What have been the key challenges your business has faced due to COVID-19 and how have you addressed them?
Gianfranco Lanci: Lenovo’s immediate priorities have been the health and welfare of our colleagues and supporting those working to contain the outbreak, through our charitable contributions and philanthropic efforts. We have been encouraging and supporting team members to social distance and work from home in most locations.
From a business perspective, the surge in global remote and flexible work has seen a rise in demand for productivity technology from laptops and tablets to monitors and accessories. To boost production, we leveraged the full strength of more than 30 global factories to bring capacity back to regular production levels and limit impact to customers.
In an effort to minimize customer service disruptions, we are continuing to run all available customer service options from e-services to repairs. Lenovo Intelligent Devices Group is also offering a free global warranty extension for up to 75 days through May 31, 2020 for all Lenovo and Motorola consumer devices with warranties that ended between March 15 through April 30, 2020 as additional support to consumers during this time. Additionally, to help teachers and students with remote learning, we are giving away complimentary licenses of our classroom management software, LanSchool, to schools in North America through July 1, 2020.
Kirk Skaugen: As with all businesses globally, COVID-19 has caused corporate IT spend slowdown and supply chain challenges. Lenovo’s global supply is a strategic asset and has been resilient through the pandemic. We are at full capacity and able to ship customer orders globally with only minimal supply chain challenges on freight routes.
Our technology is also critical during this pandemic, and recognizing the need for a global effort, we have partnered with Intel to support Beijing Genomics Institute (BGI) through our HPC cluster to accelerate the development of a vaccine for COVID-19. We have also met strong customer demand from banks, governments, healthcare institutions and enterprises for Business Continuity and Virtual Desktop Infrastructure (VDI) solutions to mitigate the impact of COVID-19 on employee productivity.
Sergio Buniac: While COVID-19 brought some unexpected hurdles in the form of supply disruptions and softer demand due to the macroeconomic slowdown, our teams have been working diligently to ensure we’re well-positioned to face these challenges head-on. To minimize supply disruptions, we moved production lines and diversified our supply chain across our sites. We also enabled foldable production at our Brazil factory to meet demands in North America and Europe. As a result, we were able to drive 6M shipments in Q4.
What are the highlights from your business performance in the past fiscal year?
Gianfranco Lanci: Despite challenges of COVID-19 and component supply shortages, Lenovo maintained our position as the #1 PC company in the world for the entire year*. PCSD led the pack with a 3.6% increase YTY of almost $40 billion revenue for the year with a pre-tax income at a record high of $2.3 billion. In addition, PCSD saw a PTI margin of 5.9%, up 0.7% on FY2019.
In our ROW Services organization, we’ve seen 12 consecutive quarters of double-digit growth across all geos and segments and in the last year secured a high number of new DaaS contracts worth $257M. In our growth segments, such as smart office, gaming, workstation, OEM, visuals, etc., we also achieved impressive revenue and premium to market growth. In MBG, our profitability improved by $96M worldwide YTY with North America and Latin America both saw full year profitability improve.
Kirk Skaugen: In this past fiscal year DCG delivered the highest non-HS revenue in 4 years, outgrew the market across most of the segments, in some cases by double digits, and became the #3 server OEM in the world. We grew units 17% YOY in Non-Hyperscale Server & Storage and grew storage revenue over 50% year-on-year. We rose to become the #3 storage OEM in the world in entry storage Bands 1-4. We also retained our #1 position in x86 server performance and quality, with ITIC naming us the most reliable x86 server in the world for the 12th consecutive year.
We also won VMware’s “Partner of the Year” award which recognizes best customer value and solution return on investment. In addition, we have been scaling exciting new products and services, like TruScale as a service, winning new customers. Overall, I am proud DCG has ended the year with excellent momentum and we see ourselves even stronger in the current quarter in both hyperscale and non-hyperscale.
Sergio Buniac: The past fiscal year was one of many milestones for our Mobile business. Our continued focus on profitable growth resulted in profits improving by $96M worldwide year on year, despite COVID-19 related disruptions in Q4. We did this by:
- Driving strong momentum across key markets:
- LA activations grew 8% year on year and we maintained our #2 position for the year
- NA full year profitability was up 31% year on year
- Europe activations were up 6% year on year (pre-COVID impact)
- Improving our speed to market with a 28% reduction in the product development cycle
- Leading with innovation and re-entering the premium/flagship space with the first clamshell smartphone, which increased our brand interest by 300% following Motorola razr’s US announcement
- And improving product quality to achieve the lowest warranty rates since our acquisition by Lenovo
- Driving strong momentum across key markets:
Looking ahead, what are the key opportunities and strengths your business group will leverage to drive success?
Gianfranco Lanci: First and foremost, our focus is safeguarding livelihoods of our customers and Lenovo employees. In the current climate, there is a high demand for PCs across all geos due to the trend of working and schooling from home. We have an opportunity to move quickly to provide PCs and solutions to our customers.
I see this trend continuing into Q2 and Q3 and believe that demand will remain high as families adjust to working and schooling from home for the future. As of March 2020, we restored 100% of capacity in all our factories, with the exception of Wuhan, and are continuing to leverage the global scale, manufacturing footprint and operational excellence of our global supply chain to drive success in the year ahead.
Kirk Skaugen: A big consideration for many organizations through this pandemic is how we return to the workplace and we already see an increase in overall demand for business continuity solutions. Work from home is driving both public cloud and on-premise hyperconverged-based Virtual Desktop Infrastructure (VDI) and Cloud Service Providers will benefit from immediate WFH demands and post COVID-19 re-configuring of WFH capability.
We are seeing a much stronger demand from the hyperscale customers we service than we have in previous quarters as we look ahead and this is spanning both server and storage for Lenovo. I am confident in DCG’s continued profit improvement, growth coming in both hyperscale and non-hyperscale segments, while continuously improving our storage, software and services attach which will continue to improve our profitability.
Sergio Buniac: We’re driving 5 key pillars to win in the dynamic Mobile market:
- Continue to grow at a premium to market: We’re committed to growing faster than the market in all of our geographies. We will drive profitable growth in the Americas and restart growth in other markets.
- Deliver competitive portfolio: We are ready to deliver consumer-focused innovation across 5G, display, charging, UI and more.
- Expand into new revenue streams: We’re accelerating non-phone revenue streams such as services, licensing and software, and prioritizing the growth of e-commerce and B2B.
- Drive consumer engagement: We plan to strengthen our focus on our consumers by prioritizing customer-centricity in our product development process and continuing to listen to and learn from consumer feedback.
- Focus on operations: On an ongoing basis, we are driving a financial and operational discipline in our operating model.