Lenovo's three emerging services edge computing, AR/VR and cloud services based on meta-universe applications have taken an important step from incubation to incubation
"Investment Times" reporter An Zhe
Lenovo Group held the 2022/23 New Fiscal Year Oath Ceremony on April 6. At the meeting, Yang Yuanqing, chairman and CEO of Lenovo Group, announced that in the past fiscal year, Lenovo Group has overcome many challenges such as the global epidemic, parts shortage, geopolitics, etc., and in the first three quarters, the total turnover increased by 22% year-on-year, and the net profit increased by 76%. Revenue throughout the fiscal year is expected to exceed the 450 billion yuan mark, reaching a new milestone.
Yang Yuanqing further said that this year, Lenovo Group continued to deepen the service-oriented intelligent transformation, and the three main businesses went hand in hand to achieve double-digit growth, which also verified that Lenovo has made great progress in the implementation of the 3S strategy.
"Investment Times" reporter learned that from the perspective of revenue, Lenovo Group's newly established solution service business group (SSG) turnover increased by nearly 30% year-on-year in the previous fiscal year, and the three major services (support, operation and maintenance and solution services) achieved double-digit growth (25%, 56%, 34% respectively); infrastructure solution business group (ISG) revenue achieved double-digit growth higher than the market for four consecutive quarters, and for eight consecutive quarters higher than market growth, server business revenue growth hit a record. Achieving the most successful year, storage business shipments jumped from sixth to second; intelligent device business group (IDG) turnover set another record, overall turnover increased by 16%, personal computers continued to remain the world's first, consumer and commercial categories first, the world's four regions accounted for the first, and the services and software business increased by 35% year-on-year.
In addition to revenue performance, the profitability growth of the three major businesses continued to strengthen, and it is steadily moving towards the goal of doubling the net profit margin within three years. Among them, the operating margin of the solution services business increased by 3 percentage points in the previous fiscal year, and the profitability of the three major services increased; the infrastructure solutions business achieved its first profit since the acquisition of IBM's server business in 2014; and the smart device business recorded a record profit margin in the past fiscal year, with operating profit growth of 21%.
The changes in the way of life and work brought about by the epidemic and the acceleration of digital transformation have brought growth opportunities to the development of Lenovo Group, but in the face of the change of industry cycle, in order to achieve long-term development, it is necessary to seek a second growth curve outside the basic disk of the PC to steadily cross the cycle. Technological innovation is a major growth engine of Lenovo Group.
The reporter noted that at the oath-taking conference, Yang Yuanqing said that as of the end of the 2023/24 fiscal year, Lenovo Group's R& D investment will double on the basis of the 2020/21 fiscal year, and will exceed 100 billion yuan in the next five years, and continue to recruit hard-core scientific and technological talents on a large scale.
According to Lenovo Group's latest financial report, the company's R&D investment in the third fiscal quarter reached 3.51 billion yuan, an increase of 38% year-on-year, and the promise of doubling R&D investment in three years is steadily being fulfilled. At the same time, Yang Yuanqing also announced that Lenovo's three emerging businesses - edge computing, AR/VR based on meta-universe applications, and cloud services have taken an important step from incubation to incubation.
At the meeting, the three major business groups also disclosed their performance goals for the new fiscal year: SSG will make full use of endogenous externalization to continue to innovate, continue to expand TruScale's "everything is service", and build it into one of the leading brands in the industry's "as-a-service"; ISG will be committed to double-digit growth, once again achieve higher than market performance, expand and grow into Lenovo's next important profit engine; IDG will continue to focus on high-end segments, consolidate the world's first position of PC, and maintain industry-leading profitability. While maintaining its advantages in Latin America, the mobile business accelerates business growth in North America and enters new markets.
At present, society is accelerating towards the era of digitalization and intelligence, and the digital transformation of various industries has become a general trend, Lenovo Group chooses to take precautions, conform to the trend of the times, use scientific and technological innovation to create a new engine, and continue to practice service-oriented transformation, which may be a key step in its ability to truly achieve long-term development.
