Lenovo Group Ltd

HKEX:992

Earnings Call Transcript 2022-Q3

[Jenny Lai, executive]

Good morning, good afternoon and good evening. Welcome to Lenovo's Earnings Investor Webcast. This is Jenny Lai, Vice President of Investor Relations at Lenovo. Thanks, everyone, for joining us.

Before we start, let me introduce our management team joining the call today. Mr. Yang Yuanqing, Lenovo's Chairman and CEO; Mr. Wong Wai Ming, Group CFO; Mr. Luca Rossi, President of Intelligent Devices Group; Mr. Kirk Skaugen, President of Infrastructure Solutions Group; Mr. Ken Wong, President of Solutions and Services Group; and Mr. Sergio Buniac, President of Latin America and Mobile Business Group and President of Motorola. We will begin with an earnings presentation and shortly after that, we will open the call for questions. Now let me turn it over to Yuangqing. Yuangqing, please?

[Yang Yuanqing, executive]

Hello, everyone, and thank you for joining us. Once again, despite of the challenges of the pandemic and the supply shortage, Lenovo has delivered another record-breaking quarter. Our clear focus on profitability and innovation, supported by strong execution, has driven historical results across our businesses.

We are also pleased that last week, Lenovo has been added to the Hang Seng Index, providing market recognition of our continued strong results. We accelerated the digital and intelligent transformations in the new normal, continue to generate significant opportunities. Investments in digital transformation are expected to increase over 16% annually over the next 3 years. Lenovo's new IT technology architecture of client, edge, cloud, network, intelligence prepares us well to capture these opportunities.

Last quarter, Lenovo delivered another quarter of record profit and revenue. Our net income reached an all-time record of USD 640 million, up 62% year-on-year. This is the sixth consecutive quarters of over [ 60% ] year-on-year net income growth. Net margin also increased by almost 1 point year-on-year, well on track to doubling within 3 years. With 17% year-on-year growth, our quarterly revenue achieved $20 billion for the first time, thanks to double-digit growth in all key businesses and balanced growth across all geographies. Going forward, we will continue to double our R&D investments, along the new IT architecture, enhance our digital foundation to support the business growth, compete as one Lenovo with pocket of cloud offerings, global footprint and the organizational efficiency and we continue to deliver our ESG commitments.

Now I will talk about each of our businesses. Let's start with the Solution and Service Group. The $1 trillion global IT services market through 2025 presents big opportunities for growth. Almost the half of global workers are currently working remotely, driving demand for premier support and the customized fulfillment. As the service penetration in PC and data center is only 2%, providing substantial room for growth and enterprise spending is expected to grow faster in cloud and digital services.

Last quarter, Lenovo SSG continued to deliver high growth with a higher profitability. This operating margin exceeded 22%, a nearly 3-point increase year-on-year. Revenue continued strong growth of over 25% year-on-year; Support Services, 21%; Managed Service, 50%, driven by our TruScale as a service offerings; Project Services & Solutions, 23% with a breakthrough in smart retail. Looking forward, SSG will capture the remote work trend and leverage our global service footprint to provide accessibility and the flexibility to our customers. SSG will also investing in 2 scale offerings, hybrid cloud solution and other software and services with our own IP and expand the sustainability offerings.

Our Infrastructure Solutions Group, ISG, continues to benefit from the ICT infrastructure upgrade, a $250 billion market globally through 2025. By 2025, the edge infrastructure market alone is expected to grow quickly to USD 41 billion. Last quarter marked an important milestone. Our ISG become profitable for the first time since the IBM x86 acquisition in 2014. Meanwhile, our revenue grew at a double-digit [ premium ] to market for the fourth consecutive quarter. Our Cloud Service Provider and Enterprise/SMB revenue grew by 38% and 7%, respectively, year-on-year.

Over the years, ISG has invested in building full stack of data center portfolio as well as the in-house design and manufacturing capabilities. We can now cover customers of all scales from Tier 1 CSP to Tier 2 enterprise and SMB. In the long term, this customer coverage will give us unique advantages to balance the scale and profitability as well as customers' demand for security, reliability and agility, flexibility. We will meet all kinds of customer requirements from on-prem, Infrastructure as a Service, all the way to private-public hybrid cloud.

