Why does Lenovo Group’s net profit margin hit a new high?

   reporter Huang Xin

  On August 11, Lenovo Group announced the results for the first fiscal quarter of the 2021/2022 fiscal year ending June 30, 2021. The turnover reached 109.4 billion yuan, a year-on-year increase of 27%; the net profit was 3.01 billion yuan, a year-on-year increase 119%; the net profit margin was 2.8%, reaching a multi-year high.

  In the 2021 Fortune 500 list recently announced by Fortune magazine, Lenovo Group, which has been on the list for 11 consecutive years, ranked 159th, a significant increase of 65 from last year.

Especially in the list of return on net assets, Lenovo Group ranks first among Chinese companies.

  Why can Lenovo Group's net profit margin reach a new high?

"New business brings new growth." Yang Yuanqing, chairman and CEO of Lenovo Group, replied.

  Market analysis agency Gartner predicts that the global IT service-related market will reach 1.17 trillion US dollars in 2021 and will continue to expand in 2022.

The digital transformation of the global economy brought about by the new crown pneumonia epidemic is accelerating, and infrastructure as a service will be the most important type of business.

Today, IT infrastructure is transforming to a new IT architecture based on "end-side-cloud-network-intelligence". New IT will enable digital and intelligent empowerment in all walks of life, bringing higher efficiency to individuals and enterprises , Greater productivity.

  "Every enterprise needs a new IT architecture, but new IT will become more complex, and complexity requires service support. This is the main reason why we established the Solution Service Business Group (SSG)." Yang Yuanqing said.

  The newly established solution service business group is one of the important reasons for supporting the high profit rate of the entire group.

The results of this fiscal quarter showed that the solution service business group's turnover reached 7.65 billion yuan, an increase of nearly 38% year-on-year; operating profit reached 1.7 billion yuan, an increase of 51% year-on-year, and the operating profit margin was as high as 22%.

  Of course, the main business of Lenovo Group is still the smart device business. This fiscal quarter's turnover reached 94.7 billion yuan, a year-on-year increase of 28%; operating profit reached 7.08 billion yuan, an increase of 43%.

Among them, the personal computer business is indispensable, ranking first in the global PC share.

  At present, personal computers are likely to return to the center of digital life.

Since the beginning of this year, the global PC market demand has continued to grow.

According to the latest data from the market research organization IDC, China’s PC market in the first quarter of 2021 has increased significantly by 49.7% year-on-year. Small and medium-sized cities below the third tier have shown greater market demand. Core cities radiate several surrounding cities as a whole increase in urban agglomerations. Obviously, in the fields of banking, new energy vehicles, discrete manufacturing, etc., PC is continuing to increase demand as a productivity tool.

IDC predicts that the personal computer update cycle is shortening, the penetration rate continues to increase, the total market will maintain at least the current scale by 2025, and the demand for higher-value commercial customers is rapidly recovering.

All of the above will support the continued growth of Lenovo's PC business.

  Can high profit margins be sustained?

Yang Yuanqing said, “Not only is it sustainable, but we have to double our net profit margin in 3 years from last year’s 2%. At the same time, our total R&D expenditure will also be doubled in 3 years. The two are complementary."

  According to reports, Lenovo Group’s R&D investment in this fiscal quarter increased by 40% year-on-year.

In the future, Lenovo Group will accelerate innovation and comprehensively enhance Lenovo Group's technical competitive advantages in all business areas.

Our reporter Huang Xin