Sohu Technology / Lu Linxuan
"Overall fiscal year, our turnover reached $45.4 billion, which is an increase of 5.4% over the previous year. It has returned to the growth path two years later. It can be said that we are not only moving forward but also climbing new ones. height!"
Lenovo Group Chairman and CEO Yang Yuanqing wrote in his internal letter after Lenovo's 17/18 financial year report was released. The financial report also pointed out that "the effect of the transformation has driven the Group's annual revenue growth and reached the highest level in three years."
However, the rough overall data does not more specifically indicate whether Lenovo is on a good track, or whether, as Yang Yuanqing said, “the most difficult days for Lenovo have passed.”
Gross profit declines but stocks surge 35%
From the comprehensive income statement of the financial report, we can see that if we look at revenue and gross profit only, the 17/18 financial year is indeed better than the same period of last year, but due to the increase in the cost of sales, the actual gross profit margin has decreased. The increase in costs has led to a decline in profits.
In terms of operating expenses, Lenovo reduced its administrative and R&D expenses in 17/18, and the main growth point in operating expenses still comes from sales and distribution. As far as Lenovo is concerned, this year also chose to focus on sales and pull through sales.
Another noteworthy detail is that Lenovo's inventory in the 17th/18th was about $3.792 billion, which was a surge of 35% from the previous year's $2.794 billion.
In addition, the Group's bank deposits, cash, and cash equivalents totaled US$1,932 million in 17/18, compared with US$2.951 billion in the same period of last year, which also demonstrated the decline in cash flow in the development of Lenovo Group.
The significant increase in inventories is an objective analysis of the existence of a backlog of product inventory. In the same period, Lenovo’s overall revenue increased by US$2.315 billion, a growth rate of 5%, and gross profit of US$166 million, a growth rate of 3%. In contrast, Lenovo's growth in the 2017/18 financial year is quite extensive, which can also be seen from the sharp increase in the cost of sales.
If we look at the specific business units, the main growth in revenue still comes from the personal computer and smart device groups. Looking at the type of industry alone, the relatively low profitability of personal computers and smart devices also directly promotes the association. The overall business revenue has grown, which is why Lenovo has been seeking business transformation. However, it has not achieved results.
Mobile business collapsed and Lenovo's "Three-wave strategy" failed
How to transform? Lenovo once focused its attention on the mobile business, but for a long time, the mobile business has always been a heart disease that Lenovo does not want to mention too much.
In the financial report, the mobile business has once again become the focus of attention. According to data from major business groups, personal computer and smart device business revenues rose by 8% year-on-year, accounting for 71% of the group; data center services rose by 8% year-on-year, accounting for 10% of the group; and mobile business revenue reached $7.241 billion. It fell 6% year-on-year, accounting for 16% of the group's total revenue, compared with 18% last year.
Comparison of Lenovo Group's Business Lines (Unit: Billion US Dollars) Mapping: Sohu Technology
Naturally, the mobile services that Lenovo Group expects have become the biggest drag on the entire group. In terms of loss, the mobile business lost 463 million U.S. dollars, which was narrower than last year. However, this is also the case after the mobile business has voluntarily contracted. The financial report pointed out: "The mobile business is confronted with extremely fierce competition. The Group has therefore restructured its strategy, continued to strengthen the Latin American and North American markets, and reduced its expenses, thereby achieving a substantial reduction in future losses." Yang Yuanqing responded in an interview. The mobile phone business also mentioned that overseas markets actively withdrew from 70, 80 countries.
In fact, Lenovo has relied on the Americas for many years, and Latin America in particular is not new. According to Counterpoint's data, Lenovo’s mobile business (including Motorola) ranked seventh in 2017 in the global mobile phone market in 2017, with shipments of 49.7 million units, down 2% from the same period of last year. In terms of regions, Lenovo’s occupation in Latin America The market share of 16% still holds 5% and 4% of each share in North America and Europe. This year's new moto launch will be set in Brazil, and back home, new moto or even just quietly on the line.
(Global mobile phone market rankings in 2017, figure source Counterpoint)
The domestic cost of mobile services is being continuously compressed, but the group still hopes that there will be more different changes in China. At the Legend Swearing Conference, Qiao Jian, then president of MBG China, proposed the "Double Ten Strategy" - "Saving 10 Times, Regaining the Top 10", although 20 days later, she was transferred to Global Chief Marketing Officer and Marketing. Senior vice president, no longer responsible for the mobile business in China. This also means almost that the Lenovo Mobile executive team formed after the airborne Qiao Jian in 2017 almost completely "disintegrated."
The return process has adjusted the product strategy of Lenovo's mobile phones. From the perspective of product release in the first half of the year, it focused on thousands of yuan machines to carry out firepower, breaking the market share and becoming the breakthrough point for Lenovo's mobile business. Although modular mobile phones have never been scrapped, sales have been disastrous for two years and R&D has turned into an extremely embarrassing situation. In early March, Motorola’s large-scale layoffs were seen as the key to mobile phone R&D adjustments.
