Lenovo is "ready to compete" in a volatile tariff environment, the company has claimed in its latest earnings call, where it also boasted of “hyper-growth” for its cloud business.
The Chinese company poured water on the idea that China-US tariff wars would affect its margins for the year ahead, with Intelligent Devices Group President Luca Rossi telling investors he expected margins to "at minimum" stay the same over time for the devices business.
"We have truly a world-class supply chain and a unique business model, and we have a combination of our own manufacturing and outsourcing. As well, we have the presence of our own factories in many countries globally," he said.
"No matter what will be the tariff environments globally, we feel we are very well ready to compete and even to turn this into a competitive advantage vis-a-vis our peers."
Rossi's comments come amid ongoing tension between the homes of Lenovo's two headquarters with tariffs on Chinese products proving to be high on the agenda for President Trump's second term.
Overall, it delivered a 20% YoY revenue increase for the company’s entire operations during the quarter to $18.8 billion, with net income doubling year on year to $693 million, including a non-recurring $282 million tax credit, on a Hong Kong Financial Reporting Standards basis.
Lenovo also cited record high revenues for its Cloud Services Provider (CSP) business in the earnings reports as the business grew by 94% YoY, notably above the 22% increase in industry spending on the cloud services recorded by Synergy Research Group.
The rapid growth, alongside steady increases for Lenovo's enterprise and SMB business (E/SMB) drove a break-even for the Infrastructure Services Group, in the shape of operating profit of $1 million, with the "lower profitability profile" of the cloud business likely to blame for a disparity between the rapid revenue growth and slim profit for the group.
However, the company is predicting a rise to profitable growth for the group in the near future by identifying cost-saving opportunities including "portfolio optimisation".
See also: Microsoft conduct “harming competition in cloud services”
Highlighting the 12% CAGR for the server market, CEO Yuanqing Yang said: “Today we are on the way to building a $10 billion CSP business with a self-sustained profitability.”
“We are leveraging the scale we have built with CSP to improve the cost effectiveness of our E/SMB business and to ultimately secure the sustainable profitability of our overall ISG business.”
Lenovo’s success is indicative of wider trends in the cloud sector, with AWS, Microsoft’s Azure and other cloud services, and Google Cloud all reporting growth between 19-30% in their recent earnings.
Elsewhere in the company’s better than expected earnings, Lenovo’s investment into building AI infrastructure appears to be paying off with demand for AI features driving customer interest in new PCs.
“AI technology, with higher efficiency and lower costs, is accelerating the maturation of personal AI, particularly on-device AI and edge AI.” Yang said.
