Q2 earnings growth slows Lenovo how to tear open the next revenue breakthrough?


Editor’s Note: This article is from WeChat public account “Hong Kong Stock Research Institute” (ID: ganggushe), 36 氪 authorized to release on November 7, Lenovo Group released its second quarter 2020 performance report.In the second quarter ended September 30, 2019, Lenovo Group’s revenue was 94.8 billion yuan, a year-on-year increase of 1%. Although the growth rate slowed to 1%, it was also its nine consecutive quarters of year-on-year growth; net profitIt was 1.42 billion yuan, a year-on-year increase of 20%.After the release of the earnings report, Lenovo’s share price did not improve due to the double growth of revenue and net profit. The intraday decline on the 7th reached 1.15%. As of press time, the stock price was HK$5.88, down 2.81%.From the perspective of Lenovo’s financial report, the core financial data is still performing well.In terms of market share, on October 11 this year, IDC, Gartner and Canalys, three well-known data analysis organizations in the world, released the report of global PC shipments in the third quarter of 2019.Data show that in the third quarter of this year, Lenovo reelected the world’s largest PC shipments, with a market share of nearly a quarter, and the impact is not small.The financial report also said that the intelligent transformation has achieved initial results.But why is the performance of the capital market not optimistic?What is hidden behind Lenovo’s eye-catching earnings report?In fact, after 35 years of baptism in the Spring and Autumn Period, Lenovo Group has brilliant achievements and stagnant illnesses.The Hong Kong Stock Research Institute interprets its current opportunities and challenges from the latest earnings report this quarter.Revenue net profit double growth smart equipment business overall profit margin first over 5% financial report shows that Lenovo Group’s second quarter 2020 revenue of 94.8 billion yuan, pre-tax profit of 2.17 billion yuan, an increase of 45%.Net profit reached 1.42 billion yuan, an increase of 20% year-on-year.Among them, the data intelligence business group that was just established in June this year increased by 76%, and the intelligent transformation was effective.During the quarter, Lenovo Intelligent Equipment Business Group’s overall revenue reached 85.5 billion yuan, an increase of 2.8%, pre-tax profit of 4.3 billion yuan, the pre-tax profit margin exceeded 5% for the first time, reaching 5.1%.Among them, the profitability of personal computers and smart devices and mobile services has been greatly improved year by year.The smartphone business also continued to grow for four consecutive quarters and set the highest profit since the acquisition of Motorola’s mobile business.Personal computers, from the market share, according to IDC data, in the third quarter of this year, Lenovo reelected the world’s largest PC shipments, with a market share of nearly 1/4.In Lenovo’s three main businesses, revenue accounted for 78%.Once again, the market influence of the Lenovo PC business is also the foundation of Lenovo.Several other business groups, financial reports, showed that their personal computers and smart devices still achieved 4.1% overall revenue growth, reaching 74.7 billion yuan.In the mobile business group, the activation volume increased by 6.8% year-on-year, the turnover increased by 4%, and the profit increased by 3.2%.In the data center business group, this quarter recorded a loss, but the loss is continuing to narrow.In terms of data centers, China’s overall growth rate was 19%, software and services increased by 35% year-on-year, and revenue reached 6 billion yuan.At the same time, the financial report said that this quarter, the Group continued to promote the implementation of the “3s strategy” intelligent transformation, from the performance point of view, has achieved initial results.Among them, the “DaaS Equipment as a Service” business grew by as much as 725% year-on-year, the equipment enjoyment service increased by 81%, and the IT operation and maintenance management service grew by 70%.In addition, Lenovo also said that the company will add more than the edge computing, cloud, big data and artificial intelligence to the vertical industry strategic transformation of investment, is expected to further highlight the core competitiveness.In summary, Lenovo’s new quarter earnings report is eye-catching.But the PC business is still Lenovo’s revenue. In fact, this is not entirely good news for Lenovo.From another perspective, this means that Lenovo’s other businesses are slower, which is also a hidden risk behind its earnings.Hidden hidden behind the brilliant earnings report For Lenovo, revenue growth is not