The following is the full text of Yang Yuanqing's keynote speech at lenovo Group's FY22/23 Oath Ceremony:
Hello friends!
It's time for us to be fierce again, the battlefield "spring" soldiers, the new year has begun, we have to start again!
【Performance improvement, precautions】
In the past fiscal year, we have overcome the challenges of the global epidemic, the shortage of spare parts, and geopolitics, and exerted the power of science and technology to help people adapt to the way of life and work under the new normal, and help enterprises to digitize and intelligentize the process, while achieving strong growth in performance, the total turnover in the first three quarters increased by 22% year-on-year, and the net profit increased by 76%! Our revenue throughout the fiscal year is expected to reach a new milestone – crossing the $70 billion, 450 billion yuan mark!
This year, we have deeply promoted the intelligent transformation of service orientation, and all businesses have gone hand in hand, which has made important contributions to the improvement of the company's performance. The newly established SSG solution service business has high profit and high growth. ISG's infrastructure solutions business, turning losses into profits, grew far beyond the market. Our IDG, PC business revenue and profit reached a new high, achieving 16 consecutive quarters of profit margin improvement. The smartphone business has been healthy and profitable for seven consecutive quarters and has grown rapidly. Our Lenovo Ventures has completed 48 new investments, invested in 15 chip design companies in total, and added three new IPOs.
This year, in the Chinese market, our base camp, we moved forward in synergy with "one Association", not only hit a new high in revenue and profit, but also continued to transform and take the lead. Our solution services business entered the top four of China's IT services market, the infrastructure solutions business grew rapidly at a rate of 3 times the market, more innovative businesses such as intelligent edge and consumer IoT doubled, and the share of personal computers continued to break through record highs.
This year, despite the ups and downs, we have crossed one milestone after another with real performance!
While rejoicing at these achievements, we must also be soberly aware that there are also factors that can deliver such answers, which are also the factors that promote the situation. The COVID-19 pandemic has accelerated the process of digital and intelligent transformation, and we have seized the growth opportunities brought about by it. However, there is no never-ending high-speed growth, any enterprise, any industry has its own development cycle, we need to take a long-term and precautionary plan.
Not only that, while we are unswerving and walking out of the road that meets our own characteristics, we also need to listen to expectations and live up to expectations. In the past thirty-eight years, Lenovo has grown and expanded under the cultivation of the country, with the scale and ability it has today, and it is even more closely linked to its own development and social well-being to undertake a higher mission.
Like China, Lenovo is also entering a new stage of development. We must conscientiously study and implement the new development concept and build a new development pattern. In the new stage, our primary task is how to successfully cross the cycle, and strive to become a new association with stronger innovation ability, higher profit level, greater social value and higher quality development at the beginning of the next cycle!
【Erect ladders, cross cycle】
The so-called "cycle" refers to the cycle that every enterprise and every industry will go through: expansion, peaking, falling, bottoming out, until the next round of expansion begins again. What successful companies have to do is to complete the spiral in one cycle after another.
According to this law, for the industry we are in, the dual reality of "post-epidemic" and "post-high-speed growth" will be a new stage of the current cycle that is about to open, and we must start to act from the time when we are still growing at high speed, through technological innovation, through the upgrading of business models, create a new growth engine as soon as possible, so as to be able to set up a ladder and be able to cross the cycle more steadily.
To this end, we must make every effort to build three pillars and strengthen the two cornerstones.
【Three pillars, two cornerstones】
Technological innovation
To establish a new growth engine, the first thing to pay attention to and put into action is technological innovation. As we grow to where we are today, when our ecological influence is growing day by day, our expectations are getting higher and higher. We must aim high, with the courage to break the boat, with the determination to be reborn, with unprecedented strength, so that technological innovation, the main theme of the development of association, will be carried forward even more.
Our innovation proposition is: we want to become one of the leading enterprises in the global ICT industry, we must be the pioneers and enablers of intelligent transformation, and we are committed to solving the common challenges facing mankind!
