Lenovo Group Ltd
HKEX:992
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Lenovo Group Ltd
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Good morning, and good afternoon. Welcome to Lenovo's quarter 2 result webcast. This is Hugh Wu, Vice President of Investor Relations and Treasurer at Lenovo.
Before we start, let me introduce our management team with us today. We have Chairman and CEO, Mr. Yang Yuanqing; President and COO, Mr. Gianfranco Lanci; Group CFO, Mr. Wong Wai Ming; President of Data Center Group, Mr. Kirk Skaugen; President of Motorola, Mr. Sergio Buniac.
We will first start with our presentation. After that, we will take your questions. Now let me turn it over to Yuanqing. Yuanqing, please?
Hello, everyone. Thank you for joining us.
Last quarter, I said that Lenovo had ended a phase of acceleration in both our business performance and our transformation strategy execution. Today, I'm pleased to say that our acceleration continues and that we now have even stronger momentum.
Our global revenue continued double-digit growth year-on-year for the third consecutive quarter, reaching USD 13.4 billion, highest in almost 4 years.
Our pretax income reached [ USD 213 ] billion, 6x as much as the previous year as all of our businesses improved profitability.
Our Intelligent Devices Group continues to deliver strong results, thanks to the synergy from the shared platforms and the resources. We will continue to drive the convergence of the computing and the communication technologies to enable Smart IoT.
In PC, we returned to undisputed #1 by both IDC and Gartner with a record market share of 24%. Our PC revenue grew more than 20% year-on-year, 17 points faster than the market. Our PC plus tablet or PCD revenue reached USD 10 billion milestone for the first time. We achieved all this while improving our industry-leading profitability year-on-year to more than 5%.
We will continue to focus on customers and investing in high-growth segments, including workstations, gaming and thin and light. We are confident that this business will continue to survive at a premium to the market in volume, revenue and profit.
Our Mobile business reached an important milestone last quarter as operational PTI of the Motorola brand become profitable at USD 2 million, reaching breakeven.
This past quarter, we continued to execute our focus strategy. We reduced the operating expense by USD 175 million year-on-year, on track to control the full year expense to less than USD 1 billion.
Our investment in products and innovation showed clear results. Our Moto G and Moto E product lines gained market traction, and we are the first to launch a 5G-upgradable phone in the industry.
Our forecast on selected markets continued to deliver strong progress. In North America, shipment grew more than 50% year-on-year for the fifth consecutive quarters, and the market share reached almost 8%, ranking #4 by IDC.
In Latin America, we continued the top line growth and become #1 in Mexico, while maintaining solid overall #2 regionally. In China, revenue grew almost 85% year-on-year.
We will continue to execute the strategy to further improve the health of our smartphone business.
Our Data Center business is on track to become a sustainable growth and profit engine. Revenue continued a strong double-digit growth at almost [ 58% ] and profitability improved almost 10 points year-on-year. This performance was driven by yet another quarter of triple-digit year-on-year revenue growth in Software Defined Infrastructure and hyperscale. We are now the worldwide #4 in cloud infrastructure vendors and the fastest growing player among top vendors, according to IDC.
We will continue to invest in technology leadership and strengthen our capabilities in software-defined storage and networking.
Our multibillion dollar partnership with NetApp, announced in September, significantly expanded our storage and the data management market coverage. In addition, we will continue to refine our hyperscale business model, strengthen our leadership in high-performance computing and AI and drive service revenue growth.
In our annual flagship events, TechWorld and Transform, last quarter, we clarified Lenovo's mission to become the leader and an enabler of intelligent transformation and showcased how we were driving these transformation through Smart IoT, smart infrastructure and smart vertical solutions. We also displayed our Lenovo smart essential, smart home products at the events, including the smart plug, smart bulb, smart camera and smart door lock after successful launch of Smart Display under the Mirage AR VR series last quarter.