For the Intelligent Device Group, IDG, smart device markets continued to benefit from the new normal of hybrid working model. The PC market is forecasted to remain strong and stable, shifting to commercial and the premier segments. In smartphone, the market reshuffling will bring more growth opportunity to Lenovo. At the same time, the penetration of 5G and the development of Edge-Cloud-Network-Intelligence will provide more growth potential for the emerging smart devices like embedded computing, IoT, AR/VR, driven by Metaverse as well as Smart Home and Smart Collaboration solutions.

Last quarter, IDG delivered another record quarter in profit and revenue. Its revenue grew 16% year-on-year and the profit grew even faster, up 21%. In PCs, premier segment delivered a high growth. In non-PCs, smartphone business has seen healthy profit for 7 consecutive quarters. Last quarter, its revenue grew strongly at 46% year-on-year and was the fastest-growing major vendor.

Meanwhile, we saw some emerging smart devices like smart collaboration solutions. Revenue nearly doubled year-on-year. Going forward, in PCs, we will continue investing in innovation, premier segments and core components. In mobile, we will strengthen our smartphone portfolio and investing, expanding new markets in Europe and Asia Pacific.

We will also continue to invest in IoT, Metaverse-driven AR/VR, Smart Home and Smart Collaboration Solutions to capture the emerging opportunities. In summary, our market coverage is expanding. Potential is growing. Our capabilities are developing, and our performance is stronger than ever. We are on track to doubling both R&D investment and the net margin by the end of fiscal year 2023/2024. So we are confident in delivering strong, sustainable, profitable growth while also meeting our ESG commitments.

Thank you. Now let me turn it over to our CFO, Wai Ming. Wai Ming, please.

[Wai Ming Wong, executive]

Thank you, Yuanqing. I will take you through Lenovo's financial and operational performance in Q3 fiscal year 2022. We delivered more than $20 billion in revenue this quarter with multiple financial records. Our net profit grew 62% year-on-year to an all-time high of $640 million, with 17% revenue growth year-on-year. We are excited to see balanced growth across different markets. Our group net margin advanced 89 basis points year-on-year to near record level.

All 3 of our business groups contributed to profit expansion. ISG, in particular, turned profitable for the first time since its acquisition in 2014. IDG and SSG continued their strong double-digit growth trajectory with profit expansion. We are on pace to achieve our medium-term target of doubling our net margin. The basic earnings per share came in at USD 0.0550, representing 66% growth year-on-year.

In line with the digital transformation and new IT opportunities, we leverage our Client-Edge-Cloud-Network-Intelligence architecture to create devices, services and infrastructure to enhance our digital foundation to support business growth. As part of our commitment to double our R&D investment, during the quarter, our R&D expenses grew 38% year-on-year. This includes investing in talent acquisition and development. Our R&D headcount was up 40%.

We also invested in broadening services and intellectual property, driving innovation with a focus on ESG and designing for premium segment and edge computing. Every aspect of our R&D investments, ranging from devices, services, infrastructure to AI and operation efficiency to help contribute to the 56 basis point increase in both our record operating margin as well as our long-term competitiveness.

For fiscal Q3, our operating cash flow remained strong at $606 million. This is in spite of the higher working capital requirements due to our buy-ahead action of strategic component in response to supply challenges. Q3 sales were also unusually back-end loaded because of late arrival of components and longer logistic lead time, linked to higher balances in both account receivable and payables. Our receivable credit conditions remain healthy, although Q4 will also see similar sales skew towards the end of the quarter.

Nearly 80% of account receivables are within 30 days, and the overdue ratio is at record low. We expect to mitigate the impact from the above factors gradually and continue to accelerate our cash flow. The group financial position continued to be strong. In Q3, finance costs were down by 17% year-on-year, and we finished the quarter with net cash position. This was achieved by reducing our net debt and perpetual securities by USD 3.2 billion over the past 10 quarters. Going forward, we are confident in our ability to stay in a net cash position.