Behind the ambition is the guarantee of real money: by the end of the 23/24 fiscal year, our R&D investment will double from the 20/21 fiscal year. In the next five years, our total investment in research and development will exceed 100 billion yuan! We also plan to add 12,000 hardcore technology talents, and in the past first year, nearly 5,000 partners have joined our R&D ranks.
We will focus on the technical architecture of "end-side-cloud-network-intelligence", focus on the short-term, medium-term and long-term, and invest resources in three tracks, in addition to rapid marketization of technology, but also have basic research; in addition to continuous improvement technology, but also breakthrough technological innovation!
The first track is to focus on innovations around existing products, applications and business models over the next 1-2 years, including innovations in equipment, key components, applications and the "everything is at service" business model within each business framework. The track will be dominated by business groups.
The second track is an incubation business that focuses on the next 2-3 years, driven by new technologies. In addition to the familiar data intelligence and cloud-network integration business, this year we have three more innovative achievements in three fields that have entered the incubation stage. One is AR/VR technology based on metaverstem applications, we will focus on B2B, and gradually build a complete ecology. The second is edge computing, which we have integrated into a complete business that used to be scattered in various departments, and will continue to invest in the construction of full-stack capabilities. The third is the cloud service business, where we will increase the technical investment in cloud-native, intelligent O&M, and multi-cloud/hybrid cloud management platforms to empower customers with the whole life cycle of the cloudification road. All three incubation operations are led by business groups and technical advice is provided by the Institute.
The third track focuses on core technologies and emerging technologies, focusing on basic and breakthrough research for 3 years or even longer, and will be led by the institute. We will focus on key technologies in the ICT field such as new generation artificial intelligence and next-generation communication protocols; we will also continue to explore new computing scenarios such as in-vehicle computing and metacosmity to accumulate the core technologies needed; we will also start to explore basic research on computing power sharing and data circulation such as privacy computing and multi-heterogeneous advanced technology architecture based on the field of large computing, focusing on the long term, serving society and serving mankind.
The three tracks, clear responsibilities and resources, allow us to seize the high-profit and high-growth opportunities in the existing market, but also expand to related technical fields and market segments, while creating core technical advantages and establishing a moat.
Service-oriented transformation
Another growth engine to build through the cycle is business model upgrades, service-oriented transformations that we've been talking about for several years. Its success or failure will determine whether Lenovo can become a more profitable enterprise and whether it can upgrade from a hardware product manufacturer to a high-tech-driven solution provider.
We're targeting global IT services – a large market that will exceed a trillion dollars in 2025. Our service capabilities also test whether we are truly customer-centric and can drive sales of various businesses within the group with a broad trend.
Last year, we formed the SSG Solution Services Business Group and launched the TruScale "Everything at Service" brand. Recently, we have further streamlined the organizational structure according to the three types of services, clarified the leadership responsibilities, and integrated sales resources according to the two lines of China and the world, so as to better achieve economies of scale.
Now, each of the three types of services has a clear goal and a clear strategic path. Support services should continue to increase the penetration rate of equipment services and expand the proportion of exclusive services. O&M services, including "everything as a service," need to scale up and maintain high profit margins. Project services and solutions should build system integration capabilities, accumulate knowledge, experience and capabilities in vertical industries, and launch more reusable solutions with their own intellectual property rights.
Transformation is led by the SSG, but it is a company-wide task, so we want to make the service a stepping stone and customer-centric touchstone for the company's overall sales.
Social value
The third pillar is the focus of today's finale - corporate social value. Lenovo's social value is to serve the four aspects of the country, industry, people's livelihood and the environment as the starting point, empowered by scientific and technological innovation, and make our contribution.
We must be a good pacesetter in the "double cycle". As a practitioner of "taking the domestic large cycle as the main body, the domestic and international dual cycles promote each other", on the one hand, we must increase investment in domestic science and technology, use higher quality technology, products and services to supply, stimulate and meet new demand on the demand side, and inject impetus into expanding domestic demand; on the other hand, we must continue to do a good job as the hub of domestic and international circulation, push more and better Products and programs that China "creates" and China "intelligently" to the international market, and bring China's industrial chain supply chain advantages to the world.