Also, device-as-a-service continued its rapid growth, with booking revenue up 1.5x quarter-to-quarter. Big data and AI-powered smart vertical solution revenue, was also up 44% year-on-year. In addition, overall service and software revenue reached USD 688 million.
Strong execution is one of Lenovo's key capabilities. With a clear mission and transformation strategy, it is now reflected by the strong momentum we have today. I'm confident that we are in a period of robust sustainable growth and we will continue to drive even stronger results.
Now let me turn it over to our CFO, Wai Ming. Wai Ming, please?
Thank you, Yuanqing. I'll take you through Lenovo's financial and operational performance in Q2 fiscal year 2019.
Next chart, please. Let me first share with you the financial highlights of our Q2 performance.
Our transformation actions continued to show accelerated improvement in Q2. Our revenue grew 14% year-on-year and grew 18% year-on-year if currency impact is excluded. This is the highest quarterly revenue in nearly 4 years, led by strong performance from both PCSD and DCG.
Operating expenses decreased by 1% to $1.5 billion, and the expense-to-revenue ratio improved by 1.8 percentage points year-on-year to 11.2%, mainly due to our revenue growth and expense savings in MBG.
Group PTI was $213 million, up $178 million from $35 million a year ago. Our PTI has shown consistent Y-to-Y improvement for 4 consecutive quarters, thanks to our PCSD improved industry-leading margin of 5% as well as better profitability performance by both MBG and DCG.
Profit attributable to equity holders for Q2 was $168 million, up 21% from a year ago. The small improvement compared to PTI was mainly due to a $180 million tax credit recorded in Q2 last year.
Basic earnings per share for the quarter was USD 0.0141 compared to USD 0.0126 same period last year. The Board of Directors in today's meeting declared an interim dividend of HKD 0.06, representing the same level of interim dividend paid last year.
Next chart, please. Our operational cash flow continued to improve. Q1 versus Q2 cash performance was affected by payments [ made ] between quarters. If excluding this timing difference, Q2 cash flow will show Q-to-Q and year-to-year improvement. On half year basis, our operational cash flow for first half fiscal year '19 showed strong expansion over second half fiscal '18 and first half fiscal '18. We will continue to use our cash resources to invest in growth businesses.
Next chart, please. In the beginning of this fiscal year, we combined PCSD and MBG into Intelligent Device business group or IDG. Through its first 2 quarters, IDG has benefited from synergies of the shared platform and infrastructure, which helped to expand ecosystem. This enabled us to achieve healthy revenue growth, with profit improvement both year-on-year and quarter-on-quarter. Revenue growth remains strong at around 10%, driven by our strong PC business.
The PTI improved year-on-year for the fourth consecutive quarter, driven by PCSD business. And both revenue growth and profitability improved to 5%, while MBG achieved its operational breakeven outside of China and Motorola, globally. Next chart, please.
Our PCSD business achieved record-high revenue and, for the first time, surpassed $10 billion in the quarter, with 18% year-on-year growth. This is the third consecutive quarter that we achieved double-digit growth. Besides the strong growth from the commercial business, it's also attributable to the fast-growing premium segments, including gaming, workstation, thin and light and visual products. All of them achieved double-digit revenue growth in quarter 2.
The [ group's intelligent transformation ] saw solid progress in building capabilities in Smart IoT, smart infrastructure and smart vertical solution in Q2. We showcased the smart essential products at our TechWorld event in September to demonstrate our innovative capabilities.
Our Device as a Service business continued rapid growth, with booking revenue up 1.5x quarter-on-quarter. Our big data and AI-powered smart vertical solution revenue also grew 44% year-on-year during the quarter.
Meanwhile, our services and software revenue has surpassed 5% level of the growth revenue.
PCSD revenue in Q2 was $10.2 billion, pretax income was [ $515 ] million, PTI margin improved 0.7 percentage point to 5% level. Our PTI margin improvement was driven by improved product mix in high-growth premium segments and increase of service attach rates. Next chart, please.
