Lenovo Stock

Good morning, good afternoon, and good evening. Welcome to Lenovo's earnings webcast. This is Lixi Yuan, Director of Investor Relations at Lenovo. Thanks, everyone, for joining us today.

Before we start, let me introduce our management team joining the call today. Yuanqing Yang, Lenovo's Chairman and CEO; Winston Cheng, Group CFO; Luca Rossi, President of Intelligent Devices Group; Ashley Gorakhpurwalla, President of Infrastructure Solutions Group; Ken Wong, President of Solutions and Services Group.

We will begin with earnings presentations. And after that, we will open the call for questions. Now let me turn it over to our Chairman and CEO, Yuanqing Yang. Yuanqing, please?

Hello, everyone, and thank you for joining us today. I'm pleased to share that the Lenovo has delivered the best quarter in our entire history. Record revenue, record adjusted profit and the record AR momentum. This once again validates our strategic focus and the strength of our execution. Powered by our hybrid AI strategy, operational excellence and relentless innovation, we are confident in sustaining this growth momentum and driving long-term profitability.

Let's start with the group level. We delivered a record revenue of USD 26.9 billion, up 43% year-on-year. Adjusted net income exceeded the $1 billion milestone for the first time, up 176% year-on-year, with adjusted net margin significantly improved by almost 2 points year-on-year.

Equally important, all business groups delivered a strong double-digit revenue growth and set new fiscal Q1 record. And our geographies delivered a strong revenue growth ranging from 25% to 58%. With the consistent execution of our hybrid AI strategy, AI-related revenue accelerated to over USD 9 billion, up 60% year-on-year, now accounting for 35% of group revenue.

At the same time, we continue to invest in innovation with R&D expenses up 30% year-on-year. Beyond the impressive numbers, I want to highlight the 3 historical breakthroughs worth attention. First, building on our position as a market leader in PC and smart devices, we are becoming global AI infrastructure leader as well. The last quarter's performance of ISG, our infrastructure solutions business proves that it has truly become a growth and profit engine for Lenovo.

Our continued focus on investing in ISG's transformation, refining its business model and strengthening its capabilities has paid off. This has well positioned ISG to capture the surge in AI infrastructure demand.

Second, as the only official technology partner of the FIFA World Cup 2026, we delivered the AI technologies and solutions at a scale never seen before. 3 countries, 16 cities, 104 matches are compelling proof points for AI democratization in action. We successfully elevated our brand from PC leader to AI leader. And through this incredible global platform, we significantly strengthened our customer relationship.

Third, we accurately anticipated the supply shortages and cost increases. Through our scale, our resilient global supply chain built on our global local model and strong supply relationships as well as the agility and efficiency of our end-to-end self-controlled operating model. We successfully turned those industry-wide constraints into competitive advantages. This not only demonstrates our ability to seize opportunities, but also validates our differentiated strength. These results go beyond just beating expectations.

The market is increasingly recognizing that our strategy is working. Our transformation is real and our performance is built to last. AI is now embedded in our products, services, operations and innovation. It is delivering value for our customers while reshaping our processes and driving tangible growth across our business and the bottom line.

Now let's look at each business group in more detail. IDG, our Intelligent Device Group, delivered an exceptional quarter despite the significant market headwinds. For our PC and smart devices business, we achieved a record fiscal Q1 revenue, up nearly 30% year-on-year with industry-leading profitability. We further strengthened our global PC leadership, extending our lead over the #2 player for the 10th consecutive quarter by more than 5 points. Tablet revenue surged more than 18% year-on-year, and our smartphone business delivered its best ever fiscal Q1 revenue, up 15% year-on-year.

Now let's turn to ISG, Infrastructure Solutions Group. Last quarter, when ISG returned to profitability, many asked, was that a one-off? Can this profitable growth be sustained? This quarter, ISG delivered a clear answer. Not only can it be sustained, but the momentum is also even stronger. ISG nearly doubled its revenue to a record USD 8.5 billion.

Operating profit reached close to USD 780 million with operating margin exceeding 9%, surpassing the previous quarter's record highs. This is a result of continued investment in cloud, edge, AI, particularly AI inferencing, which enables us to capture the booming token economy and empower our customers' agentic transformation.

Our dual strategy in CSP, our cloud service provider and enterprise and SMB continues to drive extraordinary growth across both segments. Both CSP and ESMB revenue nearly doubled year-on-year. At the same time, we drove strong momentum in both traditional and AI compute. In traditional compute, we rose to #2 in the global x86 server market with profitability accelerating rapidly.

In AI compute, our AI server pipeline grew to USD 54 billion, more than doubling from the previous quarter.

SSG, our Solutions and Services Group delivered another outstanding quarter with revenue up 28% year-on-year to USD 2.9 billion and operating margin up 2 points year-on-year to 24%. Managed services and projects and solutions together accounted for over 62% of SSG revenue, reaching a new high. At the recently concluded FIFA World Cup, we delivered Zero fault execution at a massive scale from front-end applications like FIFA AI Pro, Referee View AI Stabilizer and 3D player Avatars to our AI-powered command center working behind the scenes to manage venue operations across the tournament.

But what excites us more is the big picture of AI democratization. We are taking these capabilities such as real-time data processing and AI-powered analytics and extending them deeper into other sports. We are also scaling them across broader industries like smart cities and manufacturing, turning private data into tangible business value. And this is already reflected in our performance.

Our TruScale business grew 35%. Our AI library drove 50% revenue growth in Projects and Solutions.

Looking ahead, our mission is clear, bringing AI to every individual and every enterprise. On personal AI, we are building AI Super Agent, Qira, globally and Tianxi in China. They are orchestrated across devices and ecosystems and with context awareness and privacy protection as a foundation that deliver truly personalized, continuous and proactive intelligence for individuals.

On enterprise AI, we are helping customers turn private data into insight and business value, powered by the Lenovo hybrid AI advantage framework. Through years of consistent execution of our hybrid AI strategy, we are fully prepared to seize the tremendous opportunities of AI democratization.

Before I close, let me reiterate this quarter has once again proven that we not only deliver on our promises, but also have the capability to sustain the delivery. Operational excellence and relentless innovation are our foundation. Clear strategy and strong execution are our engine. They enable us to not only navigate the market cycles, but to seize the opportunities and win.

Earlier this year, we set a goal to reach $100 billion in revenue within 2 years. Given the momentum we have built in Q1, I'm confident we are ahead of schedule and on track to achieve it sooner than planned. Thank you.

Now let me turn it over to our CFO, Winston. Winston, please.

Thank you, Yuanqing. I'm pleased to walk you through Lenovo's results for the first quarter of fiscal year '26-'27. This was a quarter that delivered our strongest performance on record with all-time high revenues and adjusted net profit.

We delivered a record first quarter revenue of $26.9 billion, up 43% year-on-year, marking the highest growth in the past 5 years and delivering the strongest quarter in the group's history. AI-related revenues grew 60% year-on-year and now represent 35% of group revenues.

Led by our hybrid AI strategy, we're uniquely positioned to capture AI opportunities through a comprehensive business portfolio spanning devices, infrastructure and services, underpinning our broad-based performance in the first quarter. All 3 business groups delivered record first fiscal quarter revenues and operating profits, bringing the group's adjusted net profit to an all-time high.

In IDG, we strengthened global PC leadership and widened the gap over the next player, while profitability remained stable despite a challenging operating environment with ongoing component supply-demand imbalances impacting component costs. The smartphone business delivered double-digit year-on-year revenue growth.

In ISG, revenue reached record high with both CSP and E&SMB revenues nearly doubling year-on-year and operating margin expanding to a record 9.1%.

SSG achieved record revenues and continue to expand its operating margin. Adjusted operating income increased 141% year-on-year to $1.5 billion, while adjusted net income grew 176% year-on-year to $1.1 billion, surpassing $1 billion milestone for the first time. Adjusted operating and net margins expanded to 5.7% and 4%, respectively, supported by higher revenue scale and continued efficiency gains.

Reported net income was a loss of $609 million, primarily due to the $1.7 billion noncash fair value loss from warrant revaluation driven by strong share price performance during the first fiscal quarter and a $30 million notional interest from the convertible bonds. After adjusting for these noncash and nonoperating items, adjusted operating and net income results provide a better reflection of the operating results of the group.

Now let me walk you through the key highlights of our business groups. IDG delivered a record first fiscal quarter revenue of $17.1 billion, up 27% year-on-year. Operating profit also increased 27% year-on-year to $1.2 billion, while maintaining an industry-leading operating margin of 7.1%, reflecting our operational excellence, supply chain resilience and continued innovation.

Our global PC market share reached 24.2% in the first fiscal quarter, widening our lead over next player for a 10th consecutive quarter. We sustained market leadership across commercial and consumer segments and delivered a record first fiscal quarter high AI PC global market share of 25.1%. Against a challenging operating environment, Lenovo was the only one of the top 3 PC vendors to gain market share during the quarter while maintaining stable profitability.

Our non-PC adjacencies delivered double-digit revenue growth, driving further premiumization and enhancing our portfolio mix. In smartphones, Motorola delivered the highest first quarter revenue since 2015, supported by double-digit year-on-year growth and achieved a record premium revenue mix of 37%.

A core competitive advantage for Lenovo is our broad and comprehensive device ecosystem, spanning PCs, tablets, smartphones, workstations and other smart devices. Over the past 2 years, we have rapidly scaled our global installed base, delivering 12.4% 2-year CAGR, significantly outpacing the overall device market over the same period. We continue to gain market share in our AI PC premium smartphones, which builds the foundation for us to deliver our personal AI vision at scale.

Looking ahead, we continue to drive growth and profitability through scale advantages, premiumization and new monetization opportunities in adjacencies and other AI devices leveraging our global brand recognition and distribution capabilities.

ISG continued to accelerate revenue growth with significant margin improvement. Revenue increased to a record $8.5 billion, up 98% year-on-year. Operating profit reached a record $777 million, driving operating margin to an all-time high of 9.1%. As demonstrated by our strong revenue growth and expanding profitability over the past several quarters, we are confident in our ability to lead the global AI infrastructure industry through our differentiated ODM+ strategy and unique end-to-end operating model, providing sustainable competitive strength.

We saw broad-based strength across traditional compute, AI servers and storage. Excluding the impact of international GPU sales in China in the prior year, global AI server revenues delivered triple-digit year-on-year growth. Our AI server pipeline expanded to $54 billion, up 157% quarter-on-quarter, driven by accelerating AI infrastructure momentum and a rapidly expanding customer base.

We've also expanded our North Carolina Smart campus, adding meaningful new server manufacturing capacity to capture rising demand from hyperscalers and enterprise customers. This expansion reinforces our commitment to our global local approach, a key advantage we have built over the years to deliver greater efficiency, agility and speed.

The exceptional results reflect the success of our dual engine business model with both CSP and enterprise SMB revenues nearly doubling year-on-year. Our strengthened go-to-market capabilities and leading technologies, including Neptune liquid cooling systems are driving higher value opportunities and accelerating profit growth. Through our deepened strategic partnership with ecosystem leaders, including NVIDIA, AMD and Intel, we are scaling our AI infrastructure portfolio to capture opportunities across both training and inferencing workloads.

We are also scaling GV300 deployments to capture growing AI demand while accelerating Vera Rubin rack solution readiness and time to market. At the same time, AI adoption among enterprise customers is gaining meaningful momentum. Our enterprise and SMB business is strategically positioned to capture the growing AI inferencing opportunity, leveraging a scalable transactional model and simplified pre-validated enterprise solutions.

Our momentum in AI infrastructure continued to drive customer wins across CSP, enterprise and SMB, underpinned by the strength in our unique ODM+ model, global operating scale, supply chain agility and leading liquid cooling technology.

In CSP, we delivered an AI factory with over 7,000 GPUs for a leading AI cloud provider and supported rapid AI expansion of another AI infrastructure provider with the deployment of thousands of servers.

In enterprise and SMB, we helped an enterprise AI innovator to reduce model training and inference time by 70% while enabling another AI video analytics provider to deploy intelligent edge AI operational platform, enhancing security through real-time analytics and cost-effective deployment. Enabled by our Neptune liquid cooling solutions, we deliver high-density AI factory solutions with 18.3 exaflops of performance, while also helping a leading university to build high-performance computing platform with improved energy efficiency, enabling advanced scientific research at scale. These wins reinforce Lenovo's position as a leading AI infrastructure partner for our customers and the strength of our execution across diverse segments.

Turning to SSG. SSG delivered record quarterly revenue of $2.9 billion, up 28% year-on-year, with operating profit increasing 39% year-on-year to $697 million and operating margin expanding to a record 24.2%. AI services revenue grew at triple digit year-on-year, driven by accelerating customer adoption and higher returns from their AI investments. Revenue mix from managed services and project and solutions expanded to a record 62.4% of SSG revenue.

Bookings in TruScale's Infrastructure as a Service delivered hyper growth driven by AI factory success across both AI cloud and enterprise customer segments. Projects & Solutions revenue growth gained momentum, supported by a robust multi-quarter booking backlog. SSG is strategically positioned in the fast-growing segments defined by AI solutions and services.

During the quarter, SSG continued to outperform the market, growing at nearly twice the market growth rate. AI is fundamentally expanding SSG's addressable market, adding over $200 billion of incremental opportunity in this fiscal year alone. We expect total SSG TAM to grow to more than $850 billion by fiscal year '29, '30, with AI-led TAM growing meaningfully faster and nearly doubling over the same period. Through its full stack enterprise AI framework, SSG brings together infrastructure, platforms, services and industry solutions to help customers move from AI experimentation to production.

To conclude this quarter's results highlights and build on Yuanqing's comments about the FIFA World Cup, I would like to add more color on how Lenovo's full stack AI capabilities were deployed at global scale and the impact this partnership delivered. We delivered 99.99% solution uptime across all tournament operations while deploying and managing more than 25,000 Lenovo and Motorola devices across more than 600 FIFA sites. This partnership also became a powerful platform for customer engagement.

We hosted 16,000 guests throughout the tournament, including Fortune 500 CEOs, investors, partners and customers, creating meaningful opportunities to deepen relationships and showcase our innovation firsthand. The brand impact has been significant. The tournament generated billions of social media impressions and tens of thousands of media stories, and we outperformed in share of voice among all FIFA partners, a powerful new platform for telling the story of Lenovo AI at global scale.

Our strategy is clear. Our execution is focused and disciplined. This quarter's results on the back of a record fiscal year marked by record revenue, record profitability and AI-related revenue that now represents 35% of the group are not just a onetime event. They reflect the compounding effect of our clear strategy, capabilities we have built over decades and execution across every business group and geography.

With our global scale, operational excellence and innovation leadership, we are converting growth into higher shareholder returns. As we enter an accelerated era of AI-driven growth, we remain confident in our ability to sustain this momentum and deliver durable, profitable growth with even greater resilience and executional strength. We are confident in our ability to deliver the $100 billion revenue target in the near term and are on a strong path toward achieving a net income margin of over 5%.

We will now answer any questions you may have.

[Operator Instructions]. While we're waiting for the questions, allow me to introduce the management team again. Other than our Chairman and CEO, on Yuanqing Yang; our CFO, Winston Cheng, we also have the following business leaders with us today for Q&A. Luca Rossi, President of Intelligent Devices Group; Ashley Gorakhpurwalla, President of Infrastructure Solutions Group; and Ken Wong, President of Solutions and Services Group.

Now we will open the floor for questions.

The first question we received from the question list is from Tony Zhang from CLSA. He's asking for our 3- to 5-year target of USD 130 billion revenue target and 5% plus net margin target. What will be the key drivers for the business scale growth and margin expansion?

We've also received a similar question from Howard Kao from Morgan Stanley. What is the main driver to get to the 5% plus net margin target? Is this mainly driven by profit improvement from IDG, ISG or SSG? May I please invite our Chairman and CEO, Yuanging, to address this question, please.

Thank you. Thank you for the question. So our strong Q1 performance is a clear testament to our commitment to sustainable revenue and profitability growth. In my view, our ability to sustain long-term growth going forward comes from the following areas. First, clear strategy and strong execution as our engine. We firmly believe the broader direction of AI is just the beginning.

We are entering the AI inferencing era, which will consume even more computing power than training. And private AI built on personal and enterprise private data has barely begun and that takes the shift, AI demand will only grow stronger. With our hybrid AI strategy and strong execution, we are confident in capturing this enormous opportunity. Actually, our years of investment and transformation are already paying off. AI is now a clear growth engine across every business group, IDG, ISG and SSG all delivering strong double-digit year-on-year growth with improved profitability. Our AI revenue accelerated to more than $9 billion last quarter, now accounting for 35% of group total revenue.

Second, our operational excellence is our foundation. Our scale with our full stack product portfolio from every category of AI devices and infrastructure. Our resilient global supply chain built on our global local model, diversified sourcing strategy and strong supplier relationships as well as the agility and the efficiency of our end-to-end self-controlled operating model have consistently turned challenges into opportunities despite the market volatility.

Finally, our relentless innovation spans both personal AI and enterprise AI. On personal AI, we are driving our vision of one personal AI multiple devices with the launch of Qira.

On enterprise AI, not only our continuous investment on liquid cooling on edge computing and inferencing have helped our ISG to deliver strong momentum. We are also helping customers turn private data into insights and business value powered by the Lenovo hybrid AI advantage framework.

In summary, the market tailwind certainly helps Lenovo's results are far more than just riding the trend. It's the accumulated results of our foundation built over the years, enables us to not just navigate the market cycle, but to seize the opportunity and win. Thus, we are confident to sustain the growth and profitability improvement.

Actually, as I said at the opening, so we are at the beginning of the fiscal year, we communicated with you. So we want to achieve 100 billion yearly revenue in 2 years. But with the strong momentum in Q1, we are ahead of schedule. So we are ready to deliver that in this fiscal year and driving to even higher profitability.

Thanks, Yuanqing. Thank you very much. So just on this topic, may I please also invite our Group CFO, Winston, to add your comments. Winston, please?

Yes. Just in terms of the path to -- obviously, the TAM that we have, both for the IDG, but also in particular, ISG business, and we're not even addressing the new acquisition of the storage market, which we added a $38 billion TAM to it, position us well for long-term growth in excess of the number that we're quoting right now.

But in terms of the path to that 5%, as you can see, historically, we've relied a lot on PC today, ISG is becoming a very meaningful contributor and is growing continuously in terms of both revenues. But more importantly, we're growing as a group faster on the profit front. So from that perspective, I think it sets up in a natural course for margin expansion. And of course, that's before our full ramp-up on the SSG business as well, which we'll share in the coming quarters.

Thank you, Winston. The next question is really we have received from various analysts and investors asking, how do we expect memory pricing cost to trend through the second half and into the next year? So what are the opportunities and risks we see this create for our business groups and for the group overall? I think for this question, may I please also invite our Chairman, Yuanging, to share your thoughts. Yuanging, please.

First, as I outlined earlier, so AI as a whole is far from a bubble. So actually, it's just the first stage of AI democratization. As it evolves and becomes more accessible, it will only generate more demand towards AI democratization. And with that, we believe demand for memory will continue to rise for a considerable period ahead, so at least by the end of next year. So that means that the supply will be still constrained.

But I think Lenovo is in a better position. So in this environment, our resilient supply chain and operational excellence will clearly benefit us. And I believe this is also another key reason why our performance can be sustained over the long term.

In my view, it comes from 3 aspects. First is our scale. So we have a full stack product portfolio from every category of AI devices to infrastructure. Most competitors are either in just the consumer devices or infrastructure, while Lenovo has both. That enables us to operate at a significantly larger scale. I believe Lenovo is now among the top customers of the major semiconductor suppliers.

Second part, so our global local model, particularly our diversified sourcing strategy and strong relationships with suppliers across global, not just suppliers in China -- in U.S. and in Korea and in China as well. So actually, we definitely cannot ignore the China supply. So that give us a lot of efficient and cost competitive supply. So actually, this is the supply chain advantage of our globalization strategy we have built over many years.

Last but not least, our resilience based on our end-to-end business model. So we are probably a very unique company in the industry. We are not just focusing on branding, marketing, sales and service like some of our competitors, but equally strong in manufacturing, in-house manufacturing, in-house R&D. So we operate end-to-end model from product design, demand forecasting, procurement manufacturing all the way to sales and services, combining in-house capabilities with our ODM+ model. So that means we have control of the entire value chain. So we can react to the market dynamics quickly.

