Lenovo, more than ever, needs to hold on to AI. On April 1, at Lenovo Group's 2024/2025 fiscal year pledge meeting, Yang Yuanqing revealed that on April 18, AI PC will be the first to be launched in the Chinese market.
In the latest disclosed financial report data, Lenovo's revenue declined and net profit was almost "cut in half". 2024 is the 40th anniversary of Lenovo's founding and the seventh year of its All in AI transformation.
The most high-profile AI "story"
AI PC is the most high-profile "story" told by Lenovo for more than half a year.
In October 2023, Lenovo showcased its first AI PC. A month later, Yang Yuanqing completely defined the five core characteristics of AI PC for the first time, namely, the ability to run compressed and performance-optimized personal large models, stronger computing power, larger storage, smoother natural language interaction, and more reliable security and privacy protection.
At the International Consumer Electronics Show (CES) in January 2024, Lenovo unveiled more than 40 new AI-based devices and solutions, including more than 10 AI PCs, such as the Yoga Pro 9i, which empowers the creative process, and the ThinkBook Plus Gen 5 Hybrid, the world's first device that seamlessly switches between laptop and tablet modes.
In the "story" built by Lenovo, AI PC is the third generational upgrade of the PC industry after "home computers" and "Internet computers", that is, the era of AI PC based on large model technology, which represents more independent, safer and more "understands you".
When enjoying the future of AI PC, Yang Yuanqing once described: "It can not only serve as the entrance to the public model, but also run a personalized private model independently, only it can grasp your most comprehensive personal data and information, and can keep it secret." Only you can wake it up, use it, and only know you best, far better than any public model. ”
Wang Peng, an associate researcher at the Beijing Academy of Social Sciences, told Beijing Business Daily that AI PCs can run AI models and applications locally without relying on cloud processing, thus improving the efficiency and privacy of data processing. Secondly, through AI technology, PCs can more intelligently understand user needs and provide personalized services and experiences. In addition, AI PCs also have powerful computing power and scalability, which can meet users' professional needs in high-performance computing and image processing.
What AI PCs carry is the hope of Lenovo's business growth and the expectation of the industry's "super replacement wave". According to IDC's forecast, with the end of the last round of device update cycles and Windows 10 support, the PC market is expected to usher in a moderate recovery from the second half of 2024.
The haze of performance is not dissipating
The ideal of AI PC is full, but the reality of Lenovo is not optimistic.
In February this year, Lenovo released unaudited results for the third quarter of fiscal year 2023/2024.
According to the data, for the nine months ended December 31, 2023, the company's revenue was US$43 billion, down 13% year-on-year, and attributable net profit was US$763 million, down 49% year-on-year. Specifically, in the third quarter, Lenovo's revenue was $15.7 billion, up 3% year-on-year, and its net profit was $337 million, down 23% year-on-year.
Lenovo Group has three main businesses, namely Intelligent Devices Group (IDG), Infrastructure Solution Group (ISG) and Solution Service Group (SSG). Among them, the IDG business, which consists of personal computers, tablets, smartphones and other smart devices, is the absolute pillar of Lenovo, contributing about 80% of revenue.
From a business perspective, the poor performance of revenue and net profit in the first three quarters is closely related to the performance of the smart device business group. As Lenovo's core pillar business, revenue from this business declined significantly from the previous fiscal quarter for the nine months ended December 31, 2023.
Sluggish performance occurs over a longer period of time. In the last fiscal year, Lenovo's revenue was US$61.947 billion, down 14% year-on-year, and net profit was US$1.608 billion, down 21% year-on-year.
Regionally, in the first three quarters of the 2023/2024 fiscal year, Lenovo's revenue in China was US$9.907 billion, compared with US$12.417 billion in the previous year, a year-on-year decrease of about 20%.
Therefore, it is not difficult to understand that Yang Yuanqing has made four "military orders" in the face of the new fiscal year: annual turnover growth year on year and continuous improvement in profitability, IDG will continue to maintain its industry-leading market position and profitability and lead the AI PC wave, ISG will turn losses into profits and resume growth, and SSG will achieve an operating profit margin of more than 20%.