For the Mobile business. We achieved an important milestone at the business in market outside of China and Motorola, globally, became profitable operationally in quarter 2. The profitability improvement was the result of a continued strong momentum in North America, solid business performance in Latin America and well-executed expense reduction. Reported PTI margin was thus improved 4.8 percentage point year-on-year and 2.8 percentage point quarter-on-quarter.
Our strategic focus on core markets resulted in short-term revenue decline. However, we believe we have stabilized the business and built a solid foundation for sustainable future growth. Next chart, please.
Our Data Center Group is on track to become a sustainable growth engine for Lenovo. Q2 revenue continues doubled-digit growth for the fourth consecutive quarter, while PTI margin continued to improve year-on-year. Modules saw high double-digit revenue growth.
In North America, we continued to maintain triple-digit growth for the sixth consecutive quarter of growth, and all other geos also achieved double-digit growth.
In terms of products and performance, we have become the worldwide #4 cloud infrastructure vendor and the fastest-growing supplier in the industry. Our hyperscale segment maintained its strong triple-digit revenue growth, with margin improvement year-on-year, thanks to the continued optimization of our in-house design and manufacturing business model, while diversifying our customer base.
Our Software Defined Infrastructure achieved triple-digit revenue growth for the seventh consecutive quarter. Flash Arrays growth also grew at a triple-digit rate, which is more than double the market rate.
Revenue from our Data Center business was up 58% year-on-year to $1.5 billion in quarter 2. Our PTI margin improved significantly by 9.5 percentage point year-on-year in the quarter. Next chart, please.
Looking ahead, we'll continue our track record to deliver profitable growth, building on the strong results of the last few quarters. As Yuanqing mentioned, we have entered a phase of acceleration in both business performance and transformation strategy execution.
We aim to drive premium to market revenue growth and deliver industry-leading profitability for PCSD business. We'll continue to improve the user experience with our innovative products and drive future growth.
Our investment and capability building in the smart devices and Smart IoT are gaining traction to become a future growth driver.
For Mobile business, we will continue to execute our strategy to improve sustainable profitability. This include reducing capacity, streamlining our product portfolio and driving a more competitive cost structure.
Meanwhile, we will focus on driving profitable growth from core markets, including Latin America and North America, and strengthening our presence in mature markets. We will also continue our investment in innovation, such as our 5G-upgradable phone, which will soon be available in the U.S. market.
For the Data Center business, we are confident we will deliver sustainable profitable growth over time. We have established a strong foundation through our organization structure, product portfolio and sales force to drive long-term growth.
We aim to continue to outgrow the market in every segment where we participate, from IoT, to telecom, to Software Defined Infrastructure.
Meanwhile, we will continue to strengthen our leadership position in high-performance computing and AI, and we expect growth momentum in our hyperscale business to continue, thanks to unique in-house design and ODM plus manufacturing business model.
With respect to accelerating growth in storage and data management, the NetApp strategic partnership and JV will enable us to increase coverage from [ 15% ] to over 90% of the storage market. We will accelerate our intelligent transformation in driving long-term growth across all our businesses. We will focus on converging different technologies and devices, thereby address more market opportunities and drive our Smart IoT plus cloud business to the next level.
Coupled with a competitive cost structure and strong execution, we remain confident in delivering long-term profitable growth.
Thank you. Now we can take your questions.
Thank you, Wai Ming. [Operator Instructions] All the Q&As will be in English only. Operator, would you please give us your instructions?
[Operator Instructions] Our first phone questions comes from the line of Gokul Hariharan from JPMorgan.
First question I had on -- was on server side. Great progress so far, pretty strong growth across the categories. Could you also talk a little bit, now that we are very close to reaching breakeven point, could you talk a little bit about the path forward? If you look at your larger competitor in the U.S., they have probably 2 to 3x size of revenues, but they make about 10% operating margin. If you think about longer-term server profitability as well as size of the business that you're comfortable with, could you talk about what are the next targets for the data center BPO for the next couple of years? And I had a follow-up.