SSG reported another stellar quarter with strong revenue and profit growth. Structural catalyst, including opportunities arising on the new IT track, hybrid work model, commercial recovery and increasing ESG awareness are powerful drivers to our service expansion. Its revenue increased by 25% year-on-year to USD 1.5 billion. Booking and deferred revenue grew at strong double digits, indicating a larger recurring revenue base. SSG boosted operating profit by 44% year-on-year to $332 million and operating margin revised 2.9 points to 22.2%.

By segment, Support Services revenue rose 21% year-on-year, posting the highest profitability in the group. Working alongside with other business groups, SSG is broadening service penetration in PC. We made significant progress in premier and customer fulfillment services, while customer interest continue to grow for sustainability services such as asset recovery. We are actively developing 6 more sustainability service solutions. Managed Services posted a strong 50% revenue growth with improved profitability on the back of the increasing popularity of as-a-service model branded under TruScale. We won a number of deals while also expanding its geographic presence and customer base.

Project Services & Solutions also reported solid revenue growth of 23% year-on-year. Despite the pandemic creating challenges in project delivery, the total contract value more than tripled with important deals signed for smart retail, amid increasing adoption of our in-house IP solutions.

ISG staged a successful turnaround, leveraging its enriched architecture and technology solution as well as successful project wins and industry partnerships. As a result, its operating profit increased $28 million year-on-year. ISG outgrew the market with new projects and acquisition of new Next Wave customers looking to build their cloud platform. In response to increased emphasis on a streamlined, fully integrated supply chain, our unique ODM plus business model provide a holistic solution encompassing a vertically integrated operation.

In SMB, revenue reached a 5-year high led by high-margin storage, service and software sales. The group maintained #2 in global entry storage market as well as continue as the largest provider of supercomputers globally. IDG achieved another record quarter for revenue and operating profit up 16% and 21% year-on-year, respectively. The shift towards commercial and premium segments continue to accelerate. Commercial demand benefited from digital transformation and transition to a hybrid work model on a global scale, growing at the third highest rate since 1998. This commercial strength, together with the strong growth in premium segments, bode well for increasing our average selling price and profitability. Our PC business does show a 19% increase in ASP and improved margins, marking the 17th consecutive quarter of year-on-year profit margin expansion for IDG.

Non-PC products contributed to 19% of IDG's revenue in the quarter. Smartphone revenue grew 46% year-on-year, and its operating profit stayed at a record level of $89 million. Our portfolio expansion strategy to increase product differentiation was well executed. IDG smartphone shipments increased 53% year-on-year according to IDC, substantially ahead of the market with share gains across key markets.

In North America, we posted triple-digit growth in revenue, while strengthening our #2 position in our stronghold markets in Latin America. Speaking of our ESG initiative in December 2021, Lenovo was rated at the leadership level for the first time in both the CDB water and climate surveys, respectively receiving an A and A- in these widely recognized surveys.

We broaden our sustainability services and TruScale portfolio, added ESG-related features such as CO2 offset options to our products and increase our adoption of green materials. On the group level, we are exploiting the path to lessen our emissions by 2050, completing the road test of time-based target initiative methodology and becoming a founding member of the China Net Zero-Network. On governance, Lenovo has received recognition from Corporate Knight's, Bloomberg and The Hong Kong Institute of CPA. Other impactful sustainable initiatives include Lenovo 360 ESG Circle and the EcoVadis Rating, too.

Strategic opportunities in digital and service-led transformation continue to accelerate. We are investing to build Lenovo service-led transformation, taking advantage of infrastructure demand proliferation, drive sales in high value-added products and ultimately achieve the growth medium-term financial target of doubling our net margin.

Looking forward, SSG is building a broader service portfolio to take full advantage of remote working environment. New business model of asset service is growing fast and the resulting rapid penetration into PC and infrastructure sectors will support its future hyper growth. SSG will play a key role in driving recurring revenue and increasing Lenovo's profitability.

