years. Other businesses, such as Lenovo Venture Capital, saw a 10.57% increase in revenue to $1.004 billion.
"Lenovo’s third wave of business—smart devices plus cloud—is on the growth track," Yang said. "For example, the AR smart helmet Mirage sold nearly 500,000 units in one season. Other emerging devices, like the Lenovo Smart Display, Mirage Solo VR headset, and Mirage Camera, were also showcased at this year’s CES. We are confident in the future profit growth of these products."
It's worth noting that Lenovo's mobile business remained sluggish. Revenue from mobile services in the first three quarters was $5.899 billion, down 0.62% year-on-year, while the single-quarter revenue dropped 5% to $2.076 billion. However, revenue from non-core devices—such as AR/VR and AI-related equipment—reached $170 million, up 123% annually. This contrast raises questions about whether Lenovo will shift more focus toward these emerging technologies.
"We won't ignore the PC and smartphone markets, especially PCs, which will remain a key profit driver for Lenovo," Yang said. However, he added that smartphone market growth is becoming saturated, particularly in China. As a result, Lenovo's strategic investment in smartphones will focus on Latin America and some mature markets like North America.
Regarding emerging devices, Yang admitted that more efforts will be directed toward them. "This includes AR/VR and AI-driven terminals that can reach every household," he said. "When allocating resources, we will consider balance and focus on smart terminals that can drive future growth."
Lin Xinliang, chief analyst at IHS Markit, told 21st Century Business Herald, "The combination of hardware and cloud computing with AI thinking is the right direction for Lenovo. While they have strong hardware capabilities in cloud computing and smart devices, the key to future success lies in the integration of cloud services, smart devices, and enhancing user experience."
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"The strong performance of the PC business, the positive development of the data center segment, and the progress of the 'equipment + cloud' business, along with the strategic shift from distribution to direct profit orientation, contributed to the double-digit growth in both revenue and pre-tax profit," Lin said.
Behind this growth is a series of internal transformations. Yang pointed out that Lenovo is evolving from a single-business model to a platform that supports multiple models, from a product-focused company to a customer-centric one, with a stronger emphasis on overall customer experience.
"In the past year, 10% of our evaluations for each department and position were based on customer satisfaction. Next year, this will increase to 20%. These metrics are essential for driving business transformation and improvement," Yang said.
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