Okay. So our DCG President, Kirk, will answer your question.
Yes, thanks. This is Kirk speaking. So, thank you for the question. I think our short-term goals are to continue to grow at nearly double the market. Our short-term goal is to grow at nearly double the market across not just hyperscale, but in software-defined and in Flash Arrays. So I think we're seeing that consistently, that we're not seeing just one part of our business grow, that's why we had shared in our guidance more than 100% growth in Flash Arrays. That's even before our NetApp joint venture as well as in software-defined and in hyperscale. So I think we're seeing quite good balanced growth. I think, the other thing that should be exciting to investors is that we've now had 7 consecutive quarters of our services business deferred revenue growth growing year-to-year. So this is helping our balance sheet as well in, obviously, one of the most profitable parts of our business as we've increased our professional services and our premier services around the world. And then, of course, with the NetApp joint venture. Prior to the NetApp joint venture, we were still growing at 2x the market, but we're only participating in the entry space, in about 15% of the market. After the NetApp joint venture, we'll be able to -- we're participating now in more than 90% of the storage and data management market in more than 160 countries. And those products, as we mentioned at our TechWorld and Transform are already shipping into the market, and we're seeing strong demand from our customer base on that. So that's something we're quite excited about. I think our immediate goal is to continue to improve profitability every single quarter. And we're -- we remain confident for as long as we can see in the future that we'll be outpacing the market. Okay?
Okay. Maybe a follow-up question on that part. Could you talk a little bit about what you're observing from a demand perspective between the data center market, both for hyperscale as well as for enterprise? It seems like enterprise could see some turning point in terms of the peak of the cycle approaching. Would you agree with that classification? And what would you be focusing on when you think about going into the next year or so, given that the last 12 months have been extremely strong growth for the overall market as well?
I think, publicly, we've said we're now supporting 6 of the top 10 hyperscalers, so we branched out of China and now are supporting several large hyperscalers in the United States. Our growth strategy will remain to do that, but also to grow into the Tier 2 and Tier 3. So we're building out a more aggressive sales force to cover the Tier 2 and Tier 3 hyperscalers, and we're seeing strong demand there, as well as using our supply chain, our own motherboard development to improve the profitability of hyperscale. We're also seeing hyperscale and the public cloud not just the single-socket or 2-socket systems, but we're seeing demand as more enterprise workloads go into the public cloud to deliver 4-socket and 8-socket machines as well that's improving the profitability as well as GPU-based and FPGA-based design that are also more margin-rich. So that's the hyperscale answer. In software-defined, we have announced several new collaborations this year. We have an exclusive relationship with Cloudistics around [ composable ] cloud. I think we remain the fastest-growing OEM, and we're also seeing strong demand on both vSAN and Azure Stack. So across pretty much every part of software-defined, we're a little bit more public this time in saying it's not just 7 consecutive quarters of 100% growth, but now we're growing at over 150% in software-defined. So we also have a relationship with [ m three ] we had the city Bogota, Colombia and sold 3,000 video surveillance cameras for public safety. And we had them at our Transform events, and we've done edge computing and scale computing as well. If you look at the investments we said at Transform, there's 3 things that we'll continue to be on track for. Number one, building out a whole set of edge servers and edge gateways to compete in the rapidly growing edge space. Number two, moving into network function virtualization, we had both China Mobile and China Telecom in our booth at Mobile World Congress, so we're getting aggressive pull for our network optimization as part of the 5G buildout. And then third, is starting to move into as-a-service offering. So we've been doing this on the PC side, but we're on track to launch as-a-service offering in a significant way in the data center side as well by the end of our fiscal year. So those are all incremental growth areas in edge, IoT, telecom and network function virtualization and as-a-service.
Thank you, Gokul.