For ISG, the infrastructure upgrade opportunity remains strong, and Lenovo is one of the fastest-growing infrastructure providers globally. We are committed to building full stack offerings and to servicing both CSP and ESMB segments. We'll continue to develop offerings to meet regional demand and capture growth opportunities, including as-a-Service portfolio to address the proliferation in data and AI computation at edge. In CSP, we are migrating to our ODM+ model for improved profitability and greater supply chain and procurement agility. In ESMB, we will continue to expand our product portfolio from service into storage, storage-defined infrastructure, software and services to pursue higher profitability. In doing so, we will create new business opportunities and expand our customer base. IDG will continue to lead and grow a premium to the market. The global PC sector should remain strong and stable, thanks to the hybrid work model and digital transformation, driving demand in commercial and premium segments. PC business will further invest in the premium segment to drive profitability through innovations in the area of ESG features and green materials.

The smartphone business will focus on portfolio enhancement and differentiation to take advantage of accelerated 5G adoption and the changing competitive landscape. The group will address the expanding Internet of Things opportunities to grow its non-PC business. The Hang Seng Index Company announced last week that effective from 7 of March 2022, Lenovo Group will be included as a constituent stock of the Hang Seng Index, which is reflective of our stellar operational performance in recent years.

Our strong financial position provides the solid foundation on which Lenovo can proactively pursue growth opportunities ahead. Finally, as always, we remain committed to driving sustainable profitability growth for our shareholders. Thank you. And now we can take your questions.

[Jenny Lai, executive]

Thank you, Wai Ming. Now we will open the line for questions and this section will be in English only. [Operator Instructions] Operator, I will now turn it over to you. Please give us your instructions.

[Operator]

[Operator Instructions] The first question comes from the line of Grace Chen from UBS.

[H. Chen, analyst]

Congratulations on your strong results. First question is about the guidance. Can you give us the guidance by different segments with new fiscal year? And the second question is, actually I was surprised to see Lenovo share price fell in the session today after reporting such good numbers. I think this actually happened a few times in recent quarters. Could you help us understand what drives the disconnection here?

[Yang Yuanqing, executive]

Thank you, Grace. So definitely, we delivered a very good result last quarter. So all our businesses grow at a double-digit level. And also, the -- our operators increased by more than [ 50% ] for consecutive quarters. So that's the last quarter. Definitely, we are very confident, so this growth can continue. So not only ISG will drive the hyper growth, SSG will drive high growth with higher profitability. Even for IDG, we are confident that we can continue to drive the growth. So although the PC market and order growth at [indiscernible] about the year, it will keep the current shipment level also that means [ 3 million ] units every year.

And also, we see the second shift -- the shifting from low end to the premier segment, the shifting from consumer to the commercial. So all these trends will help improve the average selling price. So that means that even though the unit shipment will be flat or even growth, but the revenue part will keep growing up, we are confident on that.

Meanwhile, our IDG is not just relying on PC. It will more rely on non-PC business growth. For example, mobile, so we see a strong 48% -- 46% year-on-year growth last quarter. So we definitely think this trend will continue, because we were expanding into the new market in Europe and Asia Pacific. We will double down on some markets so to drive the growth. And also with 5G development and with the new IT, the Client-Edge-Cloud-Network-Intelligence architecture development, we think there are more emergent devices in part. So for example, the embedded computing, IoT, for example, the AR/VR, driven by Metaverse, Smart Home and Smart Collaboration solutions.

So those are definitely a faster-growing areas. So we will take that opportunity for the whole. So we are confident, so from all the company point of view. So we will continue to drive the growth. So in short term, we will still be able to drive the double-digit growth. So I don't know whether I answer your question. In share price, so probably Wai Ming, you're better to answer the question, right?

[Wai Ming Wong, executive]

Okay. So well, thanks for your question. I think great. I believe that it probably is the market may not fully understand immediately, I think, our very strong result because of the very volatile environment. I think, Grace, if you recall, I think Lenovo is probably the first company, maybe even a few quarters will begin after the COVID-19 that we actually have the insight of the continuing growth of the IT business. And the market, obviously, was a little bit suspicious. And as you noted, we actually been consistently deliver, I think, what we actually call out a few quarters that's really number one.

