As we close the fiscal year, it’s time to reflect upon the numerous challenges that Lenovo and the entire ICT companies have been managing, and the solid execution results and strategic breakthroughs we have delivered despite the tough market and all the uncertainties in the macro context.
Broadly speaking, global businesses were operating in a high inflation, high interest rate environment with exchange rate fluctuation and geopolitical tensions. For our industry, the past fiscal year also marked a turning point from a fast expansion period to a postpandemic, post hypergrowth era. It was a test not only for a company’s operational resilience to navigate a challenging time, but also for its strategic foresights to emerge out of this period stronger than ever, ready to win for the future.
Delivering Solid Results with Diversified Engines and Operational Excellence
I’d like to report that Lenovo delivered the most solid results we could reasonably hope for amid the ICT industry contraction phase in the past fiscal year.
Despite the broad market decline, we maintained a strong net margin comparable with the previous year and remain committed to doubling it in the medium term. This is a remarkable achievement. Our operational excellence keeps purchasing cost low with our global scale, ensures high productivity through inhouse manufacturing, turns inventory into cash fast through strong channel partnerships, and keeps a high efficiency of the entire company through strong expense management.
Our diversified engines in solutions, services and infrastructure demonstrated strong momentum and achieved hypergrowth in the past fiscal year. They not only helped offset the PC market decline, but also told a stellar growth story in themselves. Solutions and Services Group (SSG) continued to deliver double-digit growth with over 20% operating margin. Infrastructure Solutions Group (ISG) grew over 30% year on year at significant premium to market. As a result, we have dramatically increased the percentage of non-PC business in our revenue mix, which marks an important milestone in our transformation from a device or hardware company to a solution and service company.
And in PC market, the consumer demand for smart devices has been accelerating over the last three years, leading to channel overstock and then inventory correction. As a result, the PC shipments of the entire industry, including Lenovo, declined year on year, especially during the second half of the fiscal year. But Lenovo still outperformed the PC market in shipment and maintained our leadership position and industry leading profitability.
We believe the PC shipment has nearly bottomed by now, based on the activation number which reflects the real demand, as well as the channel inventory level, which has almost returned to the pre-pandemic level. From this point, the PC market is about to resume its year-on-year growth, as early as the second half of 2023. And Lenovo is ready to capture that growth from a position of strengths.
Enhancing Competitiveness to Capture Future Opportunities
As we enter the post-pandemic, post hypergrowth phase of our industry cycle, I believe our hard work over the past three years has elevated Lenovo to a new height not only in revenue, profitability and cash position, but also in our strategic direction. Going forward, we will continue to focus on the following areas.
First, we will accelerate our journey from a device or hardware company to a solution and service company. It all starts with providing total solutions to customers to solve industry specific pain points. And in this process, we will leverage our TruScale brand to boost Lenovo’s presence in the highly promising aaS market. Meanwhile, we will build more horizontal solutions including digital workplace, edge/AI, hybrid cloud, TruScale and sustainability solutions and embed them into vertical industries. Ultimately, these efforts will help steadily increase the percentage of solutions and services in our overall revenue mix.
Second, we will keep driving our investment in New IT. Lenovo has been the first one in the industry to define our vision of New IT, the technology architecture that includes client devices, edge computing, cloud computing, network and artificial intelligence. It differentiates from traditional IT which features on-prem data center and applications. Going forward, we are committed to doubling our R&D investment around New IT in medium term. Today, one in every five of Lenovo employees works in R&D or innovation, and we continue to bring innovative technology, products and solutions to the market, including rollable PC, Yoga Book 9i, ThinkPhone, ThinkReality VRX, extreme performance ThinkStation, new generation ThinkSystem, ThinkAgile, ThinkEdge, as well as smart space solutions such as ThinkSmart One, all launched last year, and many more in our pipeline.
Third, we will continue to leverage and optimize our unique “Global Sourcing, Local Delivery” model. Globally, we have access to advantageous resources, attract talent and build partnerships. And locally, we stay agile and flexible to serve customers’ needs. In supply chain, our global scale helps us secure key components. In manufacturing, we have our own factories to ensure capacity and uninterrupted supplies. In marketing, we use a “Global Might Local Fight” approach to build Lenovo’s global brand equity while generating local influence and demand in key markets. This is a strong core competency that Lenovo has built over years and will continue to make a big difference in the future.
And finally, we will maximize the advantages of One Lenovo. Today, customers need not just products but total solutions. Lenovo has all the pieces, including devices, infrastructure, solutions and services to serve their needs. And we will continue to leverage our existing platform and processes, build on our existing core competencies to grow adjacent business. The capabilities we’ve built with our core business are now the best soil that nurtures our new, diversified growth businesses. As One Lenovo, we are sharing the same vision, executing the same strategy, operating on the same platform, and building the same culture, in every business, every region, and every team.
Building a Smarter Future for All
Our solid results and clear strategic directions have prepared us well to navigate the current market headwinds, a challenging economy and numerous macro uncertainties. I firmly believe in the long-term opportunities driven by global digital and intelligent transformation. It is our strategic foresights and operational resilience that will help us transcend the industry cycle more smoothly than competition.
Beyond business success, our ultimate goal is to use technology to help solve humanity’s greatest challenges. We have made important progress including having our net-zero target by 2050 validated by Science Based Target initiative (SBTi). It’s our commitment that everything we do must serve the purpose of making life better, work more productive, society more equitable and inclusive, and our planet more sustainable.
To that end, let’s make the new fiscal year a new chapter in our journey of building a smarter future for all.
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