FY2024Q4's performance has resumed growth, and the smart device business accounts for the majority. FY2024's revenue was $56.864 billion, -8% YoY; net profit was $1.011 billion, -37% YoY. FY2024Q4's revenue was $13.833 billion, +9% YoY; net profit was $0.248 billion, +118% YoY. By product breakdown, FY2024 Smart Device Business Group's revenue was 44.599 billion US dollars, accounting for 78.43%, -9.67%; infrastructure solutions revenue was 8.922 billion US dollars, accounting for 15.69%, -8.55% year over year; total solution service revenue was 7.472 billion US dollars, accounting for 13.14%, +12.14% year over year; intersegment offsetting -4.13 billion US dollars.
Various businesses are growing steadily, and artificial intelligence solutions are being expanded. ① The Intelligent Devices Business Group (IDG) grew steadily throughout FY2024Q4 and throughout the year, expanding its leading position. IDG maintained steady growth in FY2024Q4, further consolidating its leading position in the global PC market. Its market share reached 22.9%, significantly higher than the market growth rate, and maintained industry-leading profitability. The current quarter's turnover was $10.5 billion, and the full year's revenue was $44.6 billion. PCs, tablets, and smartphones all resumed growth in the second half of the year. Among the five global market regions, Lenovo's personal computer business ranked first in the four market regions and reached a new high share in the North American market. ② Infrastructure Solutions Business Group (ISG) regained growth momentum in FY2023/FY2024Q4 and throughout the year. The quarter's turnover reached 2.5 billion US dollars, a record high for the fourth quarter. The storage, software and service businesses in this sector all achieved ultra-rapid growth, and their total turnover increased by more than 50% year over year. The high performance computing business recorded a record high turnover. ③ Solution Services Business Group (SSG) FY2023/FY2024Q4 has strong growth and profitability throughout the year, and expands artificial intelligence solutions.
SSG's revenue increased by more than 10% year over year, reaching 1.8 billion US dollars, and operating margin of over 21%. For 12 consecutive quarters, both revenue and profit margins achieved double-digit growth, strengthening its position as a growth engine and profit contributor. Revenue for the full fiscal year was 7.5 billion dollars, up 12% year over year, and operating margin was nearly 21%. The share of SSG's overall turnover during the operation and maintenance services and project and solution service season increased by 5 percentage points to 55% over the same period in FY2023. Key general-purpose solution businesses such as digital workplace solutions and TruScale hybrid cloud have experienced rapid growth.
Business opportunities are abundant in each sector, and the trend of sustainable growth continues. ① On the Smart Devices Business Group (IDG) side, looking forward to the future, the total PC market will return to a higher level than before the pandemic, while the mobile phone market has returned to a high double-digit year-on-year growth rate. In the next three years, AIPC will gradually move from high-end to mainstream. Lenovo's first AIPC has already been shipped, more AIPC will be launched in the next few quarters, and the PC market will also usher in a new switching cycle. AI is gradually expanding from AIPC to various terminals such as AI phones and AI tablets, and enables seamless collaboration between different devices through Smart Connect (Smart Connect) software solutions. ② On the Infrastructure Solutions Business Group (ISG) side, AI servers are expected to continue to grow at nearly twice the rate of the overall server market as the market shifts to artificial intelligence infrastructure. ISG will seize the new opportunities by building a rich product portfolio and excellent ability to transform business opportunities, while using existing advantages to seize the steady growth of traditional computing servers, storage, software and services, and restore profitability. ③ On the side of Solution Services Business Group (SSG), looking forward to the future, SSG will continue to rapidly respond to growing customer needs by creating artificial intelligence native and artificial intelligence embedded solutions and services. The Care of One platform, network resilience as a service and decision-making tool, L.I.S.S.A., uses artificial intelligence to provide employees with a highly personalized experience, and effectively improve work efficiency, enhance security, and sustainable IT choices.
Self-developed AI chips, the most comprehensive AI features and AI assistants build Lenovo's core competitiveness. ① The chip side, according to Microsoft's definition, must reach at least 40 TOPS of computing power to be called CoPilot+ PC. Therefore, breakthroughs in high-performance computing power chips have largely determined the commercialization progress of AI PC products.
Lenovo's self-developed AI chip (LA1) was first released at the US Consumer Electronics Show in 2023, and iterated to LA2 and LA3 to be widely used in Lenovo laptop products. ② In terms of AI characteristics and AI assistants, Lenovo Group released the first AI personalized PC in the Chinese market, Xiaotian AI Smart, and is equipped with this new self-developed AI species in its recently launched next-generation CoPilot+ PC. This smart device mainly enhances the user experience through natural interaction, and also builds a personal knowledge base to achieve semantic search and intelligent Q&A, making AIPC a user's AI assistant. Second, Lenovo Group is also trying to build a more open ecosystem with the Tianxi AI ecosystem and cooperate with industry partners to promote the application of AI technology on multiple terminals. Developers are encouraged to participate, jointly develop cross-end applets, enrich the application ecosystem, and achieve commercial monetization through advertising, games, and subscriptions.
Profit forecasts and investment recommendations:
We believe that the company is a global ICT company. Lenovo has the highest PC sales volume in the world, actively promoting the development of “device+cloud” and “infrastructure+cloud”, as well as the implementation of intelligent solutions. As AIPC iterates and accelerates penetration, the PC market recovers, and upstream server GPU supply chain issues are mitigated, the company is expected to begin new growth. We expect FY2025-FY2027, the company's Intelligent Equipment Business Group (IDG) to grow at 8%, 7%, and 7%, and the company's revenue growth rates of 9.56%, 7.03%, and 6.44%, respectively. With the diversification of the product structure and the support of the company's strong operating capacity, gross margin is expected to rise steadily. We expect the overall gross margin of the FY2025-FY2027 company to be 17.74%, 18.24%, and 18.74%.
We expect the company's FY2025-FY2027 revenue to be USD 62.297/66.675/70.966 billion USD, and net profit to mother of USD 1.16/1.611/1.982 billion, respectively, and the corresponding EPS of USD 0.09/0.13/0.16, respectively. Based on the current industry stage and the company's growth rate and barriers, the company was given 18-20 times the FY 2025 dynamic PE. Based on the exchange rate of 1 US dollar = 7.2523 HKD, the 6-month reasonable value range was HK$12.21-13.57, which was covered for the first time to give a “superior to the market” rating.
Risk warning: Supply in the industrial chain is limited; AIPC promotion falls short of expectations; PC boom recovery falls short of expectations.