The second one that I would probably want to, I think, draw your attention is our share price, unfortunately, did not immediately reflect the very strong growth, but with the experience invested, I think, such as yourself, after 1 or 2 days when you actually have an opportunity to study, I think the underlying strength of our business. If I recall, most of the analysts' report, in fact, actually have a recommendation of buy as well as uplifting our target price. And very slowly, the share price actually return, I think, to another high level.

I think thirdly, I would say that clearly, there was some sort of short-term trading. As you recall, last Friday, Lenovo was -- I think it was announced that Lenovo was actually included in the Hang Seng Index. On Monday and Tuesday, there are tremendous amount of buy and the share price actually went up by nearly 5% for the last 2 days. So maybe there are some short-term, I think, trading mentality, especially in view of, I think, the latest unfortunate, I think Ukraine, Russia event that trigger, I think some short-term investors taking profit.

So I would expect that, I think with the analysts having more time and more experience and more expert understanding of the business. I'm sort of patiently waiting for your research report and your recommendation and I actually am very confident about -- that I think the institutional industry, in particular, I think they will study very carefully of your analysis, and we will see the return of the share price to another high level.

[Operator]

The next question comes from the line of Howard Kao from Morgan Stanley.

[Howard Kao, analyst]

Congratulations on the good quarter. So before I ask my question, though, can I just clarify something? In terms of your comment on outlook for the PC business, did you say that you guys are expecting shipments to be flat or down, but revenues will keep growing because of the shift to -- from consumer to commercial?

[Yang Yuanqing, executive]

So Luca? There will be...

[Luca Rossi, executive]

Yes, okay. Thank you for the question. So I think you're asking whether our view in the market, the PC market will be stable, kind of flat in the next fiscal. The answer is this is our view and also supported by most of the analysts and also our industry partners. We all see the market to be stable but with a higher AUR due to improved mix, premium, more commercial and also the -- compared with the previous year, there is certainly a slowdown of Chrome. So the total volume perhaps the same, but the value increasing significantly, as demonstrated by our AUR recently.

[Howard Kao, analyst]

I see. So sorry, so 2 questions for me. One is, can you talk a little bit about your channel inventory situation in the PC market? I think earlier this year, you guys had seen channel inventory creeping up a little bit to around [ 4 to 5 ] weeks, which is still below your healthy level. But just wanted to see how that has changed over the past couple of weeks.

And in terms of the server business, I just wanted to ask a 2-part question. One is, in terms of your third quarter numbers, it seems like revenue were down a little bit on a sequential basis, whereas I think a lot of other companies within the server supply chain reported pretty strong calendar year fourth quarter numbers. So I just wanted to see -- ask what was the reason for that? It seems like cloud revenues were down on a quarter-to-quarter basis. And can you guys provide outlook and commentary about your ISG business in the next coming quarters?

[Luca Rossi, executive]

Okay. [indiscernible] Go first.

[Yang Yuanqing, executive]

Yes. Yes.

[Luca Rossi, executive]

Yes. So look, the inventory profile is materially -- still materially below the pre-COVID situation and particularly in the commercial segment for the so-called transactional part of the commercial segment is significantly below the pre-COVID levels, and you also need to think that we are now in a market with a bigger total available market. Additionally, just maybe to give you a little bit more color on our business model. Not all of our business holds an inventory by design. So we have several segment relationship, government, global account that in most of the cases have no inventory at all. So this is a kind of an end-to-end direct kind of concept.

The consumer inventory on the other side is growing a little bit, still below pre-COVID, but I would say that it's normalizing to a reasonable level because during the peak of pandemic, it was just too low, to the point that we lost or the industry lost opportunities to sell. So I would not consider this worrying situation. On the contrary, I would conclude saying that we are not concerned about our inventory levels. Hopefully, I answered your question.

[Yang Yuanqing, executive]

Yes. So probably Luca, I can ask you to expand this situation. So our inventory or channel inventory levels are probably higher than last year, but it's lower than before pandemic. And also the reasonable channel inventory is net -- that will help to drive [indiscernible] because in the last year and the past period. So if we have 10 model offerings, probably we only have 5 in -- another 5 is in shortage. So for those customers, they want to buy another 5, so they cannot buy. So that's the issue. So that's why we think the reasonable channel inventory will help the sales. So that's our current channel inventory situation. So our parts inventory probably is higher than before the pandemic. So the other reason you could understand, so that's because of the shortage. We have to buy ahead for some components, so that drives the parts inventory higher. Okay. So Kirk, would you like to talk about the IT now?