So when the material costs rise, we can adjust the pricing at the front end in a timely manner. So this is truly another unique advantage. So the supply environment is challenging for everyone, but we have consistently turned the challenge into advantage to grow market share and to improve profitability. So this benefits not just our infrastructure business, but the IDG, PC, smartphone, tablet business as well.

Thank you very much. We have more questions coming in. And the next question is from Cherry Ma from Macquarie. This question is on IDG. Can you just share updates on the outlook for PC and smartphone for the market and also for Lenovo? Do we see different trends between the commercial and consumer segments? So for this question, I'd like to invite our IDG President, Luca Rossi. Luca, over to you.

Thank you, and thanks for the question, Cherry. So I'll start from the PC market. We have seen in Q1 a relatively stronger-than-expected market, partially maybe due to a little bit of anticipated demand to mitigate the future cost cuts, but I will say also due to good demand and adoption of the new AI PC category where we definitely lead just like the total PC market. And we have executed well in Q1. We grew double digit in revenue, gained market share for the 12th consecutive quarter and maintaining industry-leading profitability.

Now looking forward, we expect that the second half of our fiscal year, the market will contract double digit in units probably around 15%, maybe a little bit more, a little bit less depending on the region, depending on the segment. We also believe that the commercial segment will be relatively more resilient than the consumer one. But now for Lenovo, we intend to continue to operate at premium to market, meaning continuing to gain share for each quarter and for the full year.

And on the revenue side, probably more importantly, we believe that we will be able to continue to offset the unit decline with higher ASP, improved premium mix, improved AI PC mix and definitely equally important, if not more important, with our procurement scale, design to cost, product innovation, we will be able to maintain industry-leading profitability. That is for PC.

Looking at the smartphone market, the picture is not very different from PC. The inflationary cost environment will impact demand. We estimate demand or shipments overall in the market to decline around 20%. For our Motorola business, we delivered a solid Q1 with double-digit revenue growth. And going forward, we expect to be able to more than offset the unit decline with increased ASP, better premium mix. And just like PC, we will be able to sustain not only revenue but also the current margin profile.

Motorola continued to be, I will say, in the journey to grow market share in an increasing number of selected markets. We will sustain and solidify North America, Latin America. These are the 2 foundational markets. Meanwhile, accelerate Asia Pacific and EMEA, where we have the largest profitable growth opportunity.

And last but not least, we are also significantly improving our product portfolio. So expect a further enhancement in our premium mix in late '26 and 2027. Thank you.

Thank you, Luca. Just on this topic, we've also got a question related to the previous one. So it's from Howard Kao from Morgan Stanley asking, can you talk a little bit about how you're able to keep IDG OP margin flat year-on-year at 7.1%?

And how should we think about the profitability for this business going forward? Yes. Luca, would you like to continue to address this?

Sure. Thank you for the question, Howard. So as I said just now, we are definitely in an inflationary cost environment, particularly in certain commodity memory, but memory is not the only one. And definitely, I think nobody is immune. It's not an easy environment. However, as you saw from the numbers, we are working hard to be able to maintain our operating margin flat or even improve it over time by leveraging I will say, several factors that are part of our unique formula, product innovation, design to cost, growth in premium, growth in what we call margin-accretive adjacencies kind of workstation visuals, accessories, strengthened -- this is also important, strengthen our pricing power for our brands.

All the efforts we are doing on our brands obviously yields back in more pricing power. And the procurement scale is also important. Our global local, our operational excellence. So all these are part of our winning formula. So going forward, I will say we are confident that we will continue to grow at premium to market and continue to deliver industry-leading profitability. We have gone through this challenging market condition in the past many times. And typically or always, we emerge stronger. So I'm very confident we will continue to do that, Howard. Thank you.

Thank you, Luca. We've received a lot of questions on ISG. So now I'm going to move on to ISG as a business group. So the next question is from Emily Swan from [ GBS], asking ISG operating margin reached a record 9.1% this quarter, well ahead of prior 3.6% record. So how much of this outperformance is structural versus transitory factors such as particularly the favorable order mix or onetime cost timing? And does management view 7% to 8% as the right long-term end? Or is there upside to that range? So Ashley, would you like to take the question, please?

Thank you for the question, Emily. I'll summarize by saying that upfront, we don't see the record operating income and operating margin as a factor of a onetime per quarter issue. And we do -- I do see it as indicative of the performance of the business. As you point out, is it a favorable mix of product or business? If you look into the details, we usually talk about our business in cloud service provider, segment and our enterprise and small and medium business segment and both grew at an almost doubling year-over-year rate. So from a mix point of view, the growth was the story, not the mix.

In addition to many of the factors that YY has already laid out relative to the durable advantages that Lenovo Group enjoys and has earned. I'll just point out a few maybe for how I think about the durability going forward of our operating margin. I think it all starts with strong disciplined execution within the business. And of course, I'm a big believer in ongoing transformation.

And as YY said, when you have the supply assurance in this marketplace of just a world-class resilient supply chain and manufacturing network, if you couple that with a transformation to a heavy mix of high velocity, low, almost no-touch infrastructure transitions, that's a very durable model change.

Our rich portfolio of AI-ready solutions, this is built on our ThinkSystem and ThinkAgile high-performance systems with our power and cooling IP that has existed, we're now in Generation 6 of Neptune. I think it is something that is only getting better over time as we move through product transitions and now fully supporting with supply readiness for just the entire portfolio of NVIDIA and Lenovo platforms around B200, very strong demand around Lenovo, NVIDIA D300 and GB300 solutions, whether air cooled or using our direct liquid cooling capacity.

And we're really building a very robust pipeline for our Vera Rubin roadmap. And this includes everything from really enterprise agentic use cases and it will scale all the way to hyperscale AI cloud deployments. So I will tell you, based on our testing, our pilots, this architecture is really going to be a generational leap. It's going to address the scaling demands that we see in the AI industry today.

And finally, we're optimizing and really spending a lot of time enabling our segment and sales coverage models to address what is just a growing demand in our customers for enterprise inference, agentic AI solutions, a focus on more efficient token usage, that's driving an increased pipeline. And that's a durable, not a 1-quarter phenomenon.

I'm also really pleased with the increase in Lenovo strategic partners and business partners who are taking our AI and traditional solutions to their end customers as well, and that's increasing our pipeline as we go forward. So there'll be some mix dynamics going forward into future quarters, but that will be driven by market and supply factors.

Our underlying transformation and our durable capability is not a onetime. As Winston mentioned, we also will see some mix change going forward as the Infinidat family, we're happy to have them as part of the Lenovo group now. And that gives us increased exposure to the storage infrastructure TAM and that has a markedly higher margin profile that will start to enter our mix as well.

Thank you, Ashley. I think you also talked about the AI pipeline. We have received questions on this topic. It's from Albert Hung from JPMorgan. He's asking what is the definition of the $54 billion AI server pipeline? Is it only GPU related and confirmed order wins? If so, how long do you think it will take Lenovo to fulfill these orders? In other words, how quickly can Lenovo ramp capacity and increase output? So perhaps you would like to elaborate a little bit more on this topic, Ashley?

Sure. Thank you for the question, Albert. The way to look at the pipeline, we don't guide forward into committed orders. So to give a relative growth factor for the future, we talk about pipeline. So this is customer engagement, deals, future orders that are uncommitted or unqualified at that point, but indicative of a fairly normalized commitment and conversion rate, which again, we don't guide to. It's being driven and growing at an incredible rate because of pretty simple factors, really.

What I talked about where we're able to provide supply insurance and a very, very robust and capable AI solution and services behind that. But the use cases we're seeing driving the majority of our pipe today are agentic AI uses in enterprises. I'm seeing that private AI clouds are becoming really a standard way for approaching token efficiency within our customer set.

We're seeing an actual increasing of overall budgets. And within budgets, we're seeing an increased mix for AI within those IT budgets. Strong server refresh cycle is underway. You can take A as a customer, one of the Lenovo ThinkSystem servers today and replace 6 or 7 competitive boxes from previous generations. That consolidation factor is used either for AI or to make room within your estate for AI.

We're also seeing ongoing and frankly, accelerating AI data center build-outs where we're providing not only the infrastructure, the manufacturing, the supply assurance, but through our SSG team, we have incredible capability and talent around installation deployment, ongoing maintenance, services operations. And this is just creating more and more momentum in the pipe.

And of course, now we're, as I mentioned earlier, starting to see and get more vision into a pipeline of increased mission-critical storage expansion with Infinidat as part of our family now, and that's really across verticals, everything from finance business across telco, infrastructure, all the way up to AI data centers where you have to have mission-critical storage as part of the solution provided to your customers.

Thank you, Ashley. We'll take one more question. The next one is from Randy Abrams from UBS. So how quickly is enterprise adoption of AI infrastructure and agents translating to higher service revenue? What are the additional sources of revenue that AI is bringing to SSG? So I'd like to invite our SSG President, Ken Wong, to address this one. Ken, over to you.

Sure. Thank you, Randy. So indeed, we have been seeing very strong growth across all our line of services in SSG. And by the way, last quarter was the 21st consecutive quarter of double-digit revenue growth on a year-to-year basis and with significant premium to the market. And much of this growth is supported by rapidly accelerating AI solution and AI factory services, long-term recurring contracts and a multi-quarter booking backlog.

And as YY mentioned, I think we have been investing to build the Lenovo Hybrid AI advantage stack and this definitely help us to win more business in this fast-growing market and give us more confidence about the growth beyond hardware and beyond a single quarter. And I think if we look at the growth of conviction for the future growth also stem from the impact that we have seen around AI that could bring to our customer. For example, we just implemented an AI-powered workplace solution to automate support operation for one of the largest global financial institutions in the world with more than 100,000 employees. And with the AI solution, we're able to reduce the operating cost by 20% plus, right? This is a huge impact.

Another example of AI solution is that we have implemented an AI robotic site inspection solution for one of the leading energy company in Asia across the 30 sites in Asia and help them to reduce maintenance cost and also significantly reduce the downtime. Again, these are significant impact be it revenue generation or cost savings that AI are able to bring to our customers.

So with that, I think we have the right strategy. We have the right Lenovo Hybrid AI advantage stack. And hence, we continue to be confident about we're able to capture the AI demand and be able to perform at a premium to the market for both our revenue growth and our profitability. Thank you.

Thank you, Ken. So this will be the last question, and this will be the end of this earnings webcast. And thanks to everyone for joining the call. If more questions, feel free to reach out to IR team, we're delighted to speak to you. Thanks, and have a great day.

Hello, everyone. Yes, so it's great to have you here. This is really our first U.S. Investor Day, and thank you so much for joining us. We have about 200 investors, analysts and financial community joining us from both in person and also online. So to begin, I would like to go through the breakout, the layout of today's session. We'll break it into 2 sessions. The first one will be the keynotes from our BG leaders, Yuanqing and CFO, Winston. And then the second session, it will be our Q&A session. So in the middle, there will be 5 minutes of intermission. So please make sure you return to your seats after you hear the time.

So during the Q&A, we will have our CEO, Yuanqing; and also our CFO, Winston Cheng, joining me on the stage for an interactive session. And after that, we're going to move to our BG leaders coming to the stage and answer the specific questions on the BG Group. So with that, let's get started. So let me invite our Chief Executive Officer, Yuanqing, to the stage.

Good morning, everyone. Thank you for joining us at Lenovo's Investor Day. Lenovo has been on a journey for more than 4 decades, guided by a consistent and powerful belief technology changes the life for the better. We started back in 1984 with 11 entrepreneurs. After a few years distributing other brands, so we decided to build our own PC and become a leader in China by 1996 and in Asia Pacific by 1999.

Now we stepped down to the global stage with the acquisition of IBM PC business, becoming the global PC champion and diversified into smartphone and x86 servers, gradually building a more diversified business portfolio. Now we've entered a new chapter, AI decade. So this is our chance to seize a once in a generation opportunity to drive AI democratization and bring AI to every individual and each company.

Across the 4 decades, we have never settled, each time we reached the one goal, we aim the high, always transforming and evolving into the Lenovo you see today. Last year marked the best year in Lenovo's history. We closed the year with a fantastic fiscal Q4. Revenue exceeding $20 billion, up 27% year-on-year, with adjusted net income more than doubled. AI-related revenue has grown to 38% of group revenue. So a clear signal that AI has become a key growth engine for Lenovo.

So this strong Q4 performance finished a record full year. Our revenue surpassed $83 billion, up 20% year-on-year to an all-time high. We significantly improved our profitability despite the rising component cost. Our adjusted net income increased 42% year-on-year, twice as fast as the top line.

So these highlights reflect years of accumulated competitive strength and a proven hybrid AI strategy that is ready to drive future success. So this momentum is broad-based with all 3 business groups delivering strong double-digit revenue growth. IDG achieved its highest revenue growth post COVID, expanding our PC leadership and smartphone market share. ISG delivered record revenue and full-year profitability, a true inflection point, now becoming another growth and profitability engine for Lenovo. SSG sustained double-digit growth with high margin for 20 consecutive quarters with a higher mix of recurring and value-added services.

So behind these numbers, there's something I'm even proud of. We always deliver on our promises, turning around the ISG, overcoming supply shortages and rising component costs, establishing leadership in AI PCs and bringing real AI solutions to customers.

So with all that, we exceeded market expectations, which was never easy as all of you in this room continue to encourage us to raise the bar. So why can Lenovo achieve this? The answer lies in 2 core pillars built over the decades, relentless innovation and operational excellence. Innovation or I should say, customer-centric innovation has always been our robust growth engine. For Lenovo, innovation in the AI area is not just about the new technology. It's about making AI practical, scalable and bringing real value to our customers.

So we are increasing our investment in AI-focused R&D, building a complete portfolio across the AI stack, including AI devices, infrastructure and solutions and services. In AI devices, beyond continuously strengthening our product competitiveness to gain share and improve profitability. We are developing device intelligence for individuals, firmly advancing our One Personal AI, multiple devices strategy. We are building our Across-Device Cross Ecosystem, Personal AI super agent, Lenovo Qira for global market, while expanding into AI native devices and pioneering new form factors.

For AI infrastructure, as AI computing increasingly moves on-prem and to the edge, we continue to develop next-generation training and inferencing servers. We also support the rack scale systems through our industry-leading Neptune Liquid Cooling technology and enable hybrid AI factory deployments designed for scalable high-performance computing workloads.

And for AI solutions and services, our subscription-based TruScale continues to gain strong momentum and our vertical solutions are empowering key verticals such as manufacturing, retail and sports. So you have seen how Lenovo technology supports the FIFA World Cup this time. So this January at our Tech World CES event, we showcased our full stack AI-focused innovation, demonstrated our leadership beyond the PCs as a pioneer of hybrid AI. So this is the innovation. The other pillar is operational excellence. We have built a balanced global business and manufacturing footprint powered by our unique global local model.

So today, we run very diversified and balanced business across all 4 sales geographies. On top of that, our end-to-end capability grants us complete control from product design to demand forecasting from procurement to manufacturing and from sales to services. So this seamless integration enables us to respond rapidly to market changes and maintain direct control over cost. We operate more than 30 manufacturing sites, leveraging in-house and outsourcing manufacturing to better serve customers in over 180 markets. And our world-class global supply chain ensures flexibility and resilience even in fast-changing market conditions. Lenovo is now ranked #7 globally in the Gartner Supply Chain Top 25, which covers all industries.

Our global local model gives us the best global resources, leading technology in U.S., Japan, efficient supply chain and manufacturing in China, Mexico, Vietnam, software and services in India and of course, investment from you. Meanwhile, we ensure the quality of last mile sales and marketing, fulfillment and services to the local customers and ensure 100% compliance to the local market regulation. We are also embedding AI native technologies and solutions into our own process, making operations smarter and more adaptive.

So all in all, operational excellence enables us to navigate the challenging tariffs, supply challenges and geopolitical volatility while continuing to grow and improve profitability. So these 2 pillars are exactly what propelled us to best capture the opportunities in the AI era. AI was first driven by compute, fast compute, then by models and now increasingly by data, especially private data. So this shifts the power to customers who own their data.

So people want AI that knows their history, understand their context and solves their own unique problems. So they want the AI to be more customized and accessible. So customers need a combination of personal AI, enterprise AI together with public AI which is deployed across devices, edge and the cloud in a way that drives performance, privacy, cost and energy efficiency. So this is the era of AI democratization. That's exactly why Lenovo's hybrid AI strategy is the right one. We are particularly focusing on personal AI and enterprise AI.

In personal AI, as mentioned earlier, our strategy is One Personal AI, multiple devices. So super agent should move with the user across portable devices like PCs, tablets, smartphones, wearables like glasses and earbuds and ended devices like home server, edge server or AI companions, orchestrated across different platforms like Windows and Android.

So this is what Lenovo Qira is about connecting, orchestrating and proactively assisting you to achieve your goals while protecting your privacy, private data and bringing a more consistent and connected AI experience. In enterprise AI, customers are looking for end-to-end solutions that turn their private data into intelligence. We use Lenovo Hybrid AI advantage to unleash the value of enterprise data for customers. It starts from our core strength, compute and extends outward to preparing data and knowledge, constructing AI infrastructure, choosing models and creating AI agents and building AI library of repeatable, scalable solutions.

We are enabling customers to develop and scale AI faster with better performance, improved efficiency and ultimately faster time to value. So to conclude, Lenovo is entering its new phase of growth with a clear hybrid AI strategy. We have a complete AI portfolio across devices, infrastructure, solutions and services, supported by AI-focused innovation that is hard to match in our industry. We have a unique global local model with one of the broadest footprint in the industry, a balanced revenue stream across geographies and a truly diversified team.

After 4 decades of building and evolving, our belief remains firm technology must serve people. That is why we are driving AI that is trusted, easy and accessible to both individuals and enterprises. We have now set a clear measurable goal, $100 billion revenue in 2 years. I'm confident we will get there. And while doing so, deliver sustainable returns for our shareholders and bring smarter AI for all.

Now please join me in welcoming Luca Rossi to share our strategy in Personal AI. Luca, please.

So good morning to everyone in the room, and thank you for being here. So we are at the beginning of a major shift in our industry, an inflection point that I often compare to the arrival of Internet in the mid and late '90s. Agentic AI is emerging as the next frontier in a hybrid AI world with tokens becoming a new currency. In parallel, the app-based world is now evolving into an intent-based world. This transformation will unlock new levels of productivity and experiences and create significant benefits for consumers and for enterprises.

At Lenovo, we believe that shift plays directly to our strength. And today, I would like to share how we are building a core pillar of our hybrid AI strategy, that is personal AI.

For the last 40 years, computers have been defined by devices. First, the PC, then the smartphone. We are now entering the next platform shift, agentic AI. The question is no longer what app should I open? What can my device do? It becomes what outcome do I want? As devices become smarter, value shift from the device to the experience that it enables. We are well known -- Lenovo is well known for leadership in PCs. But now we are becoming something much bigger, an AI-driven ecosystem leader. And today, I will show you why we are confident that Lenovo has the foundation, the scale, the strategy and the execution to make that vision a reality.

So we enter this AI transformation from a position of strength. In a challenging market, we continue, as I think you know, to gain share and accelerate our performance. We maintained our #1 position in PCs worldwide, securing nearly 25% of market share and outperforming the market by nearly 6 points. Today, we are #1 in PCs globally. We are #1 in Windows AI PC globally. We are #1 in consumer. We are #1 in commercial. And in the AI era, the scale will matter even more than before. The larger the installed base, the greater opportunity to generate data, to bring new experiences to customers to accelerate adoption and retention and ultimately create long-term sustainable monetization opportunities. That is why we are entering this transition with a clear advantage in the PC industry.

Now on the smartphone, we have also strengthened Motorola position. This past year, we achieved record shipments, record activations, and we delivered 11 consecutive quarters of premium to market growth. Across Asia Pacific, we have impressive momentum. In India, Motorola is the fastest-growing OEM. In Japan, we are already the top 3 Android OEM. In North America, Motorola is the most credible challenger to the 2 dominant players, and we continue to hold the #1 position in the flip phone category. In Latin America, we are the #2 smartphone player and the #1 in the growing flip category.