Next questions comes from the line of Arthur Lai from Citi.
This is Arthur Lai speaking from Citi. I got some investor question, mainly from -- they wonder, is this strong performance sustainable? So my question, actually, as to the PC and also the MBG. Can you walk us through some of the different components, such as, number one, the component shortage in paper supply? And also, the second thing is investor are pretty concerned about the China consumption, its impact. And the third one is can you continue to gain share from the Tier 2 players? And then we can more understand is this strong performance sustainable or not.
So I will give you the overall view of mine, then probably Gianfranco can address the PC and the Mobile business separately. So definitely, I believe this strong growth and [ will go well ] will be [ possible ] . So we -- over the past couple of years, we have built a solid foundation for all 3 core businesses. So I know we [ set a wider strategy for each of that part ] . For Mobile business, first, definitely we are focusing on our product. So we adopted a product strategy. We focused on selected markets, we focused on the management of product. We focused on cutting the expense. So that strategy has been very sustainable, so you will see the significant improvement on the profitability in our Mobile business. So, actually, if you only consider [ Motorola ] business or rest of the -- outside of China business, so actually for the first time, we believe the positive $2 million PTI in probably in many years, probably 10 years. So we are very confident, and now we can [ compute a little expense below $1 billion a year ] . So that's Mobile business. We will continuously improve the profitability. So probably, Gian could articulate more on that. So meanwhile, we have seen the positive growth in Latin America, in North America, in China as well. So that's the first one. Definitely -- so basically, we want -- this business will be our growth engine to really deliver the strong growth. So we -- and also, with a higher scale and bigger volume. Now we are approaching to the breakeven so -- as well. So we are very confident that we can further improve the profitability over time. Definitely, PC is our -- certainly our core business, so -- but this is not just our profit engine. So, actually, we leverage in the consolidation of the industry to further grow the business. So you can see the entire PCSD we grow by 18%. So if you only compute the PC, we grow even higher today, definitely. So we have a much stronger foundation in all 3 core businesses today. Meanwhile, we have very clear strategy. So we clarified that at our TechWorld and the Transform event. So we understand IoT is a trend, called the computing -- edge computing is the trend, and the artificial intelligence are the trend. [ Unfortunately ] , with the Lenovo's business, with our strategy, we have to create all these trends. So our IDG, Intelligence Device Group, we address the smart IoT trend, for sure. So not only we will keep our leadership in the PC and the smartphone, we will develop more opportunity in the Smart IoT area. And also our DCG, we are -- smart infrastructure or cloud computing, edge computing trend. So meanwhile, we are trying to address the smart vertical in manufacturing, in health care, in retail, in education. So we are driving the solution, driving the service. So we have seen some growth in this area as well. So I'm just trying to give you an overview of Lenovo. So with this vision and strategy, definitely, I believe we can sustain our growth in both revenue and profit. So, Gianfranco, you want to talk about the -- some more on PC? Speaking of IoT?
On PC, it's true, there is some -- we are facing some shortage, as you said. It's also already true last quarter, it's still true this quarter, and probably even Q1 calendar next year. One thing in that situation, usually, if you have a big scale, you can manage the shortage and the issue much better than if you have a smaller scale. Not only, but I think we have also been able to move demand from one CPU supplier to another CPU supplier. So that -- we don't have any problem in terms of shortage. We are aiming to grow the [ shelf ] , and I think we did that. So I think that we will continue to manage the shortage for the next -- for this quarter and next quarter. And we'll continue to see good opportunity to show and to report a double-digit growth in terms of revenue moving forward. One good thing when you look at the market is that PC, in terms of unit, is declining, but in terms of revenue, we grow. And it's growing including China, even China in terms of growing -- revenue, market is growing. It's declining in terms of unit, but it's growing in terms of revenue. And I think we will continue to see that upgrade to Windows 10 for the entire next year, including China. So I'm not so worried about the consumption in China, honestly. When I look at the consumption in China, from revenue point of view, the market is growing. And transition to Windows 10 is happening like in the other geo. And we will continue to gain share, as I said. In this difficult environment from supply point of view, we will continue to gain share from second year, no doubt. But I think we are still very, very positive on the outlook of PC. We are also investing on new area that where we see big growth, like workstation, gaming, thin and light. We have seen growth in the range of 25% to 35%, depending on the different segments. And then as Yuanqing said, that this is not big in terms of revenue yet, but it is big for the future. We are investing on IoT, particularly when we look at the commercial IoT on retail and manufacturing and AR/VR in terms of maintenance, education and health care. Not just in terms of device, it's device, platform, salaries and the entire system integration. Then I give to Sergio on MBG.