[Kirk Skaugen, executive]

Sure. So I think we're very excited about the growth in server and storage. But since your question was regarding server, I think some of the calendar fourth quarter Analyst Day is now just coming in preliminary, and we're expecting the formal revenue share numbers to be out in -- across the next several weeks. I think we're confident, given our increasing average unit pricing based on an improved mix that we'll see a premium to market when that happens. We're in a unique position because we are participating both in cloud and in enterprise SMB.

In cloud, we had a significant premium to market, double-digit premium to market. And we have not only acquired some new billion-dollar class customers in the Tier 1 space, but we've grown our next wave account base more than 100% year-on-year in a supply-constrained environment. So as that supply continues to free up, we're confident that, that growth will just accelerate further, and we have the design wins in place to make that happen. In Enterprise SMB, this was our highest revenue in 5 years for a Q3. And we're seeing strength in records across all of our profit engine. So record Microsoft software, our VMware software, our Nutanix software in edge, in communication service providers, all of those hit new records. And I think our product innovation speaks for itself. We were just awarded this quarter the AI Product of the Year by HPCwire, CRN Storage Product of the Year, and now we have new ThinkEdge product that is the most GPU-rich edge server.

So all of that shows servers are strong. And in storage, I think we're confident that in the price bands 1 through 4 will grow from previously not even being on the radar to being the #1 entry storage provider in price bands 1 through 4, which make up about 60% of the units in the storage market. So I think, hopefully, that gives you some optimism for the future. And the supply point is that I think things will get better from there. We did have an exceptionally strong Q2, which was a 30% year-to-year growth. So in this cloud business, when you've got very, very large customers that can be a little cyclical, but I would just -- there's no -- from my perspective, there's no concern I have. We see exceptionally strong growth for the future and continued profitability.

[Yang Yuanqing, executive]

So actually, it's how I see the business is still constrained by the supply. If we can have better supply, so definitely, even last quarter, we could deliver even stronger performance. But we definitely are optimistic on the current quarter and the future on the ISG business. And also, as I said at the beginning, so Lenovo is a very unique company in the ISG area. So we can cover all kinds of customers, all the way from Tier 1, our service provider to Tier 2, the enterprise SMB. So this coverage will give us a unique advantage to balance scale and profitability, and also, we can meet our customers' requirement. We can finish our customers' requirement on securities, reliability and flexibility, agility. So we have laid out the strategy. It is solid, so we are confident that we will continue to drive the growth in other business.

[Operator]

The next question comes from Albert Hung from JPMorgan Securities.

[Albert Hung, analyst]

Congrats on a great result. My first question is on the Service business, which has gained a lot of good traction. Could you consider any M&A point to accelerate the service business development? If yes, what's the consideration when doing M&A for service? My second question is on mobile. You mentioned that you're going to enter Europe and Asia again. I remember a couple of years ago, Lenovo changed their mobile strategy to become more focused in term profits. So I wonder what's the competition level in Europe and Asia versus not a couple of years ago. What's the difference in the strategy this time? And is there any impact on the new strategy on profitability side?

[Yang Yuanqing, executive]

Thank you, Albert. So those are 2 questions for Ken and Buniac, respectively.

[Kin Hang Wong, executive]

I think this is a great question. Regarding services, first of all, I think we are very happy to see the strong growth in Solutions and Services Group, SSG. I think this is the third consecutive quarter where we see our revenue growth is faster than the group and also maintaining at a high level of profitability. I think this, once again, giving us confidence that our service-led transformation strategy is actually executing well, right? Just like YY said at the opening, I think we definitely see our customer is asking for more help because of new IT is powerful, at the same time also very complex, right?

