Big data industry innovation service media
——Focus on data·Changing business
Recently, Lenovo Group announced its performance data for the first quarter of fiscal year 2024. As of June 30, the company's revenue was US$12.9 billion, a year-on-year decrease of 24%, and excluding the impact of exchange rate factors, it decreased by 22% year-on-year. After the data was released, the stock price fell by more than 5% during the session, and then quickly narrowed. At the end of the day, the stock price fell by 3%.
The same "story" was staged just three months ago. On May 24, Lenovo Group announced its performance data for the 2022/23 fiscal year. In the past year, Lenovo Group's revenue was US$61.9 billion, a year-on-year decrease of 14%. On the day the data was released, Lenovo Group’s share price fell nearly 8%.
As the world's leader in computer sales, can Lenovo Group's performance continue to grow after its computer business gradually reaches its peak? Where is the room for future growth? …
The three major business groups "new and old" alternate
According to the annual report of Lenovo Group for the 2022/2023 fiscal year, Lenovo Group’s main business has three main parts: smart device business group, infrastructure solutions and comprehensive solutions.
The smart device business group includes several traditional businesses of Lenovo Group, such as personal computers, smartphones, tablets, smart home equipment and other products. In this business, Lenovo Group has accumulated rich experience in manufacturing and supply chain with decades of development and industry accumulation, making it the world leader in sales of personal computers and smartphones also having a certain market share in the global market. . In addition, smart speakers, smart displays, and smart home control systems have also gained popularity among users in the smart home market.
According to data from the last fiscal year, the revenue of the smart device business group was 339.3 billion yuan, accounting for 80% of total revenue, a decrease of 14.2% year-on-year in fiscal year 2021. Does the reduction in traditional business mean that growth has "peaked"? Is there still room for growth in traditional business? Data Yuan believes that although competition in the smart device market is fierce, it still has huge development potential. With the popularization and application of 5G technology and the development of emerging technologies such as folding screens and full screens, there is still room for development in the smartphone market. In addition, the deep integration of smart home devices with other fields such as the Internet of Things and artificial intelligence has attracted more and more people's attention and opened up a broader space for development. In the future, the types of smart devices will further expand, creating new room for growth in this part of the business.
The infrastructure solutions business mainly covers data center solutions, cloud computing and network equipment. Lenovo’s core capabilities in this business are mainly reflected in two aspects: First, its strong R&D team and technical strength enable Lenovo to excel in servers, storage equipment and Lenovo has accumulated rich experience in the fields of network equipment and other fields, and continues to innovate and improve technology to provide high-performance, reliable and scalable solutions; secondly, Lenovo has a global sales and service network. They have established close cooperative relationships with corporate customers around the world and provide customized solutions to meet the needs of customers in different industries and sizes. In the cover picture of the financial report, Lenovo Group also briefly introduced the company's IT services for large multinational companies such as Toyota Motor. It can be seen that Lenovo's products and solutions meet the needs of many large customers.
According to data for fiscal year 2022, infrastructure solutions revenue is 67 billion yuan, accounting for nearly 16% of total revenue, a year-on-year increase of 48%. It must be said that infrastructure solutions have achieved rapid growth in the past fiscal year. Can this rapid growth be sustained? Data Ape believes that infrastructure solutions may continue to maintain rapid growth in the next few years. As enterprises' demand for data storage and processing increases, Lenovo can meet customers' demands for reliable and flexible data center solutions by providing high-performance servers, storage devices and software solutions, as well as optimized data center architecture and management services. need. Therefore, infrastructure solutions will become a major focus of Lenovo Group in the next few years.
The comprehensive solution business provides end-to-end solutions and services to enterprise customers. After decades of accumulation, Lenovo Group has a broad product portfolio and solutions covering multiple fields such as hardware, software and services. On the other hand, Lenovo has a global sales and service network. They have established long-term cooperative relationships with corporate customers, provide a full range of support and consulting services, build an ecosystem, and provide customers with one-stop solutions.
According to data for fiscal year 2022, the revenue of the comprehensive solution business is 45.8 billion yuan, accounting for 11% of total revenue, a year-on-year increase of 33%. This business is also one of the very fast-growing businesses of Lenovo Group. Data Ape believes that this business is an internal force for Lenovo Group. Although many major Internet companies have rich products and solutions, they do not necessarily have advantages in the number of corporate customers and the degree of cooperation, and the Internet Large manufacturers focus more on standardized services and products, while Lenovo's comprehensive solution business provides customized services for large customers. It is relatively easier to obtain high unit prices and high profits, and it can better meet the needs of large enterprises.
