Total debt soared to $40.8 billion Lenovo desperately needed a story of making money outside of pCs

Lenovo Group (0992. HK) share price has fallen twice in recent days.

On February 24, Lenovo Group's Hong Kong stocks closed at HK$8.64, down 1.48%. The day before, Lenovo Group's stock price had plunged more than 4%, and by the close of the day, Lenovo Group's price of HK$8.77 had fallen by 2.66%.

But just before that, Lenovo Group announced the third fiscal quarter report for the 2021/2022 fiscal year at noon on February 23: in the fourth natural quarter of last year, Lenovo's single-quarter turnover of 128.7 billion yuan increased by 16% year-on-year, and the net profit of 4.09 billion yuan increased by 62% year-on-year. Another piece of good news is that Lenovo will return to the Hang Seng Index on March 7.

Why did Lenovo's eye-catching last quarter earnings report fail to stimulate the Hong Kong stock capital market?

Eye-catching earnings reports

Last quarter, Lenovo Group grew more than just revenue and profit.

Lenovo also announced that its net debt continued to decrease in the current period, and the net cash flow of 520 million yuan was the first time in five years that it was positive.

But on the other hand, Compared with the end of the first quarter of last year, that is, the end of the previous fiscal year, Lenovo Group's total liabilities increased by about $6.5 billion to $40.8 billion. This includes $7,154 million in non-current liabilities and approximately $33.7 billion in current liabilities.

However, some people in the investment community told the "China Times" reporter that while the total debt is growing, if the total assets grow faster, it does not mean that there is a big problem in the debt, "it also depends on the debt structure, interest-free or interest-free, long-term or short-term, accounting for money or borrowing." ”

According to the financial report, as of December 31, 2021, the total assets of Lenovo Group were $45.646 billion. This represents an increase of $7.65 billion from the end of the first quarter of last year. At this point in time, Lenovo's total debt ratio was about 89.4%, slightly lower than in the first quarter of last year.

In the same period, there is also Lenovo's advertising costs.

According to the financial report, lenovo group advertising and publicity expenses for the three quarters ended December 31, 2021 were US$830 million, an increase of 46% year-on-year. It should be mentioned that in the previous fiscal year ended March 31, 2021, Lenovo Group's expense was about $816 million, an increase of only $0.2 billion year-on-year.

In addition, Lenovo Group's R&D investment of 3.51 billion yuan in the previous quarter increased by 38% year-on-year. Lenovo Group Chairman and CEO Yang Yuanqing also revealed on February 23 that Lenovo's R & D personnel increased by 40% in the last quarter.

Yang Yuanqing also said that in addition to innovating and improving the PCs, servers and other products sold in the existing market, Lenovo's research and development investment will also be invested in edge computing, cloud and AR and VR technologies used in the meta-universe, and "not only in the field of games and consumption, but also in the field of B2B." ”

In terms of edge computing, he also mentioned on the same day that Lenovo set up a new department this year to integrate the related businesses scattered in various departments in the past, covering the edge of the terminal, the edge of the network and the edge of the server, etc., led by Bai Peng, the previous head of Lianbao.

The PC is still the boss of the house

The Smart Devices Business Group (IDG) remains Lenovo's largest source of revenue.

Last quarter, IDG achieved a turnover of 112.6 billion yuan, an increase of 16% year-on-year, accounting for 87.5% of the total revenue of Lenovo Group; operating profit reached 8.64 billion yuan, an increase of 21% year-on-year.

According to the "China Times" reporter, IDG is composed of Lenovo's personal computer, tablet, mobile phone and other smart device business. But of that, non-personal computer products account for only 19% of IDG's total revenue.

Yang Yuanqing also believes that the PC industry will continue to grow in the future, "the number of PC sales is similar to the previous year, the demand is about 350 million units, but the average unit price will rise." In addition, he also believes that in addition to shifting from low-end to mid-to-high-end, PCs are also shifting from consumer computers to commercial computers, "the growth of commercial computers is conducive to the growth of average unit prices." ”

But on the other hand, Lenovo is facing cannibalistic competition from manufacturers such as Huawei and Xiaomi in the PC field, and Lenovo has also been looking for growth engines outside the PC.

The mobile phone business, which has been shrinking the battlefield before, may change.

Yang Yuanqing revealed on February 23 that Lenovo's smartphones grew by 46% last quarter, "the fastest growth among the top ten manufacturers." He also said that in the future, he will increase the sales of mobile phones and obtain profits like PCs, "so that we can increase investment to drive the expansion of more markets, especially in Europe and Asia-Pacific countries." ”

Li Zegang, chief analyst of Omdia, told the "China Times" reporter that Lenovo mobile phones mainly sell MOTO brands, mainly shipped in the American market, "LG's business exit in the North American market is one of the reasons for the growth of Lenovo mobile phones." Li Zegang also believes that Lenovo is facing pressure in the European and Asia-Pacific markets, "the competition in these two markets is very fierce, and Lenovo's proportion in these markets is very small compared to the American market." ”

It should be mentioned that Lenovo spent $2.3 billion in 2014 to acquire the X86 server business from IBM, making its first profit in the previous quarter. ISG (Infrastructure Solutions Business Group), which includes this business, had turnover of $12.3 billion in the previous quarter, up 19 percent year-on-year, while operating profit was $108 million. In addition, Lenovo's SSG (Solution Services Business Group), which was only established last year, had a turnover of 9.58 billion yuan in the last quarter, an increase of 25% year-on-year. Operating profit of 2.1 billion yuan increased by 44%.

But compared to PCs, the plates of these businesses all look too small. This may also be one of the reasons why the capital market remains calm.

Responsible Editor: Huang Xingli Editor-in-Chief: Han Feng