Clouds lift Lenovo ISG to third consecutive profit

Sees sunlit uplands ahead with plans for factory and ITaaS expansions

Lenovo's Infrastructure Solutions Group has reported a third straight quarterly profit, and the company sees better days ahead in the field so has ordered expansion of plants in Mexico and Hungary.

The Group (ISG) racked up its first ever $2 billion quarter in the first quarter of Lenovo's FY2023, with the $2.086 billion in revenue representing 14 per cent year-on-year growth. Operating profit for the group was a meagre $11 million – although that's more than the $6.7 million of black ink Lenovo posted for the group in all of FY2022.

Revenue from cloud service providers (CSPs) hit record levels and Lenovo's results announcement [PDF] states said "Server and storage product sales increased by strong double-digits off high bases, driven by buoyant demand from CSP customers."

New capacity is therefore being added to Lenovo plants in Mexico and Hungary "to leverage the clear growth opportunities in the next two years."

The Group also reported record sales of other products.

With three consecutive profits under its belt, the ISG might therefore have finally turned the corner after Lenovo's 2014 acquisition of IBM's x86 server business. That has produced years of losses, even fter a couple of re-orgs – one forced by a failed strategy to rely on the company's PC sales team to sell servers and storage.

Overall, Lenovo reported solid results. Quarterly revenue of $16.956 billion was flat year-on-year, but gross profit grew two percent to $2.869 billion.

Operating profit grew by five percent, though – a 20 percent jump.

The Intelligent Devices Group – which makes PCs and other personal tech – saw sales of kit other than computers jump 12 percent to deliver 22 percent of the group's $14.273 billion revenue. The group's profit topped a billion dollars, but both revenue and profit were down a little year-on-year.

Lenovo suggested extensive lockdowns in China were a likely culprit for the dip. Interest in 5G phones kept things perky and helped Motorola to retain a place in the USA's top three handset makers.

The Solutions & Services Group (SSG) saw revenue and operating profit growing 23 percent and 25 percent year-on-year to $1.5 billion and $329 million respectively. SSG delivered Lenovo's best operating margin – of 22.6 percent – and managed services revenue surged 73 percent year on year.

Execs said that jump reflected the popularity of IT-as-a-service, and said more nice numbers can be expected as Lenovo has added high performance computing to its TruScale IaaS offering.

Lenovo is working believes ITaaS will account for 17 percent of commercial PC spend, 12 percent of the x86 server market and more than half of storage spend by 2024.

Direct rivals Dell and HPE know this, too, and are honing their Apex and GreenLake ITaas services. Lenovo's announcement rates itself "one of the fastest growing infrastructure solutions providers globally" – which is true, but also a little cheeky. Dell's infrastructure group grew by 16 percent year-on-year in its most recently reported quarter, and did so off a far larger base than Lenovo's $2 billion quarterly revenue. HPE, another direct competitor, most recently reported flat revenue but is more than three times the size of Lenovo's infrastructure biz. ®