Now across Europe, Motorola delivered double-digit market growth in the premium segment and more than 10% market share in early investment countries such as, for example, Poland and Italy, something we will replicate in more countries going forward. And the key driver of this success is our Razr franchise, which continues to perform exceptionally well globally, elevating our brand and our position in the premium segment.

Our path forward is clear and ambitious. First, protect our core from PCs to workstations, from gaming to edge, we will continue to lead with scale, innovation, best-in-class execution with the goal of expanding our market share globally while maintaining industry-leading profitability. Then elevate Motorola. Smartphones are central to our personal AI vision, and we will continue to drive innovation and premium growth while expanding our market share in several key global markets. We will also accelerate on wearables and on ambient AI native devices, which are critical to enable our overall personal AI vision.

Third, we will and we are diversifying beyond PCs. We are expanding across software, services, tablets, accessories, all margin-accretive areas with a large market opportunity. And then fourth, invest in this new ecosystem. AI only matters if customers choose Lenovo because of it, not for the features, but for the outcome, for the real outcome, outcome that make people more productive and businesses more efficient every single day.

So to sum it up, we are building a complete connected AI ecosystem around the user. Our strong PC foundation position us uniquely to lead this era of personal AI, powered by 2 defining strengths, operational excellence, innovation capabilities. That is what our CEO and Chairman just mentioned. Of course, we know that we continue to operate in a challenging environment. Component supply constraints, inflationary cost environment, expected demand volatility remain part of our reality.

Yet this is where Lenovo has consistently shown its strength. Our global local operating model, our worldwide manufacturing footprint give us a level of flexibility that few or very few can match. Our diversified supply chain enables us to adapt very quickly. Our large procurement scale secures sufficient supply on the one hand and competitive cost on the other side. So I will say we are positioned not only to navigate those challenges, but to emerge even stronger than before.

Now before I go into the details of our Personal AI solution, I will maybe level set. We are entering what I call the age of agents. Personal AI is evolving from an assistant into an agent, one that understands your goals, makes decisions, takes action on your behalf. And this shifts us from task-based into intent-based computing. Some agents will work with us. Some will work for us, collaborating with other agents. Increasingly, agents will work between us, communicating across users, devices, applications, services, environments. And this shift, we believe, will redefine how people interact with technology.

But for agents to be truly useful, they need more than just intelligence. They need the reach, they need context, they need continuity. And that is why the age of agents will not be defined by isolated devices. It will be defined by connected ecosystems and the ability to orchestrate across cloud and edge with safety and security. And that is exactly what Lenovo has been building. At Tech World, we introduced Lenovo and Motorola Qira. Qira is not another agent, foundation model or LLM. We are not trying to compete with OpenAI, Google, Anthropic or any other leading AI model provider. In fact, we view them as critical partners in our AI ecosystem.

Our role is different. Our role is to orchestrate AI experiences across the devices that people and companies use every day. Qira connects PCs, smartphones, tablets, wearables, glasses and many other existing or new ambient AI devices. It shows up where and when you need it the most. And in a hybrid AI world, some workloads definitely belong to the cloud, but others are better on device. As inference and token consumption become increasingly important, but also costly, Qira intelligently determines where this workload should happen. And that is where Lenovo position become powerful.

We have different competitors strong in a single category, but very few operate at meaningful scale across the full device ecosystem with multiform factor, multi-OS, multi-silicon competencies. I will say no other company combines our breadth of portfolio and ecosystem reach. And that is what makes our vision possible. One personal AI, multiple devices. Unlike a chat or a bot assistant, Qira is built to understand your day and your context. Your data stays private and local, making Qira the personal AI people can and will actually trust. That trust multiplied across hundreds of millions of devices as a path to become an additional monetization opportunity attached to every device which we ship and we will ship. We are also bringing here into enterprise, leveraging on-device privacy, security and definitely a set of enterprise-grade capabilities.

In summary, the era of personal AI is here. At Lenovo, our goal is to democratize AI, making it accessible to all yet personal to every user and every enterprise. We entered this transition with a leadership position in PC, strong position in tablet, momentum in smartphones, great opportunity in the new AI native device categories, world-class operational excellence, unparalleled innovation engine. And finally, a unique ability to connect intelligence across this industry broadest device portfolio through Qira.

Altogether, this strength position us to operate one of the world's largest personal AI ecosystem, and that is our goal, leapfrog into the age of agent. Thank you. And now Ashley and Ken will show you how we are bringing that same vision to life across the enterprise AI. With that, Ashley, over to you.

Good morning, everyone. Thank you for joining us here today. As both YY and Luca just outlined, Lenovo has entered its AI decade. For ISG, this super cycle really starts from a position of strength. We are poised to turn AI demand into very durable growth. So over the past decade, ISG has transformed into a much stronger, much more scalable business from the IBM System x acquisition to cloud scale infrastructure, ODM+, in-house design and manufacturing, Neptune Liquid Cooling, hopefully, you saw outside and enterprise AI solutions, we have built the foundation required for the next phase of growth. That foundation is now translating into performance.

ISG as YY why I mentioned, has reached record revenue of $19.2 billion in our fiscal year '25, '26. That's more than 4x larger than just a decade ago. And over the past 2 years, we see that momentum. Revenue has grown at a 47% compound annual growth rate, showing the acceleration of the business. We are also gaining market position.

Lenovo is now a top 3 global server provider. As a matter of fact, in the last -- latest Q1 global x86 server market ranked #2 worldwide by revenue, growing almost 37% year-over-year, making Lenovo one of the fastest-growing leaders in this marketplace. And more importantly, we've built a strong platform for growth, greater customer reach, deeper engineering expertise, stronger supply chain execution and really capabilities that are difficult to replicate elsewhere.

So AI is entering an inflection point, we stated. That first phase of AI infrastructure was all about model scale. The next phase is going to be about and is about deployment scale. That shift really creates 5 infrastructure imperatives for us: data gravity, distributed compute, trusted autonomy, stack, whole stack integration and token economics. The customers will look to bring AI to where the data lives for many good reasons, governance, security, compliance, but really also, especially in the last few months, talking about how to optimize cost per token and improve the overall ROI. This is why hybrid AI plays directly to ISG strengths.

We really see the market has evolved through 4 waves: traditional compute, move to cloud compute, move to AI training in the cloud. And now we're really in the earliest stages of AI inference on-prem and across distributed environments. The important point is not really just the size of the opportunity, it's massive. It is the shift to where value is going to be created. By 2030, infrastructure TAM is expected to reach approximately $1.3 trillion with accelerated compute representing the largest growth pool. AI training will continue to scale, but the next major expansion is enterprise inference.

And our strategy in Lenovo is built on 2 very powerful engines for this, ODM+ and OEM. So to explain, ODM+ is our scale engine, we're working with the largest hyperscalers and AI clouds. ODM+, for example, is where we partner with NVIDIA on the exclusive Lenovo, NVIDIA Gigafactory to accelerate the time to first token for the largest AI clouds. OEM, that's our value engine. It's for enterprise and small, medium business customers. This is where AI moves from pilots into production.

With the Lenovo hybrid AI advantage and the Agentic AI and inferencing capabilities we just announced yesterday, our partnership with NVIDIA brings capabilities like NeMo, NemoClaw in to enterprise-ready deployments, helping customers accelerate Agentic AI adoption through really just simplified pre-validated solution deployments.

So the power of Lenovo's model is we can do both. We can serve hyperscaler AI demand and capture enterprise adoption through one end-to-end model. This is where our capabilities come together across the full AI value chain. So AI infrastructure is becoming a systems market. AI agents need access to data and efficient token processing. So I'd like to say that's right. Hardware is yet -- is cool yet again.

Our technology foundation spans enterprise foundation, AI factory and AI inference across edge, data center, rack scale, all the way through hybrid environments. And we take this to market through our international and our Chinese businesses, so we get to combine global scale but bring local relevance.

For enterprise customers, we deliver AI-optimized hardware, software solutions for hybrid AI and inference. We can help them move very fast from use case to production. For hyperscaler and AI clouds, we combine supply chain execution, silicon collaboration, custom AI platforms. We can build rack scale systems all the way up through entire AI data center offerings, and it's aligned to the latest accelerator road maps, including NVIDIA Vera Ruben architectures.

In China, we can offer a uniquely localized portfolio designed around local customer needs. And then we can bring that together with Neptune Liquid Cooling. It's also a key differentiator, helping customers support higher and higher and higher rack densities, improve their energy efficiency and allow them to scale AI much more reliably. Our ecosystem partnerships further extend this foundation, helping customers deploy validated pre-ready AI solutions with speed and confidence.

We then translate these capabilities into a market-aligned hybrid AI portfolio. This includes more than 80 AI-ready platforms, 60 AI software providers, over 165 up to this point, enterprise solutions, a strong, strong channel network, and then we can provide that coverage over 180 different countries. Our hybrid AI strategy is proven through customer outcomes. Take AI cloud customer of ours Enscale. We support this AI factory deployment with more than 7,000 GPUs, at least that we've talked about publicly and advanced thermal capabilities for them so that it can scale very quickly and efficiently.

From AI cloud to immersive entertainment, the sphere shows how our infrastructure, Lenovo infrastructure can support massive, massive data workloads, capturing 18,000 visuals and then processing 30 gigabytes of raw data per second all the way from capture to render. And in Formula 1, where literally every millisecond matters, Lenovo infrastructure supports real-time telemetry insights while using Neptune helping them improve the energy efficiency by up to 40%. So different environments, same pattern, faster deployment, better performance, greater efficiency, stronger customer confidence. These are the critical decision factors driving enterprise AI infrastructure adoption.

So let me close with why ISG is positioned to win in this market. The AI infrastructure opportunity is very, very significant. And the next phase of growth aligns directly with Lenovo's strengths. ISG has built the capabilities customers need to deploy AI in the real world, full stack hybrid AI solutions, rack scale innovation, liquid cooling and power efficiency and a resilient supply chain execution, along with all the necessary deep ecosystem partnerships. These capabilities are already translating into performance.

In FY '25, '26, we delivered ISG -- record ISG revenue and record AI systems mix. In Q4, specifically, we achieved the highest operating profit and the highest operating margin since entering the business a decade ago. This gives us very strong confidence in the path forward. ISG has the scale to capture our share and more of the AI infrastructure TAM, the innovation to differentiate and the execution discipline to deliver sustained high-value growth over the long term. So as enterprise AI moves from infrastructure where hardware is cool to outcomes for customers, services and solutions become that critical differentiator.

And that is where my partner in SSG plays an incredibly key role. So Ken, over to you, sir.

Thank you, Ashley. Last but not the least, good morning, everyone. So what I want to do this morning is to walk you through how we built SSG, why it matters to Lenovo and why we are well positioned for the next phase of AI growth. Now at SSG, our mission is very, very simple. We unleash the full power of Lenovo technology to maximize customer outcomes at scale.

Now we bring together everything Lenovo has built across devices, infrastructure, services and AI. And we help customers turn technology investment into measurable business value. Now that distinction matters a lot. So as we move from selling products to delivering outcomes, we become more strategic to our customers. Now if you look at SSG today, you see a layered portfolio. Now at the foundation are our support services designed to enhance our hardware experience, right, from Luca from Ashley. Now with Lenovo leadership from Pocket to the Edge to the Cloud, we expanded beyond hardware into solutions such as digital workplace solution, hybrid cloud and sustainability. And now with those building blocks in place, we are scaling AI through Lenovo hybrid AI advantage.

Now what is important is that we operate across the full life cycle from design to the ongoing optimization. And that allows us to participate in more of our customers' technology spend, and it expands our opportunity beyond traditional hardware into higher-value areas like managed services, consumption-based infrastructure and, of course, AI solutions. And at the same time, it enables an outcome-based business model and creates deeper, more strategic customer relationships.

Now that didn't happen overnight. It was built step by step, as you can see from the chart. So last fiscal year, SSG reached $10 billion in annual revenue, which representing 17% CAGR growth over the past 4 years, while the market is only growing at low single digit. And that transformation -- that transformation happened because each year, we are adding new layers of capability. And most recently, we introduced xIQ, our AI native delivery platform, helping us deliver those solutions more efficiently and at greater scale. And each step expanded our role with the customer. What started as a services attached business in SSG has evolved into a full stack technology and AI service business. And that is what positions us for the next phase of growth. And that next phase is obviously AI.

And what is important is that AI is not simply creating another offering of SSG. It is expanding the opportunity across everything we do. Now today, across support services, hardware adjacency solutions and AI solution, we participate in an addressable TAM of $510 billion, as you see from the chart.

By 2030, we see our addressable market growing to more than $875 billion, driven by some of the fastest-growing segment in technology across AI solutions and compute. And that is why AI represents a significant growth opportunity for us in Lenovo. Now to capture that opportunity, we built Lenovo Hybrid AI advantage. That is our full-stack enterprise AI framework. And we think about it through 2 metrics: time to first token and time to maximum value. This is about how we quickly -- this is about how quickly customers get into production and how quickly they generate business value.

Now the AI factory accelerates time to first token and the AI library maximize value per token. And because none of these are trivial, so our AI services layer helps customers plan, deploy, operate and optimize AI across the full life cycle. We deliver all of these through scale, giving our customers the flexibility to consume AI in a way that best fits their business. Now together, they create a powerful flywheel that expands both customer value and our participation across the AI value chain of our customer.

Now let me double-click a little bit on the AI factory. Now building an AI factory requires more than infrastructure, and that is why I work hand-in-hand with Ashley. So customer, they need help on designing, deploying, operating and optimizing AI environments at scale. And one of our biggest differentiator is that we provide a single point of accountability across the entire life cycle. Our customers also need flexibility, the ability to choose the right data, right models, security and economics for their business. And also combined with our supply chain expertise, our modular design IP, Neptune Liquid Cooling technology that Ashley mentioned and xIQ platform, we help customers deploy faster, operate more efficiently and get to value sooner.

So once customers are in production, the next question becomes, how do you maximize the value generated from that investment. That is where our AI library comes in. Our AI libraries provides -- includes proven production-ready solution validated by industry analysts, for example, like Gartner. Now because these solutions are built from real customer deployments, our customer can accelerate implementation, reduce deployment risk and achieve faster time to value compared to starting from scratch.

And most importantly, these are not pilots. They are repeatable solution designed for enterprise scale deployment. Across manufacturing, retail and sports, we developed complete solution portfolios tailored to the needs of each industry where our domain expertise gives us the right to play.

Now in manufacturing, that spans production, supply chain, sales and support services. And in retail, it connects customer experience, store operation, merchandising and management. And in sports, it brings together fan experience, operation, intelligence and media. Now the result is very simple, less experimentation, faster deployment and faster business value.

Now after all these, let me show you what this looks like in practice because I mean, I'm running out of time, so I won't go through every example. So let me highlight probably 2. Now first is the AI factory on the left. So we recently helped deploy a hyperscale AI environment from greenfield from scratch to production in just 9 months. That is one of our fastest time line in the industry. Now we did that using our modular data center IP, where components are built off-site and assembled on site like LEGO blocks. Now instead of building everything from scratch on site, we prebuilt and pre-integrate the racks, the networking, the power and the cooling system in our factory and then ship and assemble them on site. That dramatically compresses deployment time lines.

Now let's look at the AI library in action because we're in FIFA, of course, I will pick the FIFA example. So this example FIFA where we're taking capabilities developed within Lenovo's own operation and applying them at global scale. So at the center of that is the Intelligence Command Center. Think of it as an operating system for complex operations. It provides real-time visibility, prioritize issue and use AI to analyze thousands of signals in real time and recommend actions before small problems become larger ones.

So when you're in a global -- when we are supporting a global tournament, which involved 418, 104 matches across 16 stadiums in a 39-day schedule, that capability matters.

So what makes this especially powerful is that the foundation was developed and proven within Lenovo's own operation before being adapted for FIFA. Now working with domain experts from FIFA and Ecosystem Partners, we have taken that proven architecture within Lenovo and applied it to a completely different environment. That shows how we turn proven experiences and architecture and IP into scalable solution.

So with that, let me leave you with 3 key takeaways. First, we are positioned to capture AI growth across infrastructure, platform and services. Second, we're building sustainable customer momentum through deeper relationship and recurring engagement across the life cycle. And third, we scale to a technology-led delivery model that combines software, automation, AI and the noble hardware strength. Together, these advantages position SSG to capture a meaningful share of the AI opportunity. And as AI moves from experimentation to enterprise adoption, we believe the value is shifting from simply building AI to operating AI and most importantly, delivering measurable business outcomes. That is exactly where SSG is positioned, and we are just getting started.

So with that, I will hand it over to our CFO, Winston, to discuss how these translate into profitable growth for Lenovo. So thank you.

So CFO, good morning, everyone. And for those online in Asia, good evening. I know CFO job at Lenovo is very difficult, but I know I'm the man standing between you and lunch as well as potentially the FIFA game later on this afternoon. So I will go fast. Stay with me for 5 slides only.

As we are well known in terms of being the world's largest PC maker, but Lenovo has gone significant transformation over the past several years, as you have heard from all the speakers today. And over the past several years to become a global technology leader across operating devices, infrastructure services and AI solutions and enterprise technology. And few companies operate at scale across devices, infrastructure and services with the breadth, the diversification and the global reach that Lenovo has today. And the opportunity ahead of us is tremendous, and our existing products and solutions are well placed to capture this opportunity.

While people often ask, given my background, whether I would be looking at to do major acquisitions. But however, I believe that we're well placed to capture significant market TAM underpinned by multiyear AI-driven transformation in our industry. And we'll focus on executing towards the growth drivers we've put in place and expand our earnings and profitability profile and unlock further value from the portfolio we have built. And in the meantime, we're actively engaged with the market on early-stage investments, key technology investments as well as potential acquisitions to expand into new areas.

So what gives us confidence? We are a scale player with leadership positions in each of the business we operate in and achieving premium market growth across all our businesses. As Yuanqing said earlier, we're $83 billion in revenues, a record year, and we nearly have $19 billion of infrastructure revenues and AI server pipeline that has already exceeded $21 billion. And today, we're leading positions across categories of PC, as Luca has mentioned earlier, across enterprise, consumer, of course, also online games, which today, a lot of people are buying online gaming PCs for other compute capabilities, for example, AI capabilities as well. And we're a top 3 global server franchise and innovative services business that you just heard from Ken and increasing our exposure to some of the fastest-growing areas of technology, including AI infrastructure and enterprise storage.

And over the last 2 years, revenue has grown approximately 21% CAGR. But more importantly is our focus on earnings with diluted EPS growing faster at approximately 31% CAGR over the same period. And at the same time, we've maintained a strong commitment to capital returns, paying our highest dividend per share this past year, and we paid a cumulative $2.9 billion of dividends to shareholders over the last past 5 years. And so going forward, we're committed to paying consistent dividend dollar per share with upside to earnings growth, but also to return shareholder value through potential investments to fuel our growth as well as potential share repurchase to further drive shareholder value.

Our existing businesses captured more than $3 trillion of addressable market opportunity, and we hold meaningful leadership positions already across all of them. As you can see, we're today in a journey of predominantly PC moving towards the servers and showing great promises there as well. And while historically, our revenues and profits have largely been driven by our industry-leading PC business, we're not satisfied as we continue to gain share and why I continue to challenge Luca to pursue double-digit operating profit in that business. I'll state it here and tell everybody, but that's your challenge internally.

While it is a challenge, we have the right leader in place to take us there with Luca. And our ISG business is well positioned, and we're showing the result with record profitability last quarter, and our momentum is tremendous. And our ambition in ISG is high, and we have placed in a leader as tall as our ambition in that business. And with our broad and leading product portfolio with leading industry positions, we believe we have significant upside to our valuation. While our stock has increased 100% in the last 1.5 months, we believe we have substantial value to unlock.

Today, we're probably just around the PC area. If you see us, I think this is a famous thing that Ashley likes to talk about is he's just probably the last executive to join us, but he looks at Luca's business and he always said, that's a beautiful business. It's definitely better than one of our key competitors. And so he says, we definitely, and my business is definitely not at that much of a discount than my next closest peer. So I think from that perspective, we believe we can do much better from a combined basis in terms of where we are today.