So a lot of customers is actually looking for help. Like Lenovo, where we have the full portfolio of hardware, from pocket to the cloud software and now services and solutions, right, to help to unleash the full power of technology, and also to help them to bring in the desire services outcome. This is a big trend for the overall services market. In terms of growth, I think we are looking at all strategy, including both organic and inorganic way to grow SSG, and we are very confident in our strategy. And also I think Wai Ming can cover -- I think we are in terms of our balance sheet, where we are much healthier ever than before to support any kind of tactic in terms of growing SSG. Thank you.

[Yang Yuanqing, executive]

Buniac?

[Sergio Buniac, executive]

So I think, look, a few differences, right? I think our scale has improved globally. So our plan has always been protecting Latin America, North America, where we are growing fast in premium to market and rebuilding our capabilities in different regions like Europe and Asia. Our approach is going to be very focused. We are not going broadly in those markets, but starting to get relevant in key markets we have selected carefully. Our time to market in product development has gone down 30% to 40% since 3 to 4 years ago. What allowed us to play much better in those markets in our software platforms. And I think also, we'll leverage a lot the Lenovo capabilities in markets like B2B and commercial.

So I mean we're going to keep growing in North America and Latin America. We see growth coming from selected markets in Europe and Asia that will represent a strong percentage and our approach is going to be very careful. So we are seeing very early positive indications that we can sustain profitable growth, both interactive markets in Europe and no different in Asia.

[Yang Yuanqing, executive]

Yes. So regarding our mobile business, so I think we have successfully realized our first stage objective to make this business healthy profitable. So actually, we have been in this position for 6 or 7 consecutive quarters. So now we changed the strategy to the profitable growth. So definitely, we will make sure there's been -- we have continued to be profitable, so simple at the current level.

So if we can make more money from this business, definitely we will reinvest the money into expansion of the market. So -- but we will not expand the market everywhere. We will only choose the selective countries or markets to double down on that, that we can quickly get by September this year. So that will be our strategy for the future. So we are pretty confident. Last year, we shipped [ 65 million ] units of the smartphone. So this year, we will keep the hyper growth as we delivered in the past 2 quarters.

[Operator]

[Operator Instructions] We have the questions from [ Jack Shu ] from [ President Securities ] .

[Unknown Analyst]

Can you hear me? My congratulations for the financial results, and I have 2 questions. My first question is about -- still is about the server. And I mentioned how -- what's our strategy for AI server in the future? Can we collaborate with more opportunities with the chip companies, such as DDR or other chip supplier in the future? And this is my first question. And my second question is about the mobile. Our mobile market, because since we have done a great job, and so I'm still interested what's our strategy in the Chinese market and in the India market, the 2 biggest markets in the next 2 years?

[Yang Yuanqing, executive]

Okay. Another ISG mobile combination, so Kirk, you go first AI server.

[Kirk Skaugen, executive]

Sure. Definitely, we see AI and AI everywhere as a growth opportunity for us. As I mentioned, and I think also Wai Ming mentioned, we maintained our position as #1 in the global top 500 supercomputers and have actually, over the last year now, installed the largest supercomputers we've ever done in more countries than any person in the world or any OEM in the world. So about 1 in 3 of the world's supercomputers. And many, if not all of those are putting an AI elements into their compute engines.

But the other large growth area is at the edge. And we've created now an end-to-end portfolio with the new [indiscernible] called ThinkEdge. And as I mentioned, we were just awarded by HPCwire, who gives out the awards, as having one of the best AI products or the Best AI Product. And we now have a new portfolio with the SE450 product that's the world's most GPU-rich servers. So we can actually put 4 GPUs in an edge server. As a result, we just won one of the largest global retailers in fast food chains in the world using our edge servers with the GPUs there to help automate and make their drive-thrus more resilient. So definitely, we're seeing AI as a significant growth engine. As YY said earlier, over a $40 billion market coming up, and we now have a brand-new ThinkEdge product line. And internally, we just announced a new ThinkEdge division to do everything from the edge device to the edge gateway to the edge servers. And this was a record quarter, by the way, for our Edge business. So we've put together several record quarters in a row now and are continuing to grow that portfolio. Thank you for the question.

[Yang Yuanqing, executive]

Thank you, Kirk. So Buniac, to continue mobile in China.