On the whole, the three main businesses of Lenovo Group are facing different opportunities, and speculated from the entire revenue data, the data ape believes that Lenovo Group is currently facing a transformation, that is, from the traditional smart device business group to In the transformation of infrastructure solutions business and providing comprehensive solutions, Yang Yuanqing, chairman of Lenovo Group, mentioned at the performance communication meeting that in the next two years, non-PC business revenue will account for more than 50%, which further confirms this speculation .
Although from the perspective of business development, there is no problem with the logic of transformation, for Lenovo, the road ahead is still bumpy.
R&D investment may hinder technological innovation
The bumpy road ahead is mainly reflected in innovation capabilities. When evaluating the innovation capabilities of listed companies, in addition to paying attention to existing products and technologies, it is more important to look at the company's investment in research and development. Any innovation with core competitiveness requires accumulated capital investment over time. As shown in the figure below, Data Monkey specifically sorted out the proportion of R&D investment in revenue of Lenovo Group and Inspur Information Group.
Lenovo Group and Inspur Information's R&D investment as a proportion of revenue, data source: wind
It is not difficult to find from the figure that, as comparable companies, Inspur Information and Lenovo Group have little difference in their R&D investment ratios, and both are in an overall low state. Is this a common feature of the industry? Data Ape checked the data of HP and Dell again and found that HP's R&D expense rate has remained at 3% in the past three years, and Dell's R&D expense rate in the past three years has averaged 4%. It can be seen that low R&D rates are a common situation in the PC computer industry.
But there is a problem here. If Lenovo Group wants to continue to deepen its traditional business, then low R&D expenses are indeed justified. However, if it transforms into an infrastructure solutions business and provides a comprehensive solution business, the R&D investment requirements are still relatively high. After all, the Internet of Things , artificial intelligence, 5G and other new technologies and products have higher research and development costs, and their technological attributes are stronger, while the PC computer business should belong to the manufacturing industry, and its technological attributes are relatively low.
Therefore, Dataman believes that the success of Lenovo Group's transformation will most likely depend on the company's innovation capabilities and R&D status. After all, this is a process of transition from manufacturing to the technology industry, rather than an upgrade and iteration of original products. The R&D rates of various companies in the technology industry are different. Data Ape takes Kingsoft Cloud as an example. In the past three years, Kingsoft Cloud’s R&D expenses accounted for an average of 17% of revenue. If calculated according to Lenovo Group’s revenue in fiscal year 2022, 17% of the R&D investment is 72.4 billion, while the actual R&D investment is 15.1 billion.
On August 17, Lenovo Group stated at the 2024 fiscal year Q1 financial report briefing that the company will invest an additional US$1 billion in the next three years to expand the product portfolio of the infrastructure solutions business group and provide one-stop support for data from pockets to the cloud. and solutions. In addition to equipment products, the Group uses the Lenovo Artificial Intelligence Innovator Program to provide more than 150 one-stop solutions to assist enterprises in large-scale implementation of generative artificial intelligence, immersive metaverse simulation and cognitive decision-making.
Data Monkey believes that it will be too difficult to achieve the set goals by investing an additional US$1 billion in R&D expenses in three years.
Lack of cash flow plagues operating activities
Looking at Lenovo Group's financial data, although it hopes to become a company with stronger technological attributes, for now, it still belongs to the manufacturing industry. Therefore, let’s first look at whether there are financial risks in Lenovo Group, as shown in the figure below.
Changes in Lenovo Group's asset-liability ratio and current ratio from 2019 to 2022, data source: wind
Asset and liability data are one of the most critical indicators for measuring the financial risks of manufacturing companies. In the past four years, Lenovo Group's asset-liability ratio has basically been above 85%, reaching a maximum of 91% in 2020, and then began to decline. This shows that the company is actually intentionally controlling the scale of liabilities, which is also reflected in the management report. can be found. Overall, the company's asset-liability ratio risk is controllable. From the perspective of current ratio, the current ratio has been less than 1 in the past four years, but the gap is not large. This shows that the liquidity of the company's assets is gradually getting better, but if it can be maintained in the future Above 1, liquidity risk becomes smaller.
In addition to the current ratio, Lenovo Group's cash flow ratio also shows the company's low cash flow, as shown in the figure below.
Lenovo Group's cash flow ratio from 2019 to 2022, data source: wind
As can be seen from the figure, Lenovo Group's cash flow ratio has dropped from 0.13 to 0.09 in the past four years. The continuously declining cash flow ratio means that the company's cash flow situation is not very good, which restricts the company's operating activities or debt repayment. Combined with the company's A-share listing and financing in 2021, it can be inferred that Lenovo Group does need funds to support the further development of its business. After the failure of the listing, the company can only choose other financing methods or adopt cost control methods to save money and develop its business. . This may be one of the reasons why Lenovo Group is so stingy in research and development.