Our mobile business, I think I just talked to someone in the audience, I'll call Sally because she just told me that she was in the group, that Motorola is actually cool today again that she heard amongst the group. So we believe we have significant opportunities to grow in terms of Motorola business. I think we have a unique brand there as well. And our services business, you heard from Ken, there are some significant opportunities to unlock. And we're doing services today, not like the traditional services companies that they are. It's just not comparable. What Ken is trying to do today is different from the traditional services company that you see in terms of R&D, coding, outsourcing. That's the past.

And our peripherals business can add to non-memory-based devices that you see -- and in terms of other AI devices that you see. And of course, with our recent acquisition with our Infinidat, we have higher gross profit margin to go there as well. And of course, going forward, we probably have a lot of other significant opportunities there as well. And so with all that talk, how do we get there? How do we unlock that value for you? And so from that perspective, really, our goal is $100 billion as YY has said, 1 to 2 years of annual revenues. I think we're well on track of that. Net margins of 3% plus and EPS growth above that as well. And from a 3 to 5 years perspective, 5% plus in terms of net income margin. And of course, 5 years plus in terms of all cylinders firing, we hope to have the net margins of greater than 8% as a company in terms of what we do from an enterprise hardware enterprise services.

And of course, this does not even include what Luca has talked about, which is the AI devices platform. We did not show that value in terms of the value chart there before. I think we have significant value there as well. We want to show you that when we actually can deliver that and then you can determine as you will in terms of value to our business then.

So with that, I want to just really close out by thanking you for your attention today and really, I think, a tremendous opportunity ahead of us. And thank you for your support. I know that we just raised a $2 billion CB last week as well. And I know some of you in the audience are also supporters of that CB. So thank you very much, and we'll be here to answer any questions that you may have. Thank you.

Thank you. I certainly feel proud to be part of the company. I wish I can get more LTIs. Okay. Thank you to all of our speakers this morning, and that concludes the keynote portion of today's program. So we'll soon begin our Q&A session, and you only have 5-minute break. I'm sorry. So lunch services will begin very shortly. Please return to your seats when you hear the chime or see you in 5 minutes. Thank you.

So now we're going to move to the Q&A session. Let's welcome our Chairman and CEO, Yuanqing Yang; and our CFO, Winston Cheng on the stage. So for this session, we'll structure the discussion into 2 parts, again. So first, we're going to be joined by our Chairman and our CFO for the overall strategy, financial outlook and capital allocation priorities. So if you do have questions for our 3 BG leaders, please wait for the second one. We will talk about the BG focus questions on market opportunities, strategic priorities in that 3 business groups.

Okay. So for our online attendees, we have previously collected some questions during the registration, and we'll begin with them today. So I think the first question we have received frequently after we talk about our $100 billion revenue ambition in 2 years. What is our growth drivers to have to achieve that revenue growth and profitability targets? Yes. Yuanqing, would you like?

Yes. So definitely, our strong Q4 and full-year performance is a clear testament to our commitment to a sustainable revenue and profitability growth path. Our long-term growth comes down to 3 strategies. First, expand our market leadership by devices while maintaining leading profitability. We have built a strong business model and competitiveness in PC. So we will continue to grow premier to the market.

While Luca just introduced our super agent Qira, will give us a leading position in the AI PC. So we believe that will give us a better chance to lead in the next round of the PC replacement. Also, we are building a wide range of the AI native form factor devices that will give us additional growth in the devices area.

Second, we will capture the multiyear AI infrastructure opportunity of booming AI training and inferencing demand. Lenovo is actually one of the few companies which can cover from hyperscaler CSPs, and cloud all the way down to the enterprise SMB in the infrastructure segment with our leading -- industry-leading Neptune Liquid Cooling technology and our very unique ODM+ model.

So we have a strong confidence that we can capture this booming demand opportunity. Last but not least, we will scale our services with a tech-led labor-light model for recurring revenue, leveraging Lenovo's hybrid AI advantage. So we help enterprises move from experiment to AI at scale. We offer end-to-end solutions that integrate infrastructure, data models and agents and use cases combined with 2 scale subscription model, all driving our business growth and profitability improvement. So we view our path to $100 billion revenue and a 5% net income with a very strong confidence.

Great. Thank you. Perhaps we'll open the floor for questions from the audience in the room. So again, if you have any questions, you can raise your hand and please state your name and your or before you begin. Okay. Maybe I'll just add on to...

There's a question right there.

All right. Gentlemen...

Jay, Greenland Capital Management. What gives you confidence in the net margin target that you provided for the 3- to 5-year and the long-term outlook? And what would be the drivers of that on a fixed cost basis also?

It's very easy. So our PC market -- PC profitability has been higher than that, right? So infrastructure shouldn't be less than PC. But definitely, we still need a journey to catch up with our PC profitability. So probably you can hear more from our ICT leader, Ashley. But for sure, our solution and service profitability is much higher.

Winston, would you like to add...

No, I think the path is pretty clear in terms of where we're going in terms of an increasing trend of -- as our mix of non-PC businesses grow, you can see the industry gross profit margin trend should be going higher. And so the scaling effect is there. And of course, as the next stage of partnership between our SSG and ISG in terms of optimizing that services portfolio and other mixes in our business will increase that margin as well in addition to what Yuanqing just said.

The hot topic of yesterday is memory -- memory costs. Can you compare and contrast how you navigate and manage the rising memory costs compared to your competitors in terms of let's like strategy, customer agreement, pricing, how to mitigate, how much you are planning to pass that on to customers?

So Lenovo has built a very resilient supply chain. So -- and we have built a very strong relationship with upstream vendors or suppliers. So in some critical component area, including CPU, GPU and memory, we have signed a long-term contract with them. So in this supply shortage and cost up period, so our operation is very flexible. So we could buy earlier, putting more. So that will give us some competitiveness. But for sure, we -- if it's necessary, we will raise the price timely. So to ensure we still can be profitable. But for sure, the most important thing here is to ensure the competitiveness in the market.

So no matter you raise the price, you don't raise, you need to ensure you can compete in the market for Lenovo. So we are confident not only we can continue to win the market share, but also ensure the profitability.

Yes, Howard.

Howard from Morgan Stanley. So maybe my question is addressed to YY. A question on your AI strategy. So how is Lenovo building a structurally advantaged AI platform across your infrastructure and edge AI, particularly beyond this memory cycle?

Yes. So our AI strategy is built on a full stack hybrid AI platform that spans devices, infrastructure and solution and services. So Lenovo is not dependent on any single cycle like GPU or memory. So we will be focusing on the personal AI as well as enterprise AI. So in personal AI with over 140 million devices shipped annually. So Lenovo is now embedding Personal AI super agent change in China and globally across device ecosystem, directly bring intelligence to the edge and on device.

So this enables on-device inference using personal and public data while protecting private data and privacy. So frontier model are the most powerful, but they also consume too much to and the cost too high. But we believe -- so in the future, 80% of the token will be generated on device at the Edge, not on the Cloud. So more personal with a relatively high-quality output, but lower cost. So that's what ultimately drives AI democratization.

Second, enterprise AI. The focus is on hybrid deployment. So AI will not be only in public cloud. Customers need private secure low latency environments. So Lenovo delivers end-to-end full-stack solutions, from preparing better knowledge base to building hybrid infrastructure, from choosing models to generating agents, from transforming processes to creating vertical solutions. So through strong partnership portfolio innovation and differentiated services, we help customers achieve better economics and shorten their time to token.

So to conclude, so we are well positioned to capture the multiyear AI opportunity, structural growth, recurring demand and margin expansion independent of component cycles. So AI is creating tangible value for all and Lenovo is ready to deliver it.

Is there any other question from the floor for our... Yes, Peter?

Peter with New Street Research. Question is on demand destruction, not just on PCs and the consumer stuff, I think we all can understand that. But can you talk about it from the enterprise standpoint? Are customers starting to get more concerned about the rising cost of systems in general? And I would especially like to understand that as you guys see more inference demand, which obviously lower ASPs and more closer to the end user, how that's impacting your business and your outlook?

Yes. I think from the perspective of our business today, you can see the ISG growth in the last quarter was 37%, but actually naturality was growing much faster. So I think from Lenovo perspective, we're seeing significant growth opportunities in the enterprise space, in the infrastructure space. I think particularly some of these global -- I mean, recently, I think some of the large dialogues I've seen is beyond the U.S. and China hyperscalers, but really in terms of other spend in other countries of large population or large economies as well, really having that infrastructure that they're building for their own country's inferencing needs as well as potentially serving foreign hyperscalers. But the size of some of these are significant.

So I think the basic infrastructure that they need to build for future AI inferencing, I think, is a significant opportunity as far as I can see. The dialogue that we're seeing right now, it's just our scales that are so tremendous. And I think the bottleneck is actually we're all focused on components is the capital markets, right? We need to have enough dollars to really fund this growth. I think that's one big opportunity as well.

[indiscernible].

I think within reasonable, right? There's an industry acceptable. But I think for now, the dialogue has been very healthy as you go in and engage and talk about a reasonable margin in the industry. So I think we are one where we're coming up that curve, right? So I think for Lenovo is on a different journey from others given our historical context.

So today's infrastructure used for inferencing probably is less than 50%. So this is not an ultimate gap. So I think so the inferencing will account for at least 80% of the total compute storage infrastructure. And also today, AI, we are mainly talking about the public AI. So many enterprises are still waiting for the AI to be landed with more use cases. So definitely, that will be the additional market, not today's market. So that will drive the inferencing and on-prem and edge AI to the 80% level in the future.

Great. I think we can take one last question for Chairman and for CFO. Okay. So maybe this question is going to come from me.

That's great.

Okay. Yes. All right.

We have made it clear.

Thank you very much. Yes. So maybe it's time to move on to our second discussion. Let's welcome our business group leaders back to the stage. So we will have Luca Rossi, President of IDG and Ashley, President of ISG; and Ken our President of SSG.

Okay. I think following Hendi's question, perhaps I will open the discussion by asking one on behalf of the online [ restaurants ]. I've got a lot of questions when we speak to investors. Is the memory and the critical components, is that a challenge? Or is that an opportunity? I think the questions -- I think the answers from 3 of you will be quite different. So Luca, would you like to take this one first?

Sure. Sure. So obviously, the memory situation definitely is, I would say, unprecedented from the scale of what is happening and is also going to be probably lasting for a couple of quarters, if not longer. Is it a challenge or an opportunity? I would say, at the first glance, you can definitely say it's a challenge. In our case, I think we are in a, I would say, in a good situation because we are -- we have secured sufficient supply. So we do not have on our table the problem of having or not having the supply.

But definitely, we are not immune from the cost increase. And so in that sense, you would say it is a challenge. But I would say we have a sufficiently diversified business geographically. We have, I would say, a good pricing kind of capability to adjust pricing in the various regions. The fact that the supply is not -- this is not equal for everyone. So we -- I think we are in a position of strength from the supply. And this creates an opportunity for probably a little bit more rational pricing environment.

So I would say it's a challenge. But if you have a good position with your supply capability and with your pricing power, I think it can translate into -- I don't know if I would say now an opportunity, but at least we are confident that we will be able to protect our industry-leading profitability. And while doing this, I'm also confident that we will continue to expand our market share going forward, just like we did in the previous 12 quarters sequentially.

Great. Ken, would you like to?

Yes, definitely. You framed the question as challenges and opportunity. There are definitely challenges. I'll come back to this one, but I see more opportunity than challenges for not just SSG, but 3 of us, right? So I talk to CIOs a lot on a daily basis. So the CIO challenge today is that it's not just about I'm going to pay more for the memory across devices and infrastructure. It's also the predictability, right? Because today it's $10, tomorrow it's $15, then the day after tomorrow, it's $20. Imagine a CIO's life, right? How can they go back to the CFO, Winston here, to revise the budget to ask for additional budget on a daily basis. It won't happen.

So this is, by far, the most popular question that I was given by our CIO customers on a daily basis. So there are a couple of things that we're working on. Our new TruScale as-a-Service offering across devices and infrastructure offer a couple of things. Number one is predictability about cost and supply. Now it will be a little bit higher. I think that is a given. But what the CIO needs is also predictability, right? If I'm going to sign a consumption contract now, I'm able to predict my cost, I'm able to predict my supply, especially for those global customers, right? So that is one very important thing I see as an opportunity uniquely for our TruScale as-a-Service offering.

The other part is we mentioned our sustainability practice, right? There's a lot of business within our sustainability practice is about asset recovery and refurbish, right? And that helps our customer to take back some of the value of their existing seat that's going to surrender, right? And we have a unique opportunity at Lenovo because we own factory, we own 3PL, right? So it's easier for us to say, hey, that 10 PC that you're going to surrender, let me have a little collect back. I have my own way to recover the value better than others, right? So this is not a value, right? I have to resolve the overall share -- the budget issue.

The third is that with all the telemetry that my hardware colleagues are going to provide to my services, there's a lot of efficiencies. I can help the customer, right, to make that $1 spend bigger than $1, right? So in a nutshell, I think great opportunity for us, especially solution and services. Our value proposition is predictability on cost and supply. We have to recover more value from the fleet or the compute that is going to surrender. Last but not the least, the whole -- we look at the whole operation across the whole stack, how can we squeeze more efficiencies so that we can give back the dollar to the CIO to spend because the commodity is going to be a higher cost.

I guess, Ashley, you also have to address this question.

It's been so thorough already. I would like to reiterate that the opportunity for TruScale, our ability to have consumption be as Infrastructure as-a-Service or Platform as-a-Service is -- we're seeing quite a bit of uptake and interest beyond what we assumed. And I think it's just going to grow in momentum. It's as Ken was saying, the ability to provide security and confidence forward into a dynamic market is really important. As per the memory, whether it's an opportunity or a challenge, I think -- and we had a question earlier, sorry, I had my back to you, so I couldn't see who asked it about potential demand destruction. It's not just memory, right? It's anything that holds data.

So it's hard drives, flash memory and anything on certain process nodes across the industry. And even downstream of that because there's things like packaging, coatings and so on. So we really have a very, very thorough demand oversupply situation. And it's very different than other environments. I've been doing this for 30 years in different environments where typically something like logistics stopped during COVID or demand changed for a small period because of a fab coming online, coming offline, things like that. This is wildly different. This is demand that far outstrips the supply. The supply didn't go down. Supply is actually growing. The demand is that far ahead of the supply.

And so when you think about it that way, there is no demand destruction. There's some demand deferral just because there is the ability to be able to match up the demand that is quite impatient with the patience of being able to supply it through a supply chain with quality, reliability and predictability. So the -- I don't know if that's a challenge or an opportunity. What it ends up being is a hyper cycle of incredible demand. Often asked, is it a bubble? Of course, there's speculation in a market that moves that fast. But if you strip it all away, the demand is far greater than our ability to supply on the enterprise and cloud side. And it will continue for multi-quarters, multiyears.

So I think our opportunity inside of Lenovo is that ISG does not operate differently than services or IDG, we're Lenovo. And we're one of the largest purchasers of technology in the world. And our relationships are multi, multi-decade. And so our ability to transact supply on behalf of our customers is really powerful. And so that's the opportunity inside of Lenovo.

I think that's really the confidence where we're seeing the multiyear AI opportunities that Lenovo is faced with, and it's really across all the BGs. We have one question at the end of the table.

[ Amir Merali ] from Morgan Stanley. Obviously, everyone is excited about Agentic, so going from queries to Agentic. But now enterprises are thinking about token costs. So AI is becoming more of a variable cost for enterprises. So I just want to better understand how the Lenovo portfolio helps enterprise manage these costs. Are you seeing some shift over to on-premise compute? Is that driving demand now? Or is it just maybe something in medium term?

And then how much could AI PC refresh also help manage this? I'm wondering, is it just you're benefiting maybe from these trends? Or how does your portfolio better help you -- help enterprise relative to your competitors?

Maybe Ashley first.

Yes, I'll start and then turn it over. Thank you for the question. A couple of things. One, I would second your question because that's the question we get quite often from partners, CEOs, CIOs, cloud capital is what is the switch to understanding the economics of tokens, different phases for different parts of the industry. Some are just discovering what the -- where the P&L is being hit. Some are noticing the shadow token costs and some are ahead of it. I think what's important to know is that our portfolio is pretty vast. If you've seen just a fraction of it outside, but when we deliver in partnership with NVIDIA, for instance, our next-generation rack scale infrastructure, we're going to see somewhere depending on the application, 10x to 30x cheaper token capability.

So not percents, like orders of magnitude capability coming forward. That is unlikely to actually change anything because the growth is so fast that it will actually just unlock more opportunities, more killer applications, more uses of agents. That's what we're being told is no one's changing their budget. They just want more tokens to be able to be generated. And they may be reallocating parts of their budget, but their budgets are going up.

So for us, what we continue to hear is token usage is going to be measured as an imperative for the business, so that they're not disrupted within their industries. And so our portfolio, we will build AI data centers for companies at a scale that is hard to imagine all the way down to if the small, medium retail outlet right outside here on the street needs one server or a workstation to deliver awesome token economics for their 1 or 2 agents to hold up their storefront, we'll be able to do that and the full spectrum between. I think we're going to be seeing more and more token economics or the ability to process from inference and productivity be on-prem.

And the reason is the -- if you do the quick math, if you have -- if you understand your token usage, it is likely as you move from concept to production to be slight steady or saturated, and it's always better on-prem if you own it. The second aspect is we're seeing it's always better not to transmit the data and move it. It's very, very expensive from a power consumption and just expense point of view to transmit too much of the data. We need to generate tokens where the data is and where the usage is. And that's really where I think the the portfolio in IDG is super important. We're about to put millions and millions of networks or MPUs and processing capability in the hands of everyone. I don't know, Luca, if you want to add.

Yes. I'd just add probably a personal AI angle. So not all workloads require the power of the cloud and the frontier models, right? There are -- and probably the majority in the personal AI space actually do not require such power.

So having local inference capability, I think this will expand -- I would say it will expand wildly in the future because people will also understand it's too expensive. It's just too expensive to do it in the cloud. In that intersection, we do have this opportunity, I would say, almost unique opportunity that we have our own orchestrator on device at scale because you are talking about now 60 million PCs, 60 million or 70 million phones. We are now getting ready to launch wearables, glasses, other kind of AI native devices. All these devices will collect the data, see what you see, hear, what you hear, help your kind of personal AI journey and orchestrate probably a lot of workloads will stay in your PC with no expense and with -- for certain things with a higher level of privacy. Our Qira will be able to determine which workload goes to the cloud because it's necessary, which stays in your machine.

And plus, we'll be able to own all your data that develops during your day. What I'm thinking is you will have a watch, you will have a glass, you will have a wrist band. They will all participate to the creation of your personal context of the data. And that, if you think about that, is a unique advantage. The hyperscalers cannot do it, but we collaborate with them because they love the idea that we can help them in this continuity journey. And most of our competitors, if not all, do not have this capability. So we are very confident. Although as Winston mentioned, we are not embedding this in any of our financial projection yet. So that it will be something on top when we have the scale to monetize it.

That's great. We haven't really seen Qira demo. We have a lady sitting in the corner and go look for her after the session, she will show you. Ken, would you like to add anything?

Well said. I think I just want to add maybe a few points, right? So I think the -- when we design our total solution, right, together with from the endpoint to the Edge to the Cloud, One of the key decision or the key design thinking is choice for customer, right? It's exactly the question that you put up, I think, is a great discussion is that I think there are no one design fits all, right? It depends on workload. It depends on what model, what data to use, right? So this is exactly what our xIQ platform, which I shared earlier on, is capable to do, right? The other thing is, I think when I talk to a lot of our customers, I think we are all spoiled because a lot of these Agentic AI capability is almost free, right? You can go to ChatGPT, right, then you ask questions almost free.

Now imagine what if it is not free, just like a mobile phone. You have a monthly plan, but when you -- when you consume a data beyond the limit, you will be charged by data byte, right? So I mean, a lot of our CIOs are starting to realize this is a real question that they need to think about, not just the memory cost discussion, right? So the whole discussion around tokenomics become so important, right? And this is one of the key investment that we have been doing in the past 18 months to look at how can we build this observability capability in our xIQ platform. How can we manage the token by choice of model, choice of data and choice of tools.

The next question that you should ask why Lenovo is capable of doing that, right? I didn't mention in the morning is that my biggest customer is actually my boss, Chairman and CEO because the CIO function sits within SSG, right? So there's a big question that I need to resolve for the company, 180 markets operating across the world that I need to resolve, right? So there's a lot of learning IP and experiences and FDE that we have in our operation to help our customer based on our technology platform to resolve questions like you just raised.

