Revenue for the first fiscal quarter increased 20% year over year, and net profit to mother increased 38% year over year. The company announced FY2024/25 first fiscal quarter results, with revenue of 15.447 billion US dollars (YoY 19.75%) and net profit of 0.243 billion US dollars (YoY 37.86%). Performance growth was mainly driven by accelerated growth in computing, infrastructure and services; gross profit margin of 16.57% (YoY -0.88pct), and the year-on-year decline was mainly due to the relatively low gross margin of the Infrastructure Solutions Business Group.

Commercial PC sales are picking up, and AI PCs are expected to become a new growth point. The smart device business (IDG) revenue for the first fiscal quarter was $11.422 billion (YoY 11.32%) and operating profit of $0.828 billion (YoY 27.49%); growth was mainly due to a recovery in commercial sales and a shift in demand to high value-added products. Among them, the high-end PC portfolio increased by 3.4 pct, and the commercial segment received nearly 70% of PC revenue, which had a positive impact on the average sales price.

Demand for AI servers continues to grow, and AI applications are driving general-purpose server upgrades. Infrastructure Solution Business (ISG) revenue for the first fiscal quarter was $3.16 billion (YoY 65.11%), operating profit of $0.037 billion (year-on-year loss of $0.023 billion); revenue broke through $3 billion for the first time, mainly due to significant investment in AI infrastructure and increased supply of AI graphics processors, which continued to drive AI demand; at the same time, inference demand from generative AI applications also drove general computing server upgrades.

AI-driven services are growing at an accelerated pace, particularly in the manufacturing and retail verticals. The Solution Services Business (SSG) revenue for the first fiscal quarter was $1.885 billion (YoY 10.05%) and operating profit of $0.396 billion (YoY 9.68%); revenue grew by double digits for the 13th fiscal quarter, mainly due to the pursuit of higher productivity and digital transformation by enterprise customers, especially AI-enabled services and solutions, driving the growth of IT services over the years.

Received a strategic investment of 2 billion US dollars from the Saudi Sovereign Wealth Fund, which is conducive to leveraging strategic advantages. On May 29, the company announced a strategic cooperation with Alat, a subsidiary of the Saudi Public Investment Fund (PIF). Alat will provide the company with an interest-free convertible bond investment of 2 billion US dollars. The company will establish a regional headquarters for the Middle East and African markets in Riyadh, the capital of Saudi Arabia. This cooperation is expected to accelerate the transformation of the company's global strategy, enhance its global influence, improve the diversification of the ecological layout, and help to further globalize the supply chain by taking advantage of the growth momentum in the Middle East and Africa.

Investment advice: Maintain an “better than the market” rating. We are optimistic about the company's leading edge in the smart terminal field and competitiveness in the cloud infrastructure field. Considering that the use of hybrid artificial intelligence brings strong performance growth and sustainable profitability to the smart device business group, and the increase in the size and cost structure of the infrastructure solutions business group brings growth momentum to the company, we expect FY2024/25-FY2026/27 to the mother's net profit of 1.233/1.708/2.017 billion dollars (previous value 1.222/1.67/2.001 billion US dollars), currently The corresponding PE price was 12.5/9.0/7.6 times, respectively, maintaining the “superior to the market” rating.

Risk warning: downstream demand falls short of expectations; progress of new products falls short of expectations; risk of market competition, etc.