After looking at the financial risks, let’s look at the company’s management capabilities. The company's management capabilities are mainly reflected in its bargaining power with upstream suppliers and management capabilities with downstream channel vendors. As shown in the figure below, Data Monkey sorted out the accounts receivable and accounts payable of Lenovo Group in the past four years.
Lenovo Group's accounts receivable turnover days and accounts payable turnover days from 2019 to 2022, data source: wind
For comparison, Data Monkey also sorted out the data related to Inspur Information, as shown in the table below.
Inspur Information’s accounts receivable turnover days and accounts payable turnover days from 2019 to 2022, data source: wind
Judging from the turnover days of accounts receivable, Inspur Information’s turnover days are slightly longer than Lenovo Group’s, and in the past four years, Lenovo Group’s turnover days have gradually increased. It can be seen that Lenovo Group has relatively good management capabilities for downstream channel dealers, but its voice has been weakening in recent years. Affected by the macro economy, the entire industry has been in the destocking stage in recent years. Coupled with the impact of the epidemic on consumption, it can be seen that competition in the entire industry has been relatively fierce in the past few years, and Lenovo has also lowered its "posture."
From the perspective of accounts payable turnover days, Lenovo Group’s turnover days are gradually increasing, while Inspur Information’s turnover days are showing a downward trend. This shows that Lenovo Group's bargaining power with upstream suppliers has gradually increased in the past few years, and it is more willing to "give profits" to Lenovo when the industry environment is difficult. Inspur information is just the opposite. Of course, the reason may be related to Inspur Group's main business.
All in all, from the perspective of the company's operational capabilities, Lenovo Group, as a leader in the global industry, has very strong management capabilities for upstream and downstream suppliers and distributors, and has sufficient voice.
From manufacturer to service provider
Now that Lenovo Group has become the global leader in the traditional PC computer industry, in the future when the growth rate of the PC computer business is slowing down and the industry growth space is limited, what is the focus of Lenovo Group? Data Monkey will expand in detail on the three main business groups introduced in Lenovo Group’s financial report.
The first is the smart device business group. This is the main source of Lenovo Group's revenue. At present, with the slowdown in the growth rate of the PC computer business and the fierce competition in the mobile phone industry, the impact on this part of the business is even greater. If the revenue of the smart device business is further broken down, more than half of the revenue comes from PC computers. Data Ape believes that relying on computer sales cannot support the rapid growth of the business group. In addition to computers and mobile phones, smart home equipment is also a very good field and development direction in the future. However, for Lenovo, the layout of smart home equipment lacks "entrance" , this problem is not easy to solve. Of course, if it is an OEM for other brands, it will return to the traditional model.
Let’s look at the Infrastructure Solutions Business Group. This is Lenovo’s fastest-growing business, setting a new growth record for three consecutive years. This part of the business mainly relies on Lenovo Group's rich product and internal project design experience over the years, and can provide infrastructure solutions for large enterprises, especially computing servers. Data Monkey noticed that Lenovo’s infrastructure solution business has integrated a new business model-ODM model. That is, the original design manufacturer. Under this model, Lenovo Group not only does OEM, but also provides market research, product design and development, raw material procurement, and product manufacturing for brand owners. In other words, it is better than the original OEM model. More emphasis will be placed on R&D capabilities, which of course will also increase Lenovo’s profit margins in this business. Currently, according to this model, Lenovo Group provides a number of services such as servers and software to cooperative enterprises. With the rapid development and penetration of artificial intelligence, edge computing and hybrid cloud, the growth of this business is likely to continue.
Finally, let’s look at the solution services business group, which is Lenovo’s fastest-growing business. This business mainly provides end-to-end solutions. This business is more of a test of Lenovo's service capabilities and technological strength. This is also the direction Lenovo has always wanted to transform. On August 18, Lenovo released two new AI server products at the 2023 China Computing Power Conference. At the same time, it also released a new IT architecture based on "device-edge-cloud-network-intelligence" and an intelligent IT engine "Qingtian", creating It has developed end-to-end intelligent computing center solutions and full-stack full-cycle services to form a full-stack intelligent product and solution service layout.
When large language models become the new entrance to digital and intelligent transformation, Lenovo is already laying out infrastructure under the artificial intelligence trend. As the computing power that restricts the speed of artificial intelligence computing, in addition to hardware equipment, Lenovo has a comprehensive layout of computing architecture, comprehensive solutions for output computing power, and provision of computing power services, providing new ideas for the intelligent transformation of enterprises.
Text: Winner / Data Monkey