Okay. Howard again.

Howard from Morgan Stanley. So I have some questions on memory. China is obviously ramping their memory capacity. I would assume you guys probably don't have a lot of China supply today. But across PC and server, say, in 3 years' time, realistically, what percentage could that China supply get to? Question number one. And question number two is, I would assume also China memory is probably a little bit cheaper. So is that also baked into your medium-term net profit margin guidance?

So I think definitely, the capacity in China will grow. I don't think there is yet a clear view on how much of the mix will be in 2 or 3 years. That's a little bit too far. But what I would say is you can definitely imagine we have at least a premier position among any possible of the global OEMs to capture that supply. I would say that for the current year, this supply, if there is any cost advantage is included in our guidance. I think it's very hard to make any assumption on future costs given the volatility of the DRAM market to tell you what is -- what will happen in 2 or 3 years. I think that will be probably a little bit ambitious at this moment. But definitely, we are -- you can imagine, right, we are in first place. If there is a benefit, Lenovo will be the top beneficiary.

Ashley, is there any angle from ISG?

Yes. I mean we have, as I said before, a local business and the global scale, right? So we can -- there's actually no other -- it's a structural advantage for Lenovo. It's a differentiator for Lenovo. There's no other company in the world that operates enterprise across East and West. We do. And so without getting sort of like projections, sorry, about exact amounts, I would tell you that we continue to operate going forward in a very, very confident position relative to being able to meet both market needs across that.

It also -- I think AI as you go forward is going to bring things closer together in some areas. And that is really -- I think the industry needs a company that looks exactly like Lenovo to make a difference in the future to be able to transact across East and West Technologies going forward. Underpinning that is the usage of things like memory and other local accelerators and capabilities like that. We've built that experience, and we have that experience.

I think that really goes back to our Chairman's opening, right, our operational excellence that is really the backbone of our success.

Any questions from this side of the room? Okay. I think...

Hendi Susanto, Gabelli Funds. Thinking about AI data infrastructure, networking and enterprise storage are crucial. And I think it's great to see Lenovo's market-leading position in enterprise storage. Can you talk more about your strategy in enterprise storage, what you will see further in the next 2 to 3 years? And what is your main strategy in networking?

Sure. I'll take it unless Luca wants to take that. So great question. I think if I haven't said the word data gravity or bring AI to the data enough, I'll say it again. It's important really for security, compliance, all the reasons you would do it, but the token economics factor is going to be extremely important. We don't -- it's too expensive to move too much data around. Second, it depends who you believe, but 80% of the world's business data is not in a model yet. 80% of the world's business data has not entered a model yet. It's in the businesses. It's in all sorts of different forms.

So if you want to look at what is mission-critical data, what do you really need? You need access to a file system that can give you performance and reliability across block file unstructured, hopefully, something a little bit remote. Otherwise, you don't have the data archiving and recovery capabilities you need like S3. You need performance that scales with going forward at 100% reliability with no impact to latency as you build because the data creation is going to be wild. If I can type in a sentence and create a 4K movie, anyone can. And that data creation is going to take over the world going forward.

So -- but you need to not pay a penalty on latency. You need to have the ability to safeguard air gap and keep your data to yourself, to your own models and to your enterprise space. We can't have our factory information leak out because we've built 40 years of building the world's greatest factories. That's our data. And then you need to keep it safe from cyber attacks. I just described to you the Infinidat portfolio.

That's what the IP that's entered the Lenovo family. And that's what we'll be now able to prosecute across our entire portfolio, not just through storage, but through capabilities that are exposed to our infrastructure customers. That's the strategy. We'll continue to partner, by the way, because we're an excellent partner, and we've built up a set of very, very important relationships throughout the ecosystem with biosystem providers, hardware providers and storage and so on. So we don't anticipate actually those going away. I think we have what is actually a complementary IP set that's entered.

In terms of networking, there's -- as the world shifts forward, networking within system-to-system within rack-to-rack, within cluster-to-cluster has already been well defined. And we consider -- especially considering how much we spend with others, we consider it our duty actually to put our customers' needs into it through either it could be through research, through IP that we add through actually just sitting down 4 years ahead of the silicon being developed with our partners and defining the capabilities.

But today, we find that most customers are going to start at the accelerator, move outward. And networking comes as a choice beyond that, and we want to be flexible in what we can offer those customers because across East-West, we're going to have different technologies as well. So if it comes to a point where that would become the defining factor, then Lenovo would have the defining capability to make that happen.

There's a [indiscernible] at lady.

Joy from Baron Capital. I have a question on ISG as well. So Ashley, I think you mentioned the different model like ODM and OEM for the servers. Could you help us understand a little bit more on the economics and the competitive positioning in 2 different models? Are they actually like there are synergies across them or they're separate? And is there any regional difference in China versus in U.S.? And how do you balance like profit and top line growth?

Sure. Thanks. Underlying our model is a vast set of transformation. So I've been at -- had the pleasure and privilege of joining Lenovo 18 months ago. And I'd like to say since then, we haven't changed a single thing. We've changed everything. So if you look across the board, for me, it starts really with transformation of leadership. So we already had vast experience, but we have, I think, the best leadership team in ISG in the industry. Of course, we have like 250 years of experience from IBM and Lenovo, but we've supplemented that with probably now 100 years' worth of industry experience from Dell, HPE, Rackable, HIVE, so on and so on, technology providers by 50 to 60 years from AMD, Samsung, Intel.

And so we have the leadership team in place. That drives the culture. The culture then drives the outcomes -- and we've, along the way, changed everything else by really leaning into the ODM plus OEM model. In the ODM space and ODM+ space, we've really converted not only leadership, but changed the model for how we approach AI data centers and opportunities. We are time to market with every single accelerator capability that will be brought to the marketplace, time to market first. That wasn't the case before. And that will be with NVIDIA, AMD, Intel, ARM and a few others I can't publicly disclose.

I was asked earlier today in the break, what technology does Lenovo have access to versus not have access to? We have access to all the technology. We're fully licensed to bring all technology forward. So someone had to ask me that, so I haven't done a good job in explaining myself.

Second, in the OEM space, we have to help our OEM customers, partners and capability by providing them better coverage, which we changed our sales coverage, our incentive models and our partnerships and brought tens of enterprise-specific partners into our system, all at the platinum level. We simplified our portfolio. We brought a level of complexity down to the degree where what used to take us months to engage with hyperscalers now take us weeks. We can deliver to our partners now in quotes that used to take weeks, now happen in days and we can deliver in that same time frame. So the velocity of our business is such that it attracts customers, it attracts partners who want to work with us in that space.

Then we have amazing IP. Our IP is not only about liquid cooling, but it is the best at 45 degrees inlet, we can do liquid assist at the chip at the rack. But also we have another over 4,000 patents in our system in ISG across all ranges of technology. And we're bringing that to bear within the last 18 months, we've completely divested of legacy capability that was slowing us down and only investing in the portfolio to bring AI to our customers quicker than anyone else can along the way.

So to your question, we're able to do that across all markets. Most everyone is in one market or another. We're dual headquartered. We have global reach. Now we can then lean into our supply chain. So what have we done in the last 18 months? We've combined our supply chains together for the best capability within Lenovo now exists. And as YY almost undersold, which is hard to do, in that time frame, we built 2 brand-new factories, giving us access to 77,000 racks of air cooled capability and capacity and 11,000 water cooled per annum. Do the math on what those things cost, and you can see that I have 5x capability and capacity to grow in terms of revenue. Hopefully, I answered your question.

Hope you're happy about the answer. I think we have time for one more question before we close. If not, I [indiscernible] Peter, Okay.

It's Peter from New Street. Following up on that last question. Liquid cooling has been highlighted here more than I would have expected. It's going from a component kind of industry where you had a bunch of disparate component suppliers. You guys have, I guess, for lack of a better phrase, full vertical integration. Can you just explain from your perspective and customers why that matters versus your ODM competitors that might be in-sourcing components from various different suppliers?

Thank you very much for that question. Really -- actually, thank you. So our liquid cooling solution is actually -- I can't emphasize enough, is leading in this industry. And it's for a couple of reasons. It's a 14-year overnight success. It really drops down from the legacy of IBM X mainframe systems. And so we've seen a lot of people talk about liquid cooling, but they're late to the party. They have a lot of innovation to go, a lot of iteration to go, a lot of science and experiment to figure out we're done with that phase. We're producing at scale. There's no other company in the world that's changed more data centers from air to liquid than Lenovo period. They not have done the biggest, but we've done the most.

And that takes a certain level of experience because Lenovo has a spectacular history in HPC, technical compute and supercomputer. Go look it up. We lead the Fortune 500 in that regard. And that's because we have brought this liquid cooling to now its seventh generation, ask everyone else where they are. So 45-degree inlet water temperature is really hot water. That's where it starts. It exits actually much hotter. Everyone else is somewhere in the 30 to 40 degrees.

Why does that matter? It matters because that's an expression of the energy efficiency that you can give to a customer. You can also then turn it into a closed-loop data center. You can heat the rest of your offices and everything else that is human into hot water and then that water actually is in a closed loop and now you can close your data centers. It's sustainable. It's enterprise friendly. We are a big part of many of our own customers' sustainable goals. And so we're extremely advantaged in our ability to help them hit their goals that they've committed to.

Last, it's multifaceted. It's not about only at the rack, it's at the chip. It could be liquid assisted, and we can bring it to any server in our portfolio. So our capability there is hard one. It happens to be perfectly positioned for what's happening in the AI space. The racks that we're building in our factories today can be anywhere from 65,000 kilowatts -- 65 kilowatts to 110 kilowatts at liquid cool. It's not going to stop there. We're within years, a handful of years of being at 500 kilowatts per rack.

Our systems, like if you go to North Carolina and look at our factory, it's already plan for that. It's ready. It's sitting there. Our customers are not asking us anymore for when does the system arrive, what do you have in terms of what's on your dock? It's how many megawatts can you produce for me at what scale. And that's an expression of water cool capability. So I think we're going to talk about it more and more because we own the IP. The IP is valuable to us. It's actually becoming valuable license to other customers. And it's really the significant difference between what's happening in AI is around power and efficiency.

Thank you. Thank you so much for the thoughtful questions from the audience and the discussion today. So gentlemen, I'll let you rejoin the audience as we wrap up the program. Okay.

So on behalf of Lenovo, I'd really like to thank our leadership for all the support. And also thank you for everyone for joining us at the U.S. Investor Day. And I hope today's conversation has developed a deeper insight into our strategy, our opportunities in the hybrid AI era and our path towards creating a long-term shareholder value for everyone sitting here. So before we wrap up, very quickly, for those who are going to the FIFA match this afternoon, I'll be meeting you downstair on the 42nd Street of the lobby, and we'll have staff welcoming to the bus.

So that's all for today, and have a great evening. Thank you again for joining us. Thank you.

Good morning, good afternoon and good evening. Welcome to Lenovo's Earnings Investor Webcast. This is LIxi Yuan, Director of Investor Relations at Lenovo. Thanks, everyone, for joining us.

Before we start, let me introduce our management team joining the call today. Yuanqing Yang, Lenovo's Chairman and CEO; Winston Cheng, Group CFO; Luca Rossi, President of Intelligent Devices Group; Ashley Gorakhpurwalla, President of Infrastructure Solutions Group; Ken Wong, President of Solutions and Services Group; and Sergio Buniac, Senior VP of Mobile Business Group and President of Motorola. We will begin with earnings presentation. And after that, we'll open the call for questions.

Now let me turn it over to Yuanqing. Yuanqing please?

Hello, everyone, and thank you for joining our earnings call today. Our strategic foresight and from execution enabled us to deliver the best year in Lenovo's history while navigating a complex and challenging external environment.

Last quarter, despite the supply shortages and rising component costs, we committed to sustaining growth and improving profitability, leveraging our operational excellence. We delivered and achieved a significant increase in group revenue and the net income both reaching the highest year-on-year growth in the last 2 quarters. We promised to maintain our PC revenue momentum despite a slowdown in PC shipment due to rising costs. We delivered. We shifted our mix towards premium to improve average unit revenue, and our PC shipment growth continued to outperform the market. Our PC revenue significantly increased by 28% year-on-year.

Regarding our Infrastructure Solutions Group, we promised to return it to sustainable profitable growth. Once again, we delivered. Through business transformation, strategic restructuring and by capturing the AI trend we achieved not only revenue hyper growth, but also record profit. Looking ahead, we are fully charged to lead in the area of AI democratization and create long-term value for our shareholders.

Now let me dive into our fourth quarter performance. On the group level, we achieved a record fourth quarter revenue of $21.6 billion, up 27% year-on-year, the highest growth since the pandemic.

Adjusted net income doubled year-on-year. And Hong Kong IFRS net income increased nearly sixfold.

AI has become our leading growth engine. AI-related revenue grew added 4% year-on-year to account for 38% of the group total.

IDG, or Intelligent Device Group, delivered the exceptional results with a strong growth momentum. Revenue increased 24% year-on-year. For our PC and Smart Devices business, we achieved a strong revenue growth, up 26% year-on-year, the highest in the past 5 years. Especially in PC, we maintained a significant profit lead against the competitors while continuously outpacing the market by nearly 6 percentage points. We are the only vendor among the global top 5 to deliver consecutive positive year-on-year shipment growth for the past 10 quarters.

Our PC market share reached our fourth quarter record high, widening our lead over the #2 player to a 15 years' high. And our leadership was further solidified in IPC, premier PC and the gaming PC. Taken together, this clearly proves the strength of our overall competitiveness from innovative product portfolio to excellent business model and operations.

For our mobile business, Motorola smartphone achieved record fourth quarter shipments with double-digit revenue growth. IST, or Infrastructure Solutions Group, delivered the turnaround as we expected with the highest ever operating profit and margins since we entered this business as well as a record quarterly revenue of USD 5.6 billion, up 37% year-on-year. This is a significant inflection point for ISG.

Our strategic transformation efforts are on track to turn our infrastructure business into another engine of both growth and profitability for the company. And we are seeing robust momentum across the board. Our AI server business has a strong pipeline of USD 21 billion, supporting continued growth momentum.

Our new Lenovo hybrid AI advantage solutions with NVIDIA are accelerating enterprise AI adoption in cloud scale deployments, enabling real-time inferencing. And the Infinidat acquisition that was completed in early April, strengthens our high-end enterprise storage capabilities. This unlocks additional long-term potential for margin expansion and a broader market opportunity.

SSG, or Solutions and Services Group, sustained its double-digit year-on-year revenue growth to USD 2.6 billion with a higher operating margin above 20%. A record 62% of revenue come from managed services and the project and solutions, reinforcing the shift towards value-added offerings and recurring revenue services.

Our subscription-based TruScale continued to gain momentum as enterprises increasingly demand more advanced, efficient and costly effective computing infrastructure in AI the era. Our solutions business also continued to rapidly across key verticals, including manufactured, retail and sport. That wraps up our outstanding performance in the fourth quarter. which brought the fiscal year to a strong conclusion.

Now let me briefly talk about our full year performance. Group revenue surpassed USD 8 billion mark for the first half at $83 billion, up 20% year-on-year. Adjusted net income grew 42% year-on-year, twice as fast as the revenue growth. All business groups achieved double-digit hyper growth, especially worth mentioned is ISG delivered a record revenue of $19.2 billion, successfully reaching full year profitability with a significant $140 million year-on-year operating profit improvement. ISG is now on a clear path to sustainable profitable growth.

With R&D expenses up 9% year-on-year, we are committed to increasing our investment in AI focused innovation. This January, at our Tech World @ CES event, we showcased our hybrid AI vision, strategy and innovation, reinforcing our global leadership beyond the PCs as a full step AI leader.

Looking ahead, while the external environment remains volatile, we view these challenges as opportunities for Lenovo to further strengthen our competitiveness and build on our advantages. Let the confidence starts with operational excellence, our balanced global business and the manufacturing footprint, combined with the global model has given us a structural resilience.

And that same confidence is fueled by our forward-looking hybrid AI vision and strategy. This has put us at the forefront of AI infancy and AI democratization. We are now ready to capture significant growth across both personal AI and the enterprise area.

On the personal AI front, guided by our one personal AI, multiple devices strategy, our on-device AI delivers secure personal and costly efficient intelligence.

In the coming year, we expect to deploy our personal AI super agents, Tianxi & Lenovo QIRA to millions more devices across form factors and platforms.

We are also exploring a wide range of next-generation AI native devices. This includes next-generation PCs and smartphones specifically for AI agent use, AI wearables as well as personal computing hubs.

On the enterprise air front, we continue to enrich our AI library and the Lenovo hybrid AI advantage framework. We are building repeatable AI solutions, both vertically across key industries and horizontally across areas like hybrid cloud and the digital workplace. We are also actively expanding our TruScale services to capture the surge AI inferencing demand. Our vision is to bring AI to every individual and every enterprise everywhere, anytime.

In closing, let me reiterate, at Lenovo, we do what we say, and we own what we do. This past fiscal year speaks for itself are the strongest proof. We delivered record revenue, record market share and a record AI momentum. But this is just the beginning of Lenovo's AI decade.

Looking at the market Lenovo has a big role to play as an official technology partner for the FIFA World Cup and the 22 Formula 1 Grand Prix races worldwide. These global stages will allow us to unleash our technology to support the teams and reinvent the best viewing experience while lending our AI strategy and elevating our brand at the scale.

At our global employee kickoff event, we set our target to become a $100 billion company in 2 years with operational excellence, and the innovation of our twin pillars. I'm fully confident in achieving this goal. We will continue to deliver strong shareholder returns and truly realize smarter AI for all.

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

Thank you, Yuanqing. I'm pleased to walk you through Lenovo's fourth fiscal quarter and full year results of '25, '26, a year that delivered record revenues with margin expansion and accelerating momentum in AI-driven growth across our entire product and services portfolio. We delivered record fourth quarter revenue of $21.6 billion, up 27% year-on-year, the highest year-on-year growth rate in the last 5 years.

This exceptional performance with broad-based strength across all business groups was driven by the strong AI-driven demand and underpinned by our resilient and operational excellence despite rising component costs in the war in the Middle East.

AI is at the heart of our multiyear growth trajectory. Our AI-related revenues grew 84% year-on-year, representing 38% of total group revenues for the quarter. This acceleration reflects strong demand across AI-enabled devices infrastructure solutions and enterprise services, underpinned by our global reach, scale, broad product portfolio and continuous innovation.

Across our business groups, IDG achieved record global PC market share for the fourth fiscal quarter while maintaining stable operating margins with industry-leading profitability despite component cost pressures. Motorola smartphone delivered its highest quarterly shipment volume for the fourth fiscal quarter with operating margin expansion.

ISG demonstrated solid transformation progress, etching record quarterly revenue and operating profit of $202 million. The business deliver full year profitability while establishing a clear sustainable road map to capture future AI infrastructure opportunities.

SSG achieved revenues of $2.6 billion with a record 62% of revenues from Managed Services and Project and Solutions, reflecting continued portfolio shift toward higher-value recurring and solution-led offerings. These result and profitable growth across all business groups clearly demonstrate our operational excellence, enabling us to turn macroeconomic challenges into opportunities while further reinforcing our core competitiveness in the AI era.

This has been a record year in our 40 years of history, and we will continue to drive higher revenues with profitability improvement. In a year of macro headwinds with tariffs, higher component prices and a war in the Middle East, we have delivered on what we promised leveraging the strength of our experience, global supply chain, manufacturing, strong execution and product innovation. We surpassed the $8 billion revenue against a challenging macro environment, and we have a clear ambition to become a $100 billion company in 2 years.

In fiscal year '26, all business groups delivered solid double-digit year-on-year revenue growth and further expanded market share across PCs , smartphones, infrastructure services and solutions. AI-related revenues more than doubled, growing 105% year-on-year.

In IDG, we strengthened our market leadership in all PC segments, while PC adjacencies continue to deliver double-digit year-on-year revenue growth with a clear uplift in margins.

In smartphones, we achieved record shipments and activation for Motorola with the highest premium shipment mix of 19%. ISG is well positioned for future growth and accelerated profitability improvement. We are experiencing accelerating growth momentum from AI training to enterprise inferencing.