However, the mobile service is still part of Lenovo's indispensability. Once the mobile phone business is lost, Lenovo’s corporate positioning will further return to traditional manufacturing, which is obviously unacceptable for Lenovo. Yang Yuanqing said: "We hope that the mobile business will return to a healthy track as soon as possible and be profitable."
“We did not do a good job in the past in the mobile business, but I think it is still far from when we have to give up. And in our overall strategy, it is of great significance. There must be no less calculation or communication,” said Yang Yuanqing. “Now It is not easy to find a market that matches the size of a smart phone, and even if there is only one point of market share for a smartphone, it will be very large.Furthermore, we have many advantages markets, such as Latin America, we have close to 20 % of market share, ranked second. Therefore, the mobile phone business is still the focus of Lenovo's strategy."
Earlier in the 2016 Innovation and Technology Conference, Yang Yuanqing proposed a clear and three-wave strategy: The first wave is Lenovo's current core business, continuous innovation in the PC field; the second wave is the mobile business and data center business, the future to build As the new growth engine, the third wave is to create "device + cloud" to build the core competitiveness of the next generation of smart devices and the future of artificial intelligence.
This strategy is still in use today, specifically to Lenovo's mobile business. The mobile business should become the new growth point of Lenovo Group, and the proportion of revenue in the group should be continuously improved. This has made Lenovo able to break through the direct vision of relying heavily on PC to support revenue.
However, from the 17/18 financial report, revenue from personal computer and smart device business increased rather than decreased, and revenue from mobile services declined significantly. This became the rhythm of Lenovo's three-wave strategy or failed to be implemented. The essential.
Betting AI open the situation? R&D fails to follow up
It is worth noting that this is likely to be Lenovo's last annual report that clearly sorted out the status of mobile services. On May 8th, Yang Yuanqing, Chairman and CEO of Lenovo Group, announced an adjustment of the organizational structure through an internal letter: Lenovo's original PC and smart device business group (PCSD) and Mobile Business Group (MBG) merged to form a new company. The Intelligent Device Group (IDG).
This adjustment has a good reason to integrate PCSD focused PCs, smart hardware, and MBG's mobile phone business to meet the future direction that Lenovo believes in -- the Smart Internet of Things. The outlook in the financial report describes the group's plan as follows: “The Group is committed to investing in artificial intelligence, internet of things, big data and virtual reality/enhanced reality,cloud service"Infrastructure + Cloud Services" builds innovation capabilities and seizes the growth opportunities in the smart IoT era. ”
This was seen as a new channel for Lenovo’s future business development. Before accepting an interview with Sohu Technology, Yang Yuanqing pointed out that Lenovo will have three major business frameworks around artificial intelligence in the future: terminal equipment, data center, and industry intelligence. This strategy has greatly extended the image of Lenovo's traditional PC makers.
At the same time, a large-scale reference to the AI strategy is Lenovo's 2017 TechWorld conference. The theme "Let the world be full of AI" fully demonstrates to the outside world the determination of Lenovo's AI transformation at that time.
However, Lenovo Group’s research and development expenses for the FY17/18 fiscal year were US$1.274 billion (approximately RMB 8.142 billion), accounting for 2.8% of the Group’s revenue, while Lenovo’s R&D expenditure for the 16/17 fiscal year was US$1.362 billion. The R&D expenditure for FY15/16 was US$1.491 billion, which means that Lenovo’s R&D investment remained low for three consecutive years after the AI strategy was proposed.
In the same period, R&D expenditures of Huawei and ZTE in 2017 were RMB 89.7 billion and RMB 12.96 billion, respectively, which accounted for 14.9% and 11.9% of their respective total revenues. The input costs and revenue share of the two were much higher than Lenovo's. .
How to spend money is always more representative of a company's development than how it is presented. In the Lenovo financial report, the AI element was almost deficient. The artificial intelligence word appeared only 8 times. Once, the PCSD new retail store used artificial intelligence technology to improve retail and service efficiency, and 4 times appeared in Lenovo Ventures to establish an artificial intelligence laboratory, 3 times. Appeared in the outlook.
Lenovo's current market value is still less than 50 billion Hong Kong dollars, and this year's IPO millet valuation was once passed over 60 billion US dollars, equivalent to 10 associations. However, from a business point of view, the intelligent business and the new retail association service are gradually being considered by Xiaomi. The difference is that the foundation of the two is completely different, and even the offensive and defensive postures are completely different. Lenovo is sticking to the PC with a sluggish market, and Xiaomi has led Lenovo in the field of mobile phones.
It may take a while for Lenovo's difficult days. Hopefully it will not be too long.