new.So far, this is the year-on-year growth in Lenovo’s revenue for nine consecutive quarters.But behind the brilliant financial data, there are still many problems.1. Revenue of nearly 100 billion net profit but only 1.42 billion low price strategy can not create more profits for Lenovo According to the latest financial report, Lenovo’s revenue during the period was 94.8 billion yuan, approaching the 100 billion revenue mark, but the net profit wasVery pitiful, only 1.42 billion yuan, this ratio seems really uncoordinated.This situation has always been the pain point of Lenovo Group for many years.In the fourth quarter of 2018, during the period, its revenue was $11.7 billion, equivalent to approximately RMB 81.7 billion, while Lenovo’s net profit was only $118 million, or 824 million yuan.The same was true for the last quarter’s earnings report, with revenue of $12.512 billion, equivalent to approximately RMB 87.41 billion, and net profit of only $162 million, or $1.13 billion.Lenovo’s net profit is too meager compared to other IT giants.Take Apple, Apple Q3 financial report shows that the period revenue of 64.04 billion US dollars, about 447.13 billion yuan, net profit of 13.686 billion US dollars, equivalent to 95.55 billion yuan.In contrast, the ratio of Lenovo’s revenue and net profit is a bit embarrassing.According to public information, the entire 18/19 fiscal year, Lenovo Group’s net profit is 4 billion yuan after tax, PC business accounted for about 80%, Lenovo sold a total of 58.47 million PCs in 2018, in this calculation, LenovoThe profit from selling a computer is about 50 yuan.In this way, the “low-price strategy” adopted by Lenovo’s large-scale PC business is the main reason that its profits cannot be directly improved.And this pattern will be difficult to change in the short term, and this challenge will continue.2, PC business is still a big head and fierce market competition From the financial report, Lenovo Group in the second quarter of 2020, PC shipments ranked first in the world, with a market share of 24.4%, ranking first.Its sales growth rate exceeded 7% year-on-year, setting a record high.According to the financial report, the overall revenue of the smart device business group reached 85.5 billion yuan, of which personal computers and smart devices still achieved an overall revenue growth of 4.1%, reaching 74.7 billion yuan.This business accounted for 78% of total revenue during the period.The competition in this industry has never decreased.Lenovo’s PC business has covered the world, but there are old rivals such as Dell and HP.Although Lenovo in the third quarter, Lenovo ranked first with 17.31 million units of shipments and 24.4% market share, but other giants are also close behind.According to data from Canalys, HP shipped 16.73 million units with a market share of 23.6%; Dell shipped 12.07 million units with a market share of 17%.Although the corresponding report has been obtained with the help of the PC business cycle, there are still uncertain factors.Moreover, HP’s shipments are closely followed.In addition, there are other vendors that share market share.Data shows that Apple shipped 5.36 million units with a market share of 7.6%; Acer shipped 4.9 million units with a market share of 6.9%.On the whole, PC business, as an important revenue pillar of Lenovo, has to face the challenges of its competitors in addition to the characteristics of the industry cycle.3, the domestic market Lenovo is brewing layoffs is not good. From the financial report, we can see that this quarter, Lenovo Data Center China business overall revenue increased by 19%, non-super large data center business achieved a 47% year-on-year growthSoftware and services increased by 35% year-on-year and revenue reached 6 billion yuan.From these figures, the growth rate of smart services in the Chinese market seems to be good.But the revenue of 6 billion is only one-sixteenth of Lenovo’s total revenue.From the perspective of its main business, although the PC market share has returned to more than 40% this quarter, it is still difficult to say whether it can continue to be maintained.Some time ago, the news that Lenovo China is laying off employees may seem like a glamorous surface, and the days behind the scenes are not so good.According to Sina Technology News on October 17, Lenovo Group is planning to lay off employees in China, and the proportion of layoffs is still unclear.Although Lenovo’s global market share performance is very bright, but its domestic market is difficult to rival.According to IDC data, in the first quarter of 2019, Lenovo’s tablet PC shipments plummeted 48.7%, ranking fifth, with a market share of 2.4%.Moreover, while the top four market share increased, Lenovo’s market