This financial year, ISG achieved record revenues and profitability with a strong AI server pipeline for continued future expansion supported by an expanding global customer base who increasingly value Lenovo's ability to deliver an optimized AI portfolio. We continue to see strong demand across CSP and in SMB with AI infrastructure becoming a key growth engine for the year ahead.

In SSG, we reached a revenue milestone of $10 billion and more than doubled operating profits over 5 years. We enter the next year with strong momentum driven by growing demand for TruScale as customers increasingly look for financial flexibility and services in accelerating enterprise adoption of hybrid AI solutions.

In the fourth quarter, our adjusted operating income delivered 73% year-on-year growth and operating margins expanded to 3.9%. Our adjusted net income doubled during the quarter and grew to $559 million growing at nearly 4x the rate of top line, adjusted net margins increased to 2.6%.

For the full financial year, we deliver both operating and net margin expansion driven by operating efficiency gains, higher scale and strategic revenue mix improvements across the group. Adjusted net income grew 43% year-on-year, more than doubling revenue growth.

For fiscal year '25, '26, basic earnings per share reached USD 0.1563. The Board declared a final dividend of HKD 0.337 per share, combined with an interim dividend of HKD 0.085 per share. The total dividend for the fiscal year will be HKD 0.422 per share, our highest dividend ever.

Now let me turn to IDG. In the fourth quarter, IDG delivered 24% year-on-year revenue growth to $14.6 billion. Operating margin was 6.9%, supported by disciplined execution, operational excellence and continued innovation. PC shipments delivered a record fourth quarter global market share of 24.4%, up 1.3 percentage points year-on-year.

Premium PC shipment reached 50% in the fourth quarter, with shipments up 29% year-on-year, reflecting strong execution in the higher-value segment.

In smartphones, we delivered double-digit revenue growth year-on-year in the fourth quarter, expanding the year with record revenue. Looking ahead, smartphone profitability expansion will continue to be driven by scale economics, premiumization, AI and software ecosystem integration and monetization opportunities.

Our devices product road map continues to reflect focused innovation in areas where we see rising customer demand and market opportunities. In PCs, we launched our lightest ThinkPad T Series, designed for longer productivity with a high-density battery. We also enhanced the services offering to deliver greater life cycle value for enterprise deployments.

On the gaming side, we introduced Lenovo's first Legion gaming laptop bolt-on a unified memory architecture, bringing unmatched battery life and performance featuring pure site OLED display for better visual experience.

To capture demand from agentic AI, we launched a ThinkCentre Neo 50q with OpenClaw functionality designed for SMB customers seeking AI-driven productivity and enhanced performance for AI-assisted workloads.

In PC adjacencies our signature ultra-wide ThinkVision P40WD monitor delivers 34% lower energy consumption. Its energy-efficient features enable a 3-year payback and 0 cost of ownership, demonstrating how innovation can drive both customer value and sustainability outcomes.

In smartphones, the Razr family & Signature FIFA World Cup addition is titanium reinforced with exclusive tournament features, further strengthening our premium portfolio and brand appeal.

In personal AI, Lenovo and Motorola officially announced the rollout of QIRA in April 2026, our personal ambient intelligence super agent that captures the industry's broadest cross ecosystem for spanning PCs, tablets, smartphones and wearables.

And with privacy design hybrid AI architecture prioritizes on-device processing to keep personal data local, preserving personalized context aware assistance and connected user experiences across AI devices. Through a growing partner ecosystem, QIRA also creates ongoing opportunities for premiumization and monetization through value-added services on premium devices.

Now moving on to ISG. Our hybrid AI strategy is providing a clear and differentiated path to capture both AI training and enterprise interesting opportunities. The strategy is now translating into the strongest performance in ISG history.

ISG is positioned as a key player in the AI investment in super cycle reflected in record fourth quarter and full year results with hyper growth at a clear premium to the market. We continue to expand server market share, standing out as the only vendor ranked amongst the top 3 both globally and in China.

In the fourth quarter, ISG delivered a record revenues of $5.6 billion, up 37% year-on-year while operating profit reached a record $202 million. We will continue to strive for further margin improvements, benchmarking against the industry.

Full year revenue reached a record high of $19.2 billion, up 32% year-on-year and operating profit rose to $73 million. This is the major milestone for the business, marking not only the best revenue performance but also a clear proof that our transformation is driving sustainable profitability and long-term value creation for Lenovo shareholders.

We are seeing strong demand across CSP and ESMB, and AI infrastructure is rapidly becoming a material growth engine for ISG. Our AI server revenue delivered high double-digit full year year-on-year growth, supported by a strong $21 billion pipeline and more than 5,800 AI customer deployment with demand continuing to outpace available supply.

We are turning AI momentum into real customer value through faster time to first token scaled into rack shipments and continued innovation across our AI infrastructure road map. Last quarter, we shipped our first GB300 NVL72 racks, and we are preparing Rubin-based platforms for targeted time-to-market in the second half of this year.

We believe this is just the beginning of a multiyear world cycle and Lenovo is well positioned to benefit. Our product innovation, customer-focused, resilient supply chain, operational excellence and expanding production capacity give us the ability to scale with customers and navigated dynamic AI data center environment.

In early April, we completed the acquisition of Infinidat, a strategic step that strengthens Lenovo's position in high-end enterprise storage. This allows us to capture the $38 billion addressable enterprise storage market with critical IPs to capture full value across key verticals.

Infinidat brings industry-leading innovation capability, while Lenovo brings global scale, competitive infrastructure portfolio and a proven execution engine. Together, we are expanding our reach to deliver high-end storage solutions worldwide and create a stronger path to higher margin growth over time.

Turning now to SSG. SSG has continued to deliver consistent double-digit year-on-year revenue growth, growing significantly faster than the broader IT services industry. In fiscal year '25, '26 has reached a new revenue milestone of $10 billion and operating profit more than doubled in the last 5 years, reflecting the advantage of our tech-led labor-light delivery model.

In the fourth quarter, SSG grew 19% year-on-year to $2.6 billion, while operating margin reached 22.4%. Demand for consumption-based solutions remains increasingly strong as customers navigate inflationary pressures in a more complex macroeconomic environment alongside a search in AI-driven compute demand.

TruScale is a key to driver, enabling customers to move from infrastructure to AI in production through an end-to-end offering spanning design, build and operate. We're seeing strong DAS and infrastructure-as-a-service demand as enterprises and cloud providers look for greater cost predictability, supply assurance and more flexible ways to scale AI capabilities.

As agentic AI drives exponential growth in inferencing demand, enterprises increasingly need validated hybrid AI platforms that can deliver superior economics at scale, one of the biggest barriers to AI adoption globally remains uncertain return on investment, and this is exactly where a hybrid AI advantage is differentiated.

Combining private public environments to accelerate time to first token, improve token efficiency and maximize value per token, Lenovo hybrid AI helps enterprise customers shorten time to ROI to less than 6 months while delivering production-ready AI environment in as little as 90 days. The Rubin-based platforms deliver up to 10x lower cost per token versus previous generations helping customers bring AI workloads on premises with greater efficiency and stronger control over data and a clear repeatable business outcomes.

With Lenovo's hybrid AI advantage I Score, our AI library now includes more than 60 enterprise-ready use cases across sectors such as manufacturing, retail and sports with repeatable and measurable outcomes. Our AI-driven Lights Out contact center improves customer experience and also enhances operational efficiency by 60%, built on our spans manufacturing footprint and partnership we have deployed AI-powered RoboDogs across more than 50 ability sites globally, improving detection accuracy, cost savings and safety.

In sports, FIFA AI Pro demonstrates how our enterprise AI capabilities can scale across one of the world's most data-intensive environment. The solution analyzes more than 2,000 metrics to deliver real-time insights, supporting all 48 teams in the FIFA World Cup 2026 across 3 countries, delivering faster, more data-driven decision.

The group's long-standing commitment to strong governance, sustainability and inclusion continues through a global recognition. In 2025, Lenovo was named to CDP's Corporate A-List for climate leadership, maintaining a AA+ rating in the Hang Seng Corporate Sustainability Index and retains the EcoVadis Platinum metal, placing the group amongst the top 1% globally for ESG performance.

Building on this recognition, Lenovo continues to deliver concrete progress across operations and products. We remain on track to reach net zero emissions by 2050, have converted 90% of electricity used across global operations to renewable sources in the past 6 years and now include post-consumer recycled materials in 100% of our PC products. Smartphone packaging now uses 60% recycled materials and has reduced single-use plastics by 50%.

Beyond environmental leadership, Lenovo's people first culture continues to be recognized by Forbes as one of the world's top companies for women and one of the world's best employers. Sustainability and responsible growth remain foundational to our long-term success and shareholder value creation.

Looking ahead, our strategy remains focused and highly disciplined, with our proven operational excellence and agile supply chain, we continue to execute to outperform even in morale markets.

As we enter the next fiscal year, we're confident in our ability to capture multiyear opportunities and to accelerate into an era of growth with profitability expansion, delivering greater value for our shareholders.

Thank you. We will now answer any questions you may have.

[Operator Instructions]

Thank you, Winston. Now we will open the floor for questions, and this session will be English only. [Operator Instructions]

While we are waiting for the questions, Allow me to introduce the management team again. Other than our Chairman, Yuanqing Yang; and CFO Winston Cheng, we also have the following business leaders with us today for Q&A. Luca Rossi, President of Intelligence Devices Group; Ashley Gorakhpurwalla, President of our Infrastructure Solutions Group; Ken Wong, President of our Solutions and Services Group; and Sergio Buniac, Senior VP of Mobile Business Group and President of Motorola.

Now we'll begin our Q&A session. The first question is from Tony Zhang from. Questions he's asking what's your long-term revenue target and plan to drive sustainable market expansion?

I would like to invite our Chairman and CEO, Yuanqing, to answer this question. And perhaps also our CFO, Winston Cheng, to address the margin question part. Yuanqing, please.

Thank you, Tony, for the question. So definitely our strong Q4 and the full year results are the best testament to our commitment to hybrid AI innovation and operational excellence. Based on this foundation, so our long-term goal is to reach the $100 billion revenue target. So actually, it's not that a lot. So we want to achieve that in 2 years. We will continue expanding our margins to even more decent level. We will achieve the scope through 3 clear strategic pillars.

First, we will expand our leadership in devices, PC, smartphone, tablet, wearables while maintaining industry-leading profitability. Despite a challenging operating environment in short term, we continue to grow above the market, powered by innovative products, excellent business model and operational excellence.

I particularly want to mention our excellent supply chain, so give us a lot of advantage. So we leverage our scale, diversify the sourcing strategy, strong vendor relationship to support our business or to support our [indiscernible]. So to overcome the supply shortage and the increasing material cost. So we are very confident that we can navigate through these challenges, becoming even stronger than before. Stronger means we can further gain market share while we can further improve the profitability.

Second, so we will capture the multiyear infrastructure opportunity. Demand for both AI training and inference is accelerating. We are expanding our cloud service provider customer base, not just the in the hyperscale, but also in the new cloud. We are also seeing enterprise AI adoption pick up a real momentum. So Lenovo is a very unique company to address all these markets in the AI infrastructure area.

So we are top 3 vendors in both China and the rest of the world. We can leverage our ODM+ model to address hyperscale and no cloud. Meanwhile, we have been enterprise and the SMB business for more than 10 years. So that will give us a very unique strength to deliver the strong growth.

To turn this demand into sustainable and profitable growth, we are focused on 2 priorities: strong go-to-market capabilities and optimize the AI portfolio that delivers a clear value to our customers.

Third, so we will scale our service business with a tech-led labor light model, building recurring revenue streams. There is a strong demand for AI-driven consumption based solutions, with our TruScale end-to-end offerings and our AI library, we are well positioned to deliver value in production and at scale.

So taken together, so these 3 engines, we have given us the confidence and the road map to reach our long-term vision and the goal.

Thank you, Yuanqing. Winston, would you like to add any additional points?

I think just to the point of the $100 billion goal and margin expansion, we clearly have opportunities both in terms of our scaling effect on the gross margin front. As you can see from ISG this quarter, that scale and operational excellence has led to a significant dollar gain and margin expansion there. Clearly, as we continue to enter that area in terms of ISG profitability, I think that industry normal margins there is actually quite high in terms of the potential. And so I think that brings us a path that potentially could exceed some day of our IDG business, which also continue to have opportunities there as well.

So I think from that perspective, alongside the opportunity of AI infrastructure spend, as Yuanqing mentioned, in terms of TruScale, which is in our SSG business that continues to offer customers today an alternative to the CapEx and OpEx with respect to additional services that gives them the agility to plan their infrastructure spend. So I think from that perspective, our path is towards increasing margin expansion story as we capture the AI opportunity. So thank you.

Thank you, Winston. Second question is from Tina Wong from Citi. So for PC business, did you -- did the company see major pull-in happened in the first quarter of calendar year '26 to support a stronger result? Will there be any risk to the coming quarters on the demand side. Given the CPU and memory shortage, we see many years to lower their calendar year shipment target, this Lenovo experienced similar situation that the shortage is worse than originally expected? I would like to invite our IDG President, Luca to address this question.

Thanks, Tina, for the question. So in calendar Q1, our last fiscal Q4, we definitely observed strong demand, which might partially be linked to some pull in, but I don't think that it will be a substantial number. Our sell-out activation, both wear and are still very strong. and we also maintain the right level of inventory when we entered into the new history in April.

Definitely, we are seeing some tight supply in certain components, particularly as you probably know in the semiconductor area. However, we feel confident about our ability to procure the parts we need and we did not adjust our full year target based on supply constraints. Rather, we will align the shipment target based on the real market and demand in order to maintain a healthy channel inventory and with the goal of maintaining a solid premium to market like we did now for the last 11 consecutive quarters.

So we anticipate that units will be down year-over-year in this fiscal year. But at the same time, we expect to maintain or very likely grow our revenue linked to the significant growth of the AUR. And we are confident that we will also maintain our industry-leading profitability with our strong supply chain and definitely with our operational excellence and the global local business model. Thank you.

Thank you, Luca. That's great. Third question is coming from Tony Zhang from CLSA. What is the IDG business margin outlook for the coming quarters? Why are PC and smartphone margin maintained so well regardless of the cost incurs, which is more resilient between PC and smartphone business and made the BOM cost increase? I would like to invite Luca and past to Sergio to address his question. So Luca.

Yes. So as our Chairman and CEO just mentioned, we definitely have a very strong supply chain. And I think we are uniquely positioned to navigate this inflationary cost environment. Thanks to that supply chain capability, thanks to our procurement scale, and last but not least, I also say thanks to our design-to-cost capabilities.

With this in mind, I believe we will navigate this cycle like we just did many times in the past, sustaining our margins, protecting our profitability, which includes the margin side but also includes a tight discipline on expenses as we usually do. And I think you can apply this logic and this kind of philosophy to all our devices business. So that includes PCs and smartphones as well. Thank you.

Great. Thank you. Thank you, Luca. We'll move on to the next question, which is from Albert Huang from JPMorgan. Could you share more colors on how the level managed to improve the ISG business? Is mainly driven by scale or product mix change. Ashley, would you like to answer this question, please?

Sure. Thank you. I think there's a couple of questions that are probably combinable here for me to answer. First of all, I'll talk a little bit about the market, the AI infrastructure market and the customers that we have are really at an inflection point. Many are transitioning well beyond pilot for AI and into implementation.

And enterprise use of AI agents, coupled with the economics of more efficient tokens, but literally hundreds more token usage is really poised to grow the addressable market in hybrid AI for our industry to $1 trillion by 2029, and we have an awesome opportunity in front of us. In order to capture that opportunity, since I've joined Lenovo, we've been laser-focused on transformation into a world-class AI technology partner.

We're quite confident in how these changes are going to position us and have positioned us to assist our customers with their digital and their AI transformation.

Just some examples, we've completely revamped our internal delivery process to operate at AI speed now. Over -- today, going from 0 to now over 40% of our engagements are now handled in minutes, sometimes hours instead of weeks. We have had the biggest refresh of our product line in our entire history of the Think Series portfolio around AI inferencing and how to optimize token economics. We've used AI internally to accelerate our go-to-market engagements with our partners. Workflow is now simpler. It's much faster.

And as we discussed last quarter, our sales and technical engineering teams have gone an extensive skills transformation into the AI expertise domain. We've added state-of-the-art rack level manufacturing capacity into our network in order to meet the demand for -- that is accumulating in our AI pipeline.

We've introduced unique Gigafactory partnership with NVIDIA as a partner to deliver data center level capability to customers that require scale and speed to first token. And we've combined what is really Lenovo's unmatched HPC and supercompute IP expertise in legacy. For example, Neptune liquid cooling, which is now on its seventh iteration, was a commitment to day 1 availability of NVIDIA via Rubin and AMD Helios to give our customers the most robust AI portfolio from edge to data center to cloud.

So transformation for me is an infinite game, but we are very confident that we are on track. So our AI focus, combined with our world-class supply chain and as we mentioned before, our TruScale model and flexibility is really what is driving our $20-plus billion pipeline with literally thousands of customers that are new and long term to Lenovo.

Thank you, Ashley. Since you're talking about the AI server pipeline, we got a question from William Huang from Huatai Securities, asking the $21 billion active pipelines in impressive. Can management provide more color on the customer mix, specifically displayed between CSP, enterprise and SMB and sovereign AI customers? On the product type mix, what is the mix between training and inference?

Sure. Thanks for the question. Our -- because Lenovo and the hybrid AI advantage is able to actually address the entire marketplace from edge to data center to cloud. Our customer mix actually follows the market dynamics. We've seen an incredible rise over the last, say, 18 months of training at scale, mostly delivered through our CSP unique delivery model and capability.

And now we're seeing this inflection of enterprise AI capability that is mostly at the enterprise level, global account level, large enterprise level. Small, medium businesses are beginning now to move from pilot to production with AI and maybe are in the later part of the shift.

We also interestingly see a very balanced view across the globe in terms of our AI pipeline and mix. And I think we're uniquely as, Yuanqing, mentioned moving into third place across and share across both China and rest of the world. I think we're uniquely positioned across the industry to be able to help transform customers in all geographies.

Today, I think we are probably going to see the mix shift heavily over the coming year towards inference, and token economics, and that's why we're preparing with our product line for Inference. Our TruScale capability to help customers with flexibility and our product set to be able to span from data center to edge to cloud.

Thank you, Ashley. There's another question on ISG from Kyna Wong from Citi. How would the Infinidat acquisition contribute to the ISG business? Could you share the running expectation synergy amplifying?

Sure. Thanks for the question. First, let me say how excited and happy I am to have the Infinidat net team joined the Lenovo family. Especially if you're listening to everyone, this is our first earnings announcement and One of the few questions we have is about you, and so you should know the importance that you have with our family, as I told you many times.

I'd also like to welcome all the Infinidat customers to Lenovo family. Your reliance on Infinidat's incredible performance, mission-critical storage capability, incredible latency capability and cyber resilience, backup and recovery is in good hands, and we look to expand the capability that we have with if d.

So what is important from an Infinidat standpoint is twofold. One, incredible IP and capability with InfiniBox and the Infinity Infuse OS.

We are a scale company. We help customers across the spectrum with AI, and now we have the capability to bring mission-critical storage into our Lenovo hybrid AI advantage layer. The data layer is incredibly important. We've addressed this with our mid-range storage product set, but we understand that there is a set of customers that require mission-critical capability that Infinidat brings to us. We'll be scaling that capability as we do -- as Lenovo has a history of bringing technology forward and driving incredible scale to that.

On the other hand, the Infinidat team brings incredible IP capability but also customer engagements that now are within the Lenovo family. And so we look forward to being able to have addressable 85% of the entire market, which is a $38 billion TAM and the highest value portion of the TAM in the AI industry. So again, early days, just closed last month. But already, the teams are working as a family, and we're very excited about this going forward.

Thank you, Ashley. A couple questions on SSG from Randy Abraham from UBS and also [indiscernible] from DBS. So the question is about AI-related service. Are you scaling up the AI and the services, the fastest today? And when can they start to drive the service revenue? And also from Jim, what percentage of the SSG revenue is now recurring or contract base? And what's the growth outlook of AI-related services compared to TrueScale and managed services tenants. Ken, please.

Thank you, Randy and Jim, for the question. So let me address, let me address the AI question because this is the most interesting question to me. So for sure, I think everyone is talking about AI. And especially in the services market, AI is resetting the whole landscape. When we talk to our customers, I think the challenges or the requirement is longer about experimentation.