And IDG's "new mission" can only be in AI PC. Regarding the question of whether the launch of AI PC can improve the company's performance expectations for the 2023/24 full fiscal year, a reporter from Beijing Business Daily contacted Lenovo, but did not receive a reply as of press time.
The good news is reflected in the month-on-month comparison. According to the financial report, Lenovo's revenue has recorded growth for three consecutive quarters, up 9% quarter-on-quarter in the third quarter, and it is also the first time in the last year and a half that the group has achieved a year-on-year increase in quarterly revenue, and net profit has increased by 35% quarter-on-quarter, but due to the high base in the same period last year, it fell 23% year-on-year.
Wang Peng believes that AI PCs provide a more intelligent and personalized user experience by integrating advanced neural processing units (NPUs) and other AI technologies. This innovation is expected to stimulate consumers' desire to buy, shorten the replacement cycle, and thus drive the recovery of the PC market.
Easier said than done
At the results call in February this year, Yang Yuanqing said that the global PC market is expected to grow by 5% this year, "compared with the first half of the year, the market in the second half of the year is more worth looking forward to."
The reason for this judgment is that the AI PC is "thunderous and rainy". Yang Yuanqing said that due to the impact of the macro economy and the sales peak during the epidemic, consumers' demand for PC replacement may be slightly later, and AI PC is still a product with big thunder and little rain, and there is no product sold in the market.
Yang Yuanqing said that he believes that the popularization of AI PCs will lead to the popularization of AI, but at present, AI PCs are still facing problems in terms of network speed, cost, and data privacy and security.
Lenovo was also dragged down by weaker global PC shipments. According to data from Canalys, for the whole of 2023, the global PC market shipped a total of 247 million units, down 13% year-on-year. However, in the fourth quarter of 2023, the global PC market shipments increased by 3% year-on-year, ending seven consecutive quarters of year-on-year decline.
In the past few years, the growth of the traditional PC market has stalled, Wang said, due to the decline in consumer interest due to slow technology updates, the erosion of parts of the PC market by the popularity and enhancement of mobile devices (such as smartphones and tablets) and the impact of changes in the global economic situation on consumer purchasing power.
"AI PCs have the potential to turn Lenovo's performance around, but it also depends on a variety of factors." Jiang Han, a senior researcher at Pangu Think Tank, told Beijing Business Daily that first of all, the market acceptance of AI PCs will be a key factor. If consumers can recognize the value of AI PCs and are willing to pay a higher price for them, then AI PCs have the potential to become a new growth point for Lenovo's performance.
Previously, Liu Jun, executive vice president of Lenovo Group and president of China, revealed that the company will release a batch of AI PCs expected to cost $1,000-$1,500 in April. Liu Jun said that the computing power requirements of AI PCs are very high, and hybrid computing power is relatively expensive, and Lenovo has also made intensive investments in the research and development of AI PCs, so the average price of products will be more expensive than ordinary PCs.
Secondly, Jiang Han believes that Lenovo's accumulation and innovation capabilities in AI PC technology will also have an important impact on its market performance. If Lenovo can launch a competitive AI PC product, then it has the potential to stand out from the competition.
Lian wants to lead the AI PC, which is easier said than done. Last month, Microsoft launched two PCs, the Surface Pro 10 Business and the Surface Laptop 6 Business, with shipments starting on April 9. They are also known by Microsoft as "the first Surface AI PCs built for the enterprise." In the same month, Honor released its first AI PC, the MagicBook Pro16.
At the CES show in January this year, HP, Dell, Asus and other manufacturers also exhibited a variety of PC products with localized AI functions. In November last year, HP also said that it was on track to launch AI PCs in the second half of 2024 and expected its adoption to gradually increase.
Jiang Han believes that at present, many PC terminal manufacturers are actively developing PC products with localized AI functions, which makes the market competition more intense.
It is worth mentioning that Lenovo, which has always emphasized increasing AI, has seen a decline in its R&D expenses. According to the financial report, Lenovo's R&D expenses for the nine months ended December 31, 2023 were $1.496 billion, compared with $1.646 billion in the same period last year.
However, Lenovo still mentioned that in the 2023/2024 fiscal year, R&D investment is expected to reach the highest proportion of revenue.
Beijing Business Daily reporter Yang Yuehan