[Sergio Buniac, executive]

Yes. So our -- like we reignite our business in India 2, 3 years ago. We are seeing good progress, solid. We're assuming -- we are seeing consumer ratings very positive, strong flash sales. So we will continue to grow in India. We are coming from a small base, but growing -- very in a sustainable way. We believe this is going to hold, and probably our expectation is to gain share to grow 3, 4 points of share in the next few months, years.

So we see the progress, very healthy and sustainable and profitable in India with a special focus on online. In China, we reunite our business a year ago. We cleared the channel. We launched our Razr family very successfully and now the Edge family is still very small. We are going to be very careful. It's a big market. And -- but we are seeing a small progress in a very slow way. So India, little faster and going in a good direction, both brand and channel. Our stocking channels are very low in those markets, and our sell-out keeps surpassing our selling the last few months. So [ cash ] approach, we see steady growth, and I think we continue to sustain that over the next months.

[Yang Yuanqing, executive]

Thank you, Buniac. So let me add something here. So actually, in the mobile world or industry, probably there are 3 different games. The first is the U.S. and the mature markets. So it's driven by the premium product, our premier brand. So -- but meanwhile, our consumers, our customers want to pay premium price so you can see there are different players in those kind of markets, so Apple, Samsung, Motorola and possibly, LG. So that's the first game.

The second game is like Latin America market. So this is mainly driven by the mainstream product, not premium but fair price. So that's another market. So actually, China, India, probably are the third market, that's the price performance [indiscernible] market. So people want to have the latest technology. But meanwhile, they want to be more aggressive on the price. So those are 3 different games or battles. So definitely, we -- with Lenovo's strategy, we want to win the first 2 first. But meanwhile, we started to prepare the capability in the third game or in the third market. So that will be Lenovo's strategy. Okay. Next question.

[Jenny Lai, executive]

Thank you, YY. Because due to limited time, we are going to entertain our last question, and this is an online submission by Mr. Kai Strong from Pacific Securities Research. His question is, "This year, the economy and geopolitical issues are resulting in a lot of market uncertainties. Will this impact your PC market outlook? And could you also elaborate and share more details regarding to your ASP trend for your PC products?"

[Yang Yuanqing, executive]

That's a question for Luca, right?

[Jenny Lai, executive]

Yes.

[Luca Rossi, executive]

Yes, Yuangqing. So thanks for the question. So I think talking about 2022, a little bit, as I said before, the view is that the market will stabilize with better AUR. Now I think we can make -- I want to make 2 reflections. One is that when we say the market will stabilize, we also need to recognize that from the pre-COVID to the post-COVID PC market, this market will be adding $100 billion of revenue, which obviously is a very significant number and opens a lot of profit opportunities given the larger size. This is one. The other thing -- the other reason why we are confident is that the digital transformation, work from home, all these things, are naturally driving more demand for the PC technology.

And I just want to say the remote collaboration, which is probably the killer application, this is the one which runs the best on PC. So I think there are many, many reasons to feel confident about a stable market with increasing average in unit price and consequently, a little bit of improving on the revenue versus already [ 900 ], which will be the 2021.

Obviously, just to add some more color, this [ '22 ] market, we believe, will be stronger in commercial, which is very positive not only because our exposure in commercial is traditionally higher. Approximately 65% of our last quarter revenue was in commercial, but also because this mix is more favorable in terms of penetration rates, of service penetration rate, which obviously comes with good margins. And additionally, you have the accessory attached, which also come with a good margin. And if you think about the work from home, many users, once have now 2 PC from a world perspective, and want to have a rich portfolio of accessory and even services to use their product and to work with their product at home. So I think there are many good reasons to have a good view on the market plus our traditional ability to drive a premium to market. So even with the flat market, we'll continue to grow and better than the market. Thank you.

[Jenny Lai, executive]

Yes. Thank you, Luca, and thank you, everyone, online, and this will conclude our webcast today. If you have any further questions, feel free to contact the IR team of Lenovo directly. The replay of this webcast will be available in the next couple of hours on our Investor Relations website. Thank you again for joining us. Thank you. Bye-bye now.

[Yang Yuanqing, executive]

Thank you.

[Wai Ming Wong, executive]

Thank you. Bye-bye.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.