share fell by 48.7%.The reason why Lenovo does not eat incense in China is nothing more than that when other manufacturers have core technologies, Lenovo is still taking the path of “assembly.”Lenovo has been through 35 years, but there is no core software in Lenovo’s computer.For chips and systems, you can only rely on companies such as Intel, AMD, and NVIDIA, and the competitiveness becomes very weak.In addition, in order to break into the international PC market, Lenovo adopted a “low price strategy” abroad.In the United States, Lenovo’s price may be 20% lower than other brands.For example, Lenovo’s ThinkPad X1 Carbon released in 2017, the US version is priced at 1,500 US dollars, about 9,700 yuan, the domestic version of the price is 24,999 yuan.In summary, I would like to consider who is willing to buy an “assembly machine” without a price advantage?In the long run, if Lenovo cannot change its passive position in the domestic market, this will be a loss that cannot be ignored.How does the Lenovo in the Internet of Things era find a breakthrough?The arrival of the Internet of Things era is an opportunity for technology companies.From this latest financial report, Lenovo can make efforts from two aspects.1. Mobile phone business breaks but can’t escape the fierce competition in the market Although Lenovo’s mobile phone business has been criticized for a long time, from the latest financial report, this business has achieved profit for four consecutive quarters.According to the financial report, in the mobile business group, the activation volume increased by 6.8% year-on-year, the turnover increased by 4%, and the profit increased by 3.2%.However, under the current 5G wave, Lenovo still needs to rely on the mobile business to open up the C-end market while it is working on the B-end. Therefore, ensuring performance and paying attention to profitability is not the ultimate goal of Lenovo.Yang Yuanqing is even more blunt, “From now on, we must pay more attention to profitable growth under the premise of ensuring profitability.”In recent years, Lenovo has adopted a focused focus strategy.In other words, it is to avoid a highly competitive market, and more investment is concentrated in countries with profitable growth potential.Emerging markets in Asia Pacific and even the world are not key development areas of Lenovo, and fierce price wars are not good for Lenovo.Europe is Lenovo’s next battlefield, and the financial report said that the mobile business may be profitable there.But it is worth noting that the European market has always been a strategic location for Huawei.It is conceivable that Huawei and Lenovo, two Chinese companies, may compete directly in the mobile business.In recent years, Huawei has built up relative technical barriers. For Lenovo, this is worthy of trial.2, data center losses narrowed “smart transformation” has enough imagination space In fact, Lenovo has been a smart transformation for a long time.In 2016, the three-wave strategy was launched. Although there is no outstanding breakthrough at present, the direction of Lenovo’s transformation is worthy of recognition.Looking at this latest financial report, Lenovo’s intelligent transformation has begun to show results.The financial report showed that during the period, the data center business lost $103 million to approximately RMB 720 million, a year-on-year narrowing of USD 20 million to approximately RMB 130 million.It is worth noting that thanks to the progress of the smart education business, the overall turnover of “industry intelligence”, one of the 3S strategic pivots, has grown by 202%.In addition, another fulcrum of the 3S strategy, namely, SIoT smart IoT revenue increased by 428%, smart office grew by 471%, consumer intelligent IoT increased by 769%, and augmented reality AR and virtual reality VR business achieved 1280% growth.At the same time, the overall business in China increased by 19%.After the improvement of multi-service operating system, Lenovo’s new cornerstone of its intelligent transformation and development has already taken shape, which is also one of the areas where its future focus is overweight.However, it should be noted that Lenovo’s data center business has suffered a loss, but it is still in a loss state.In the future transformation, with the situation of major industry giants scrambling to divide the 5G dividend, Lenovo’s competition and capital investment will be a big challenge.On the whole, Lenovo’s earnings report for the quarter is bright, but it also hides hidden concerns.For Lenovo, there is still a long way to go in the future, and the challenges are constantly increasing.The Hong Kong Stock Research Institute will continue to pay attention to its future trends and development..