Yes. I think [indiscernible], we see solid demand in the core markets, especially Latin America, North America. We see activations growing also in Europe for [indiscernible]. And on the rest of the region, you see a significant inventory reduction that will allow us continued momentum in the next 2 quarters. We are also seeing like continuous improvement on the profitability. So we see the momentum holding in the actual quarter.
Thank you, Arthur.
Next question comes from the line of Laura Chen.
My first question is [ after ] accounting for the Mobile business, we see the good improvement in terms of the profitability, particularly outside China. But I'm just wondering that we know Lenovo's Mobile business in China exposure is very small. So given that, can we expect that the Mobile business to turn around faster than expected? And what's our strategy now? That's my first question.
Gian?
Well, I think the momentum -- I mean, the growth outside China is going to continue. So we see continuous improvement in there as well. And I think everything is going as planned. We are focusing on profitability [ we are hoping to stabilize the ] profitability that we have achieved. And we started talking again about growth in [indiscernible]. It's going as planned, and we should see the profitability holding in the next few quarters. Especially as the markets where we're playing in the current quarter, we see very good momentum, mainly in North America, Latin America.
Yes, we are committed to further improve the profitability in our Mobile business. So we are confident that we can achieve that. So as [ Gianfranco ] said, we see there's strong demand in Latin America and North America, so -- particularly in North America. Actually I -- we have seen more than 60% year-on-year volume growth for 5 quarters. So now we have been the #4 player in that market. So we believe this trend can be continued. So -- and also, although we will not be investing in most of the emerging markets, but we will still invest in China and India, as these 2 are largest mobile markets. So that will be our strategy.
Okay. Yes. Because we all know that in, particularly in the recent quarters, there's a lot of volatility in emerging market currency. So far, you haven't really seen any impact to your Mobile business, the carrier or other business as a whole?
Yes. Laura, it's Wai Ming. Well, I think we definitely see, I think, significant fluctuation of currency, I think, in countries or in regions like Latin America in particular. You see the Argentina, Brazil. But I think there are 2 things that we're actually doing well on a consistent basis. Again, that is the reason why you don't see that there are significant, I think, decline in profitability. I think one is, I think, we actually had a very, I think, diligent hedging policy. It's really protecting, I think, the business going forward, especially in -- I think, we will do hedging unless the hedging cost is too high, therefore, business will do hedging. For those country that we do not do hedging, we obviously have a much more frequent repricing of our products, really looking at, I think, taking in the -- I think if you're operating in a depreciating currency country, obviously, your costs will go up and, therefore, your -- in order to maintain the margin, I think you need to reprice to the extent that it does not damage the market. At the same time, we also look at, I think, in running the business, and in fact, our smartphone colleagues in Latin America demonstrate that I think really looking at the entire profitability business on one hand that continue to do repricing to mitigate as well as looking at the expenses. So I think running a global company where we actually don't have one geography account for 60% to 70% of our business, I think it's such a diversified. We'll have a very, very tight discipline as really, I think, dealing with the fluctuation in foreign currency. So that's really demonstrated the result that we've demonstrated that we've actually been executing very, very well.