We must become the main force of high-quality development.
High-quality development means improving quality and efficiency. We must make full use of our own transformation experience to empower the digital and intelligent transformation and upgrading of all walks of life, and promote the domestic industry, especially the manufacturing industry, to move towards the middle and high end of the international industrial chain.
High-quality development also means green development. Our vision is to achieve net zero emissions by the end of 2050, and we are working with the Science Carbon Target Initiative to set more granular targets and confirm a roadmap. Once this vision is realized, it means that we will complete the carbon neutral task entrusted to us by the country ten years ahead of schedule! We are stepping up the construction of new factories in Tianjin in accordance with the goal of "zero carbon factory", and we will also guide and drive the upstream and downstream of the entire industrial chain to achieve low-carbon transformation through green manufacturing and green supply chain system, and empower all walks of life to achieve low-carbon development through "endogenous externalization".
We will also contribute to common prosperity with practical actions.
Common prosperity is the high-quality employment of all kinds of talents. Externally, we will expand recruitment, white-collar, purple-collar, blue-collar are readily available; internally, we will make the "stage without a ceiling" better, so that everyone has the development space to display their talents, but also let everyone have no worries. In the winter vacation just past, I saw many colleagues bring their children to the company, hand them over to the teachers of the care class, and then go to work happily. Over the past year, we have won 24 best employer awards in various categories around the world. Everyone works hard for, of course, a good life! Small partners for the company to do their best, I hope that the company's care for you, but also let everyone feel down-to-earth, feel at ease!
Common prosperity is also the common development of all kinds of enterprises. All along, we have been committed to supporting the development of small and medium-sized enterprises, driving a large number of small and medium-sized suppliers, distributors and invested enterprises to grow together. Among the companies invested by Lenovo Venture Capital, specialization and innovation are its most important components. We have more than 200 suppliers (220) and 60,000 channel partners who are small and medium-sized enterprises, and more than half of these channel partners have penetrated into sub-county areas, contributing to rural revitalization across the country.
Common prosperity is also the internal and external cultivation of material and spiritual civilization. While contributing to the country's economic construction, we will continue to send out more light and heat through public welfare actions such as funding rural education, promoting vocational education, supporting scientific research in colleges and universities, and helping biodiversity conservation.
Having said so much, if you summarize it in one sentence, it is: Lenovo will firmly innovate, transform, contribute value, and make the development of the enterprise better serve the prosperity of society and the happiness of the people.
Two cornerstones: the same association and digital cornerstone
These are the three pillars that support us to successfully cross the cycle and move steadily and farther. And to hold up the momentum of the sky, our foundation must also be firmly laid.
One of the foundations is to play the advantage of "one association". We can have a portfolio and capabilities from the pocket to the cloud, and achieve scale, efficiency and synergy in-house, coupled with a local delivery model of global resources, and a united corporate culture, which together constitute an important competitive advantage of differentiation.
The second foundation is the cornerstone of strengthening our digitalization. Let digitalization run through the entire value chain of "R&D, production, supply and marketing services", support our transformation from selling products to selling services and selling solutions, so that Lenovo will not only become a model of intelligent transformation, but also "endogenous externalization" and external empowerment.
【New height, new mission】
Friends, in the new fiscal year, Lenovo will enter a new stage.
Although there are many uncertainties in the environment, Lenovo people will be more united, more determined, more empathetic, and more mission-minded!
What Lenovo people promote is not only the improvement of performance, but also the basic and breakthrough scientific and technological innovation!
Lenovo people practice, not only to sell good products, but also to become a high-tech-driven solution company!
Lenovo people attach importance to not only their own development, but also their contribution to the country, society and mankind!
We will listen carefully to the voice of customers, work together with partners for win-win results, form a smooth communication mechanism with all sectors of society, and jointly build a future driven by scientific and technological innovation, continuous service to customers, and create more social value!
Let's go for this mission!