It is about getting AI into production fast efficiently and at scale with real business outcomes. And I think this is what SSG is built for. So with our mobile hybrid AI advantage, we focus on three things: number one, time to first token, using our AI factory to integrate our global supply chain and also our infrastructure solutions matching organization and also access to accelerated to help our customers to achieve the shortest time to first token.

The second thing that we're focused on is actually value for token using our AI library and our set of AI life cycle services to help our customer to deliver measurable outcomes. And last but not least, both are underpinned by our upgraded our new TruScale offering, which begin deployment and operation, scalable, flexible and predictable. I think the predictability in -- as of now is super important, right?

When we talk to our customers because with all the fluctuation in commodity costs, uncertainty in terms of supply, this offering resonates really, really good with our customer because we TruScale offering across our devices, our edge and also our infrastructure, of course, right? With TruScale, we give peace of mind about supply assurance and also a predictable cost for the overall equation.

Now there's a question about the mix between recurring revenue and the other revenue. We don't disclose revenue in that way. But I think to me, the most important thing and the good news is that how are we creating, generating the intimacy with our customer how we're creating the stickiness with our customers so that we can continue to grow our business.

And this is exactly TruScale can offer that because TrueScale offer the full hardware, software and services in a consumable manner. With that, I think we can get to the customer to create outcomes, the better we understand the customer than with the more services and solutions and hardware that we can provide to our customers.

We continue to see a very good demand with our customers because the TrueScale solution resonating with the customer and we continue to see a high renewal rate for our existing to-scale customer when they renew the contract and also a very good momentum in terms of executing land and expand, meaning understanding more about customers and selling more of the novel technology to our customers. Thank you.

Thank you, Ken. Next question is from Jordan Pong from Franklin Templeton. The question is on Middle East a lot. Is there any update on the partnership with a lot or the Middle East conflicts, do you see any impact in production and development plans, what's the CapEx outlook for the coming financial year I would like to it our Group CFO, Winston to address the question.

Thank you, Jordan. First of all, it's a long-term partnership for us. So it's a very long-term strategic vision, and we're making a strong investment in the region. Clearly, in terms of the conflict, there are shipment delays there in the market, but I think we are trying to get critical supplies now back to the region. So only a couple of weeks of delays, so not really material from that standpoint.

In terms of overall business, I think our local colleagues are making strong headway and our strategic partner a lot -- in fact, one of the members was just really the action CEO, just visited us as part of the Board member duties. And so continue to be very much of a strategic a partnership, an important partnership for LALA as well in terms of Lenovo.

So overall, I think we're still keen in terms of AI initiatives for the Kingdom and for the region, and we're well positioned to capture that long-term opportunity there in the market.

In terms of CapEx outlook, there are some additional CapEx given the strong growth of ISG. And so I think from that perspective, there will be investments as part of the potential capture of additional opportunities in the ISG business that we will be spending to support that business. So thank you.

Thank you, Winston. Given the time that we have, we will not take further questions. There are still questions at the back end. If you would like to reach out to our company and senior management, please contact IR team. Thank you very much for attending today's earnings webcast. goodbye.

Thank you.

Good morning, good afternoon and good evening. Welcome to Lenovo's Earnings Investor Webcast. This is Lixi Yuan, Director of Investor Relations at Lenovo. Thanks, everyone, for joining us. Before we start, let me introduce our management team joining the call today. Yuanqing Yang, Lenovo's Chairman and CEO; Winston Cheng, Group CFO; Luca Rossi, President of Intelligent Devices Group; Ashley Gorakhpurwalla, President of Infrastructure Solutions Group; Ken Wong, President of Solutions and Services Group; and Sergio Buniac, Senior VP of Mobile Business Group and President of Motorola.

We will begin with earnings presentations. And after that, we'll open the call for questions. Now let me turn it over to Yuanqing. Yuanqing, please.

Hello, everyone, and thank you for joining us today. I'm pleased to share that Lenovo achieved extraordinary results last quarter, delivering on every commitment we met. This once again proves that Lenovo not only navigated the market cycle with operational excellence, but also seized the growth opportunities through innovation. We are confident we can further build on this momentum to lead in hybrid AI and drive sustainable growth.

Now let's start at the group level. Last quarter, we delivered on our promise of double-digit growth with sustained profitability in the second half of the fiscal year. Our group revenue reached an all-time high of USD 22 billion, grew over 18% year-on-year with double-digit growth across all business groups. Our adjusted net income expanded 36% year-on-year, doubling the pace of revenue growth. AI is becoming a leading growth engine as AI-related revenue surged more than 70% year-on-year, now representing nearly 1/3 of the group total. Our IDG or Intelligent Devices Group delivered exceptional performance with revenue growing 14% year-on-year to almost USD 16 billion, while maintaining industry-leading profitability. Despite the industry-wide component supply shortages and rising costs, our PC and smart devices business enhanced its competitiveness even further. Its revenue sustained rapid growth at 17% and PC volume growth outpaced the market for 10 consecutive quarters.

Our PC market share for the 2025 calendar year was the highest in history. For our mobile business, we achieved both record volume and record activations for mobile business. Our ISG or Infrastructure Solutions Group continued its hyper growth, delivering record revenue of USD 5.2 billion, up more than 30% year-on-year, steadily moving the business closer to profitable growth. Just as I shared last quarter, the infrastructure market is undergoing an important shift from AI training on public cloud to AI inferencing, increasingly happening on-prem and at the edge for enterprises. To better capture this trend, we carried out a strategic restructuring. This initiative is designed to boost the productivity by optimizing our cost structure, address market opportunities by refining our product portfolio and enhance competitiveness by optimizing our business models and upgrading our sales force.

The restructuring is expected to deliver more than USD 200 million annualized net savings in the next 3 years and put ISG on a solid path of sustainable and profitable growth. SSG, our Solutions and Services Group achieved over 22% operating margin at 18% year-on-year revenue growth with accelerated growth in focused vertical industries, including manufacturing, retail, sports, transportation and smart cities. Looking ahead, we firmly believe in the trend of AI democratization. As AI becomes deeply integrated into individuals' daily lives and enterprise operations, it's far from a bubble, but a technological advancement that delivers tangible value.

Lenovo will continue driving hybrid AI through personal AI and enterprise AI to capture the significant growth opportunities here. This is not just a vision. We are already delivering significant outcome for customers. This January, we successfully held the Lenovo Tech World at CES, showcasing the progress in hybrid AI as well as announcing breakthrough innovations and products. In personal AI, we introduced our AI super agent, Lenovo Qira to the global market, along with a series of innovative AI devices. In enterprise AI, within the framework of Lenovo Hybrid AI advantage, we shared how we bring AI inferencing closer to where data is generated on-prem and at the edge. We also launched xIQ platforms and announced AI Cloud Gigafactory in partnership with NVIDIA. We will start shipping Qira embedded devices as soon as the next quarter. So stay tuned for more updates.

While leveraging innovation to drive growth, we will also continue leveraging operational excellence to navigate market cycles and come out even stronger. With our scale, resilient global supply chain and strong partnerships, we have proven we can outperform the market again and again during the pandemic, trade tariffs and more recently component cost increase and supply shortage. In each cycle, we have consistently secured components, gained market share and improved the profitability. Looking ahead, no matter how the market changes, Lenovo is fully prepared to drive continuous revenue growth and profitability enhancement with even greater resilience and stronger execution.

In closing, I'd like to share we do what we say, we own what we do. This is Lenovo culture. Last quarter, we delivered on our promise and achieved outstanding results on all fronts. Lenovo has entered an accelerated era of growth and profitability, reaching a whole new level of innovation and operational excellence. I have every confidence in our ability to deliver substantial returns to our shareholders and bring smarter AI to all.

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

Thank you, Yuanqing, and a good day, good afternoon and good evening, everyone. I'm pleased to walk you through Lenovo's results for the third quarter of fiscal year '25-'26, a quarter that delivered record revenues, accelerating profitability and continued AI revenue expansion. We delivered record high fiscal quarter revenue of $22.2 billion, up 18% year-on-year with double-digit year-on-year revenue growth across all business groups. Despite a year of tariffs and component supply-demand imbalances, Lenovo continues to demonstrate resilience. In the third fiscal quarter, our strong top line growth was driven by expanding market leadership in PCSD, record volume in activation and smartphones and all-time high revenues from both ISG and SSG. AI is a multiyear growth engine for Lenovo, underpinned by our unmatched scale, diversified global portfolio and continued investment in innovation.

Our AI-related revenue grew 72% year-on-year and now represent 32% of total group revenue, driven by strong demand across AI devices, infrastructure, services and solutions. Adjusted operating income was $903 million, an increase of 28% year-on-year, demonstrating operating leverage, efficiency gains and a higher revenue contribution from premium offerings. Adjusted net income grew to $589 million, while adjusted net margin expanded to 2.7%. Excluding onetime gains and charges for third quarter fiscal '24-'25 and third quarter fiscal '25-'26, on an operating basis, adjusted net income for the quarter increased by 36% year-on-year, doubling with growth of revenues.

Key exclusions from adjusted operating and net income include a $285 million onetime restructuring charge relating to ISG and enterprise sales, a $186 million noncash fair value gain on warrants and $29 million notional interest mainly from zero coupon convertible bonds related to our strategic partnership with PIF, Alat.

Now let me walk you through the key highlights of our business groups. IDG delivered another exceptional quarter, strengthening Lenovo's position as the world's PC leader with continued market share gain. We expanded our global PC market share to 25.3%, up 1 percentage point year-on-year, extending our lead over our closest competitor by 5 percentage points and marking our second consecutive quarter as the only vendor to surpass 25% global PC market share since IDC data became available. Despite supply shortages and component cost pressures, PCSD delivered double-digit revenue growth year-on-year and stable operating margin driven by operational excellence and continued innovation. AI PC momentum continued to accelerate with revenue growing at high double digits year-on-year. Non-PC adjacencies also posted strong double-digit growth with a clear margin uplift.

On the mobile side, our Motorola business also delivered a record quarter. Volume and activation reached an all-time high growth across major sales geographies. At Tech World at CES, we expanded our AI native device portfolio with some of our most innovative product launches yet. We introduced the new Aura lineup, including the latest ThinkPad X1 2-in-1 and Yoga Pro 9i , bringing next-gen personalized AI features to our flagship premium notebooks. We also debuted the ThinkBook Plus Gen 7 Auto Twist, featuring an adaptive motorized dual rotation hinge designed to seamlessly ship between work and presentation modes. In desktops, our new ThinkCentre X Series delivers modern AI-ready performance complete with a dual screen setup for connected content creation. And in mobile, Motorola unveiled the Moto Signature, our new ultra-premium franchise and first thinnest smartphone in its class and the Moto Razr Fold, the first book-style foldable featuring an expansive display and advanced AI capabilities.

Together, these launches demonstrate how Lenovo is redefining the future of hybrid AI across PCs, desktops and smartphones. At Tech World CES 2026, we also unveiled Qira, a cross-device AI super agent that brings our one personal AI multiple devices vision to life. Qira is unified entry point for LLMs to engage directly with end users and serves as the intelligence layer across the Lenovo ecosystem. It is a user's personal assistant and AI Twin across devices capable of executing tasks using both on-device and cloud AI and continuously learning from user context while maintaining privacy by design. With Qira at the center of our end-to-end super agent ecosystem, we're elevating device value, deepening our integration with partners and developers and expanding opportunities for services and subscription models. Together, Qira and our hybrid AI architecture enable a seamless unified intelligent experience that strengthens our competitive advantage across both personal and enterprise AI.

Moving on to ISG. ISG delivered a record quarter, generating revenue of $5.2 billion, up 31% year-on-year. We saw strong momentum across the business driven by record CSP revenue from an expanding customer base, enterprise and SMB transformation and accelerated AI server momentum. Operating performance improved sequentially. Our AI Server business achieved high double-digit revenue growth with a robust $15.5 billion pipeline. We also deployed the first Lenovo GB300 NVL72 base rack scale solution, marking a significant milestone in next-generation AI infrastructure. Our Neptune liquid cooling revenue grew 300% year-on-year, supported by higher customer adoption across CSP, enterprise and SMB businesses. We announced a onetime restructuring program this quarter in ISG, which we believe is a crucial step to realigning the cost structure and accelerating the transformation towards a sustained improved profitability in the business.

Through cost structure realignment and operating model optimization, we are investing in our highest priority growth areas and positioning ourselves to capture the enterprise AI wave. ISG transformation program provides a clear path to profitability as early as next quarter and is targeted to achieve over $200 million annual run rate net savings over the next 3 years. By scaling customer value, innovation and driving One Lenovo execution, we're well prepared to capitalize on expanding opportunities. Our high-velocity transaction model simplifies the engagement, deployment and maintenance experience for our customers and partners. These initiatives will boost sales efficiency and accelerate time to market, unlocking customer acquisition and positioning us favorably to capture multiyear CSP training and ESMB inferencing tailwinds.

Our AI infrastructure portfolio continues to differentiate Lenovo across every major segment of the market. In CSP, our strategic collaboration with NVIDIA on the AI Cloud Gigafactory positions us at the forefront of hyperscale AI deployments. In enterprise and SMB, we expanded our AI inferencing portfolio with newly launched servers and solutions designed for various workloads, enabling enterprise customers to achieve accelerated deployment and scalability. In high-performance computing and AI, our Neptune liquid cooling technology continues to set the industry benchmark. Processor level warm water cooling, for example, now enables reliable live Formula 1 broadcasts.

SSG delivered a record revenue quarter, growing 18% year-on-year, marking the 19th consecutive quarter of double-digit year-on-year growth. Operating margin reached 22.5% near historical high. Revenue mix continued to shift toward high-growth areas this quarter. Managed Services and Project & Solutions together grew to 59.9% of SSG revenue. By enabling faster deployment and offering greater cost predictability, TruScale Device as a Service and Infrastructure as a Service saw accelerated growth this quarter, driven by GPU and AI workloads. Our AI-enabled services, which have reduced cloud cost by more than 70% for Shiseido and enable 98% on-time delivery for Yili are driving measurable outcomes for leading global organization that trust Lenovo to support their strategic AI initiatives. Our hybrid AI advantage, which powers iChain, Lenovo's AI-driven supply chain orchestration platform and Football AI Pro, the FIFA co-developed AI knowledge assistant that delivers real-time performance analytics continues to accelerate enterprise AI at scale, enabling the creation of next-generation super agents.

SSG is strategically positioned in the fastest-growing areas in the IT services industry, capturing a total addressable market of $360 billion and levered to the growing opportunities in Managed Services and Project & Solutions. In areas such as digital workplace services, hybrid cloud, AI and sustainability, SSG is growing at double the rate of market growth. These offerings allow us to scale the revenue at 4-year CAGR of 23.9%, enabled by our differentiated technological expertise, long-term engagement models and strength of our hybrid AI advantage. At Tech World at CES, we announced the next phase of our hybrid AI advantage with the launch of Lenovo Agentic AI, a new full life cycle enterprise solution for creating, deploying and managing AI agents and Lenovo xIQ, a new suite of AI-native delivery platforms designed to simplify and accelerate AI across the enterprise. Lenovo Agentic AI and xIQ seamlessly extend our solutions and services portfolio strengthening our role as the execution engine to enable organizations to rapidly move from strategy to deployment.

Before concluding, I want to highlight our success at Tech World at CES 2026. Lenovo won a record number of over 200 awards, including 3 of the prestigious CTA Official Best of CES 2026 Awards. With 14,000 attendees at the Sphere in Las Vegas and millions more viewing online, we brought together key industry partners such as Intel, AMD, NVIDIA, Qualcomm, Microsoft, FIFA and of course, the Sphere. This showcased the industry's broadest product portfolio at scale and our latest innovations for the global AI ecosystem, reinforcing our leadership in innovation and our unwavering commitment to hybrid AI.

Along our success at CES, we continue to advance our sustainability agenda. We received a Global Lighthouse Network Award from the World Economic Forum with our Mexico manufacturing site added as our second lighthouse, a clear recognition of how we are applying the innovation to strengthen our resilience, boost efficiency and reduce environmental impact. Looking ahead, our strategy remains sharply focused and highly disciplined. With our global scale and proven operational excellence, we continue to execute reliably and outperform even in volatile markets. As we enter an accelerated era of growth with improved profitability, our hybrid AI strategy positions us to drive sustained profitable growth for our stakeholders with even greater resilience and executional strength.

Thank you, Winston. Now we will open the floor for questions, and this session will be English only. [Operator Instructions]

While we're waiting for the questions, allow me to introduce the management team again. Other than our Chairman, Yuanqing Yang; and CFO, Winston Cheng, we also have the following business leaders with us today for Q&A. Luca Rossi, President of Intelligent Devices Group; Ashley Gorakhpurwalla, President of our Infrastructure Solutions Group; Ken Wong, President of our Solutions and Services Group; and Sergio Buniac, Senior VP of Mobile Business Group and President of Motorola.

We'll begin the Q&A session by addressing several frequently asked questions leading up to the earnings, which we believe are especially relevant to this quarter's performance.

So the first question, at Lenovo's 2026 Tech World during CES in January, we witnessed the successful launch of new products and services. As Lenovo continues to enhance its global brand and demonstrate its position as global tech leader, what do you see as the most significant opportunities in AI? How is Lenovo strategically positioned to capture these opportunities?

For this question, may I please invite our Chairman and CEO, Yuanqing, to address it. Yuanqing, please?

Thank you. So this January, we successfully held Lenovo Tech World at CES comprehensively showcasing our plan and progress in hybrid AI, including personal AI as well as enterprise AI. In personal AI, we introduced our AI super agent, Lenovo Qira to the global market, along with a series of innovative AI devices. So we will start shipping Qira embedded devices as soon as next quarter. So stay tuned for more updates. In enterprise AI within the framework of Lenovo hybrid AI advantage, we demonstrated how AI inferencing is brought closer to where data is generated on-prem and at the edge. We also launched xIQ platforms and announced the AI Cloud Gigafactory in partnership with NVIDIA.

In fact, so market continues to question whether AI is overheating. But in my view, there may be a bit more investment in certain areas, for example, frontier models, pretraining and pursue AGI. So these are worth exploring, but not necessarily the only right path forward. However, looking at the AI as a whole, it's fundamentally a data technology, the technology that fully leverage all forms of data accumulated throughout the human history to generate the intelligence. And that is absolutely not a bubble, but a technological advancement that delivers tangible value.

So looking ahead, we firmly believe AI democratization is irreversible and unstoppable trend, but it will shift from public AI and cloud to AI inferencing increasingly happening on-prem and at the edge and more enterprise AI use cases vertically or horizontally. So Lenovo has developed and implemented this hybrid AI strategy through the dual engine of personal AI and enterprise AI to capture the significant growth opportunity brought by AI democratization. So this is not just a long-term vision, but also a strategy we are executing with a full commitment. So you can see the number from our last quarter results. So our AI-related revenue grew more than 70%. Now it has already accounted for 1/3 of our total revenue. So we will continue that pace. Thank you.

Thank you, Yuanqing. The next question is on the component cost increases. So with the rising memory costs impacting the entire hardware industry, how is Lenovo preparing to navigate this challenge? Looking ahead to the next financial year, how should we evaluate the market demand in the context of increasing component cost?

For this question, may I please also invite Chairman, Yuanqing, to give your answers. Yuanqing, please.

Yes. So definitely, the supply shortage and rising cost situation is precedented and still not finished. The DRAM cost increased by 50% last quarter, but the current quarter versus last quarter almost doubled again even with the contract price. So this structural imbalance between supply and demand is not simply a short-term fluctuation. It's likely to have a prolonged impact on the industry throughout this year. So we are closely monitoring the situation and taking agile action as necessary. But on the other hand, a volatile market could become an opportunity for Lenovo. As I always said, we have already proven ourselves many times. So you should remember when tariff hit about a year ago, so we were quite concerned or you are quite concerned and expecting us to be heavily impacted. But instead, by leveraging our operational excellence and our global local model, so we not only navigated that highly volatile period smoothly, but even further expanded our market share with improved profitability.