Okay. And actually, my second question is about the Data Center business. We know that, in the past 2 quarters, our cost control has been quite stable, and also, our sales also quite stable. But given a recent uncertain macro economy, so how can we see further improvement in our profitability? Because in the past few quarters, our net profit of this business has been around like negative USD 60 million. So can we see more substantial improvement in the coming quarters?
Yes, we plan to continue to improve profitability in the upcoming quarters through greater scale across our businesses, improved services margins, I talked about the deferred revenue and services and the improving services margins, which are obviously, much, much higher than the base hardware business. So I think we have a more educated sales force than we ever had. Our system integrator relationships are helping us solve greater solutions. Our software attach is growing. So [indiscernible] we expect in terms of higher network attach, higher storage attach, higher services attach and higher configurations per server are all on track to help improve profitability over time.
Thanks, Laura.
Our next question comes from the line of Thompson Wu from Crédit Suisse.
Apologies if this had been asked, I had to get on the call a little bit late. This pertains to the Data Center business and kind of the tariffs that you're seeing. From our understanding, there appears to be some impact on certain motherboards that are sitting and residing within servers. How are you and your suppliers kind of adjusting for this impact? And the second question is, because of these tariffs, is there any direct impact to the business with orders being pulling in or deployments in your data centers being pushed out?
Yes. This is Kirk. I think one of the advantages of Lenovo is we're now ranked #5 in tech across our supply chain, and Gartner has us ranked [ #26 ] of all companies worldwide. So our supply chain, I think, is world-class in helping us earn business. I think other players have had more difficulty handling these issues than Lenovo has. We have factories in United States, Mexico, China, Brazil, Hungary and India. So we're able to very aggressively move things to meet the customer demand and are helping customers through this transition. So I think we've actually gained share through this transition by helping customers manage through the tariff impact. But we've seen relatively little impact to our business, and obviously, our profitability continued to improve. So I think, if anything, we think this is a benefit to Lenovo versus our competition.
Yes. So by the way, so, if you look into our detailed performance, so you can find, actually, our North American business grew pretty strong. So actually, we grew all 3 businesses strongly in North America. So PC, we grew by 25%. Probably, we are the fastest-growing player in the market. Mobile business, as I said before, so we grew 15% year-on-year by volume for 5 consecutive quarters already. And also, DCG business saw almost triple digits, right?
Triple digits in North America for the 6 consecutive quarters.
So we don't see significant impact on our business. I believe Lenovo is -- we are [ top operator ] in the market.
Thanks, Thompson.
Can I have a follow-up question?
Yes.
Yes.
Okay. Looking through the slides, I think on the outlook slide, there is some talk about launching hardware as a service for the DCG business? Can you give us a little bit more color kind of what's strategy and thought process behind this?
Sure. So I think what our customers are saying is that the current offering in the data center market are almost glorified leasing models. Lenovo developed IT to do a group OpEx metering service where you'll only pay for what you use. That includes dynamic [ read ] models for going up and down on your capacity. And we are on track to the commitments we made at TechWorld to launch these as-a-service offerings across our server storage products by the end of our fiscal year. And you'll see those announcements soon. And we're already seeing strong demand from the market for that kind of capability. So this is much more than what our -- what we think we're hearing from the market is basically just glorified leasing models because we'll be able to meter up and meter down on demand.
Yes, but we are developing top [ server ] devices, services not just in our DCG, now PC business as well. So, Gianfranco, do you want to add?
No, no, no. We started that already more than 9 months ago. And we are starting to see very good growth. In terms of pipeline, it's more than almost $1.5 billion. And in terms of growth, our EBIT, almost double quarter after quarter. But again, it's not just -- it's more than devices it really solution as a service much more than devices we sell.
Thank you, everyone, for your participation in today's call. If you have any further questions, please feel free to contact me or our IR representative directly.
This webcast replay and conference call replay will be available in the next couple of hours. Thank you again for joining us today. Thank you.
Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect your lines.