Also, you can see from our last quarter's result, we actually effectively mitigated this impact through a lot of approaches, broad sourcing capability, diversified sourcing strategy, flexible and resilient supply chain and long-standing trusted relationship with suppliers to ensure consistent component supply at a competitive cost. Looking ahead, so high material cost will probably constrain the demand for PC smartphone. But that's just from a unit volume point of view. But given the higher pricing and the market shifting to the premier segment because of AI PC, AI phone. So we believe the overall PC revenue market will still grow year-over-year for sure, because our strong supply chain and resilience.

So we also -- we are confident to continue to drive the premier to the market. So definitely, we cannot avoid the impact of the market cycles, but we can ensure stronger competitiveness. So actually, we are still confident to deliver double-digit growth in our PC as well as infrastructure business in the next couple of quarters. Thank you.

Thank you, Yuanqing. Thank you very much. So we'll move on to the questions that we've just collected from analysts. The next question is from Cherry Ma from Macquarie. What is the outlook for PC and smartphone for the market and for Lenovo in 2026 in terms of shipment volumes, margins and ASPs? So may I please invite Luca and perhaps followed by Sergio to address the question on PC and smartphone, respectively. Luca, please.

Yes. Can you hear me okay?

Yes, clear. Thank you, Luca.

So thank you for the question, Cherry. And I think there are multiple questions within one question. So I'll try to address them step by step. So let me start with the market. So given the inflationary cost environment, we think the market will see some decline year-over-year. At the moment, we are modeling a mid-single-digit decline for the units. But that decline will be offset by a higher ASP and likely a favorable product mix. Hence, the value of the market will not decline. For Lenovo, we will continue to grow at premium to market. It's something we did in the last 10 consecutive quarters. We see opportunities with the end of service of Windows 10. There is still a significant portion of units to be upgraded. We estimate more than $100 million. AI PC refresh, a large base of devices that are now 4, 5 and even 6 years old. So with that, we are confident we will navigate this inflationary environment and this shortage supply dynamic better than our peers with large-scale procurement, our long-term strategic partnership with the key players in the industry and of course, with our innovation capabilities.

Let me emphasize that our growth in shipments and premium to market is not just in shipment. We are also winning in activations. Our channel inventory is very healthy and our sellout is very strong. So that to talk about the market. Regarding the average selling price, ASP or AUR, we expect it to go up in 2026. We will see how this plays out. Some customers might prefer to scale down the configuration. Other customers will just accept the price increase. At the moment, we are modeling something in the mid-single-digit growth in average, and we will continue to track quarter-by-quarter.

Now last but definitely not least, regarding our margins, as we mentioned, it will be an inflationary environment, particularly driven by memory, DRAM and NAND. There will be also certain platform cost up due to silicon cost. This situation, I will say, is not new to Lenovo. We have demonstrated many times that we are able to challenge -- to navigate those challenging environments. We are able to mitigate cost, manage prices and at the end, maintain the strong profitability with market share gains. So I think we are confident we will navigate in the next few quarters in a sustainable way. We will continue to deliver industry-leading profitability. We will continue to win in the market.

And let me close in this way. At the core of all of this, it remains innovation and operational excellence as the foundation of our success.

With that, I'll pass to Sergio.

So I mean, very similar to the PC, we expect a high single-digit decline for the mobile market. We also are seeing 10 quarters of premium to market. Last quarter, not only we saw premium to market, but we saw premature market in every geography. We expect the premature market to continue in the moving quarters. And while units decline, revenue expected to go up, there are, I think, besides the adjustment on the commodity cost, we are moving further ahead to premium in our mix. We just launched at CES, our new signature ultra-premium franchise. We just announced a new Razr Fold. So I mean, we believe we will sustain a premium to market in all yields, revenue price adjustments that we need to manage, but also a significant improvement in mix as we move in the new launches that start in the next 2 months.

Thank you, Sergio. We move on to the next question is on ISG. So it's from Leping from Huatai Securities. Congratulations on the strong performance of ISG this quarter. We saw a shift of AI demand from training to inference. With the restructuring plan announced this quarter, how is the company strategically positioned its product portfolio to capture the fast-growing AI inference market? What is the rationale behind the ISG restructuring plan? And how do you envision ISG's growth trajectory and profitability in the coming years as a result of the plan. I'll probably invite Yuanqing to address this question first and then followed by Ashley to give more granularity. Yuanqing, please.

Okay. So just I shared at the beginning, the infrastructure market is undergoing an important shift from AI training on public cloud to AI inferencing increasingly happening on-prem and at the edge for enterprises. Thus, I would say, the restructuring we just made is more of a transformation towards the new trend of bringing AI inferencing closer to end users. So we are making agile, fast and decisive moves to build new capabilities and to boost the efficiency and productivity by simplifying our traditional compute portfolio, meanwhile, address market opportunities by strengthening AI-related product portfolio, particularly AI inferencing product portfolio. So meanwhile, we are enhancing competitiveness by optimizing our business model for SMB and large enterprise relationship customers, respectively.

We are also upgrading our sales force to meet the huge demand. So with this focus and transformation, we are narrowing the loss every quarter with our ISG business. And now we are on track to turn around this business as early as in the current quarter at a onetime cost of -- we booked $285 million restructuring cost last quarter, but we expect to deliver more than $200 million annualized savings over the next 3 years. So we are very confident and have a strong conviction that with this clear strategic move, our ISG business will start the sustainable and profitable growth and deliver improving performance going forward.

So probably, Ashley, you can add more color.

Thank you, YY, and thank you for the question. It's hard to add more than our Chairman just added. He said it quite well. But maybe to be repetitive and add a little bit more. We all agree we're at an extremely important inflection point. And as YY and Winston both mentioned earlier, it's not quite certain if we are in the very beginning, early beginning middle. And I think we all know that as we look backwards, maybe 5 years out, we'll know the answer to that, but it's very clear with our customers and our partners that the era of AI inferencing and adoption into the -- into production and usage is just beginning, but it is beginning very quickly. That's why it is a clear inflection point and an opportunity for us to take very decisive action, not just to transform, but to accelerate the transformation to bring it in, to make it happen faster. And that's the very important part of the why.

We're focused on investing in targeted investments for enterprise AI era. And that's going to include optimizing our end-to-end transactional model. The faster, more agile methodology of the operating model allows our customers to also adopt their AI into their systems more iteratively, faster, quicker with better agility as well on their side. We simplify our portfolio to focus on digital transformation and AI adoption solutions. And as YY mentioned, we're increasing our go-to-market AI skill sets to really help partners, customers on their AI journeys as well as a trusted technology provider to them.

We believe these actions will increase speed, improve our agility and enable increased leverage from our operating model. I believe part of the question was why now? It's because we're certain and committed to leading in the AI era of AI democratization. Because we're only at the beginning stages, the opportunity to lead is right now. This onetime restructuring allows us to accelerate that transformation and the confidence is actually quite high in our stated goals of saving $200 million on an annualized basis over the next 3 years because we aren't just starting. We've been hard at work on the transformation project throughout calendar year 2025, and we get to see the significant progress on our internal indicators of increased AI productivity, portfolio optimization, increasing velocity on our operating model and increased sales capability. Thank you.

Thank you, Yuanqing. Thank you, Ashley. We're going to move on to next question, which is from Howard from Morgan Stanley. So aside from memory, which other components are you seeing pricing increases? And how would this impact IDG's margins over the next few quarters? Any strategy in place to address the potential issues?

So for that, I please invite Luca to address this question, please.

Sure. Thanks, Howard. So regarding other components, so I will say the cost increases are largely in the memory space. There are also additional cost up in the silicon or in the silicon area, given the demand and supply imbalance, particularly in certain manufacturing nodes. The rest of commodities of building PC or a phone, I will say, are largely stable and maybe there are even some opportunities for cost down in certain other areas. Now protect our margins is definitely one of our key objectives. And that is achieved through a combination of actions. You can think about product innovation, design to cost innovation, expanding our supplier base, making long-term strategic purchases, of course, dynamic pricing.

At the end, you still have a market to face and then pricing, I believe, will go up, tight expense management and definitely our laser precision in operations. Maybe it's also in the area of how to expand and protect our GP. We are also focusing and accelerating on what we call non-PC revenues. So all the adjacencies to PC services, accessories, these are all margin-rich and all areas where we have still a significant room to grow. So that will be part of the several actions that we are driving to navigate and to make sure we can protect our margin and our profitability. Thank you.

Thank you, Luca. Great. Next question is also from Howard Kao from Morgan Stanley, and this is on ISG. So could you please remind us the breakdown between AI server, general server for cloud and enterprise server within ISG? And can you help to give some color on the outlook for these 3 end segments for Lenovo this year? So Ashley, please.

Sure. Thank you for the question. We don't have a breakout of those segmentations. As we've said before, our AI server growth is quite significant, outpacing our general growth. So the mix is shifting towards AI server growth as we expected it would. For us, perhaps to give a little color on the market and outlook. If you take the bold statement that the market is effectively sold out from a high-value component perspective for, let's say, a quarter, 2 quarters, 3 quarters, then you'll see, as we've discussed earlier, that we'll see increasing costs from CPU flash, DRAM and other components going forward. And so infrastructure providers like Lenovo will be focused on efficiency, productivity, scale in order to minimize pass-through impacts to our end customers, but there will be increasing costs throughout 2026.

In the CSP space, we're likely to maintain or increase infrastructure CapEx spending. We don't actually see that being deflected by the increasing costs. We expect AI training and related DC spend to stay at double -- high double-digit year-over-year growth. For your question of CSP general versus AI, we're actually seeing that highly correlated. AI growth for training or frontier may be slightly different. But in general, what we're seeing is any growth related to AI increasingly is growing across data, compute elements in the cloud as well for our service providers. And we think our strategy there of having our own world-class manufacturing gives us an edge and a differentiation in efficiency and productivity because we can serve these at-scale customers with our scale.

And in a supply-constrained environment, we think other factors, and we know other factors will be prioritized like speed to deployment. Lenovo's already deployed, for instance, GB300 rack-scale infrastructure. And we just announced our joint effort that's been underway with NVIDIA called Lenovo NVIDIA AI Cloud Gigafactory. And this helps speed up our customers' time to first token, which is very important in an inflationary environment. In the enterprise space, we see that it's likely that CIOs, business leaders will be facing this challenge of increasing costs within their technology business, but also while driving AI adoption to help offset that with productivity.

Lenovo is going to help by prioritizing AI productivity business value projects and really focused on production deployments. Of the surveyed CIOs that we talk to, 93% are expecting a positive ROI from their AI deployments. This gets more difficult with the cost environment. And that's why, for instance, at Tech World, we've talked about not only being focused on delivering rack-scale solutions with NVIDIA and AMD, but that we're already leading the industry in enterprise AI inference solutions across a portfolio optimized for compute storage and software. A great example for me is the ThinkSystem SR650i. It's already set many inference benchmark world records. Now 84% of those CIOs have to leverage hybrid AI capabilities because they have to have the workload where the data is relevant. And that's why we've also announced our Lenovo Hybrid AI Advantage program.

That can span from private cloud economics like TruScale, which is becoming increasingly more important in this environment to industries that need reliable edge inferencing platforms like our SE455i. So I think -- when it comes to the enterprise side, we see the market very similar to as Luca discussed earlier, where perhaps there is downward pressure on units, but increasingly offset -- more than offset by richness of each unit and content. And so that becomes important because Lenovo differentiates our supply chain, our world-class reliability and our energy-efficient IP like Neptune will come together and help build that better ROI outcome for the customer despite the inflationary cost. So we believe that our differentiation in AI operations, high-performance systems delivered with extreme efficiency is going to be even more aligned to helping our future customers. Thank you.

Thank you, Ashley. The next question is from Cherry Ma from Macquarie. For SSG, what's our customers' IT OpEx versus CapEx spending trends? And what's the implication of our growth outlook this year? This question is for SSG. I would like to invite our SSG President, Ken Wong, to answer the question. Thank you.

Thank you, Cherry, for the question. Well, we definitely see an increasing trend of OpEx versus CapEx, probably at the rate of 2x that of CapEx. I think one of the reason is being, for example, our TruScale as a service across our devices and infrastructure one of the value proposition that resonate a lot with our customer, especially during the period of component price volatility is about predictability, right? And also our xIQ platform helped to optimize the compute and persona and make sure customers get the most out of their infrastructure and device investment. And from a Lenovo perspective, right, if we were able to get into a TruScale as-a-service engagement, there are a couple of benefits. One is when we look at the historical data, our retention rate for TruScale as a Service is usually more higher than 90%. So a very, very high retention rate compared to a CapEx motion.

The other thing is once we get into a contract, we're able to understand the customer better, understand the opportunity and as well as the challenges. And hence, that give us more opportunity to serve the customer on a broader basis. Last but not the least, right, such a contract is a multiyear contract and also with a scope way beyond the hardware scope, for example, include software and services, and that always result in a higher profitability for the company, right? So in a nutshell, I think we're still very positive about the pace of growth for our TruScale business for the reason that I shared. So thank you.

Thank you, Ken. The next question is from Tony Zhang from CLSA. How is AI reshaping the SSG business compared with the pre-AI era? What has adoption been like for your AI-enabled vertical solutions? And how are they ramping as they address customer business challenges? So this question is also for Ken from SSG. Ken, over to you, please.

Thank you, Tony. Well, a big question. So a couple of things, right? When I look at the customer requirement in the past probably 6 months compared to before, there are 2 main changes. One is from Gen AI to Agentic AI, right? Agentic AI is about resolving not just one problem, but a complex problem with a lot of steps, things like that, right? So that will be one change. The other change is very obvious is customers are no longer looking for proof-of-concept kind of project, right? They're looking for production -- real production and with impactful and meaningful outcomes. So those are the 2 changes. And as a result, I think our hybrid AI advantage, which is a comprehensive framework and offerings across compute, data, platform use cases and consulting services are really able to help our customer to adopt Agentic AI at scale.

A couple of examples. I think one is we successfully helped one of the world's leading dairy company to use Agentic solution to improve their supply chain operation efficiency by 20%. The other example is we worked with a Global 500 technology company to help to use Gen AI to modernize their customer service centers around the world. And again, this is by Agentic solution, which is a team of agents all with different roles and responsibility to achieve complex task. And with that, we were able to help this customer to improve the efficiency by 20% and also significant uplift in terms of customer satisfaction, right? So we continue to see the trend in terms of -- from POC to real production from Gen AI to Agentic AI. And I think Lenovo Hybrid AI Advantage is perfectly fit for this kind of requirement in the market. Thank you.

Thank you, Ken. Conscious of the time, we'll take one more question. The last question is from Jordan Pong from Franklin Templeton. Is there any update on the collaboration with Alat? What is the progress on the expansion in Middle East?

So this question, I would like to invite our Group CFO, Winston, to address. Winston, please.

So given the time, I think Winston is moving on to the next interview session. So this will be the end of this earnings webcast. And thanks to everyone for joining. Thank you.

[indiscernible] answer your question.

I was in the middle of answering. Is it over?

Please go ahead, Winston. Yes, we can hear you.

Yes. So the strategic investment, clearly very important. We're aligned. You can see the news. The Middle East continues to be very much investing in AI as part of our initiative. You can see our ISG business is very much aligned to this trend, particularly on global infrastructure spend. So very much aligned to capture this opportunity. Our plant is well on track. In fact, and started manufacturing. We'll have a grand opening of our office in our whole effort there in a few months' time, which will -- you'll see the news. And also, if you would like to attend in person, I think we'll be very open to have investors there as well. So for you to see in person. So absolutely. Thank you for your question.

Thank you once again. Thank you, everyone, for joining. This will be the last question and end of this earnings webcast. Thank you. Goodbye.

Good morning, good afternoon and good evening. Welcome to Lenovo's Earnings Investor Webcast. This is Lixi Yuan, Director of Investor Relations at Lenovo. Thanks, everyone, for joining us.

Before we start, let me introduce our management team joining the call today. Yuanqing Yang, Lenovo's Chairman and CEO; Winston Cheng, Group CFO; Luca Rossi, President of Intelligent Devices Group; Ashley Gorakhpurwalla, President of Infrastructure Solutions Group; Ken Wong, President of Solutions and Services Group; and Sergio Buniac, Senior VP of Mobile Business Group and President of Motorola.

We will begin with earnings presentations. And after that, we'll open the call for questions.

Now let me turn it over to Yuanqing. Yuanqing, please.

Hello, everyone, and thank you for joining us. Today, I'm pleased to share that Lenovo has delivered another quarter of record performance, capitalizing on the AI democratization trend, we have made significant progress in both Personal AI and Enterprise AI, driven by our clear strategy, operational excellence and the relentless innovation.

The results reflect not only our strong performance today, but also our strength to leading the AI era. First, let's start at the group level. Last quarter, our group revenue reached an all-time high of USD 20.5 billion, growing at almost 15% year-on-year.

Our profit grew even faster with adjusted net income increasing more than 25% year-on-year. All business groups and all sales geographies, delivered a double-digit year-on-year revenue growth.

While our AI-related revenues reached 30% of the group total increasing by 13 points year-on-year.

While uncertainties remain in the external environment, we are seeing positive signs of stabilization. We will continue to leverage our unique Global/Local model to navigate uncertainties, lead the industry with operational resilience and capture the tremendous hybrid AI opportunities.

We are seeing today's AI era unfold along a clear path. The first wave was marked by the emergence of large language models, which triggered a massive demand for AI infrastructure, and led to our explosion in cloud-based and training intensive computing power.

Now as large language models become increasingly commoditized, user priorities are shifting towards personalization and the private domain.

This is accompanied by growing emphasis on efficiency, response speed, security privacy and sustainability. This evolution is steering AI development towards a more human and enterprise-centric paradigm unlocking substantial opportunities in AI devices of diverse form factors, hybrid infrastructure of public cloud, private cloud, on-prem data center and edge computing as well as AI solutions and services tailored to diverse needs.

This very trend, the democratization of AI is now accelerating rapidly across both Personal AI and Enterprise AI.

In Personal AI, consumers are increasingly looking for AI outputs that are based on their own experiences, memories, behaviors and knowledge. At Lenovo, we are addressing this demand for hyper-personalization by landing our vision of One Personal AI, Multiple Devices.

You will witness this firsthand at our upcoming Tech World on January 6, 2026, where we will launch our Personal AI super agent to the global market. It orchestrates across wearable and ambient devices to see what you see, hear what you hear, and memorize what you have experienced.

Furthermore, it leverages portable devices and personal trusted computing hubs using personalized algorithms and models to continuously learn from your habits and anticipate your intentions, so that it can think as you would think and act as you would act, and ultimately becoming your Personal AI Twin. I invite you to join us for this spectacular event at Sphere in Las Vegas in person or via live stream.

Our IDG or Intelligent Devices group acts as the core engine behind the Lenovo's Personal AI strategy as demonstrated by strong results from last quarter.

Its revenue exceeded USD 15 billion with a 12% year-on-year growth. PC market share exceeded 25% for the first time in our history with a sustained industry-leading profitability.

Our AI PC leads the Windows AI PC category as a global #1. We also achieved a record-high Motorola smartphone volumes last quarter.

Our momentum in AI device is particularly encouraged with its revenue mix within IDG increasing by 17 points year-on-year to 36% now.

In Enterprise AI, the infrastructure market is undergoing an important shift from AI training in public cloud to AI inferencing increasingly happening on-prem under the edge.

It's significant because the scaling of infrastructure will potentially drive even higher growth of devices and applications, further expanding our total addressable market.

At Lenovo, we are driving our Enterprise AI strategy by helping businesses, turn data and knowledge into insights and value.

Specifically, we started with helping enterprises collect and process various types of data, organize it into knowledge, leveraging the computing power of our hybrid infrastructure. We then apply AI models and AI agents to turn data and knowledge into insights and outcomes or engage the business processes.

These are consolidated into repeatable, scalable solutions for horizontal functions or vertical industries are supported by our full-cycle services. Ultimately, our goal is to create Enterprise AI Twin for our enterprise customers.

ISG or Infrastructure Solutions Group is the key driver of Lenovo's hybrid infrastructure. Last quarter, its revenue grew 24% year-on-year to exceed USD 4 billion. We continue to execute our Cloud Service Provider, or CSP, and the enterprise SMB dual strategy.

For CSP, the business not only delivered a record fiscal Q2 revenue, but also demonstrated a robust growth in AI infrastructure with a strong pipeline.

For Enterprise SMB, we are optimizing and even rebuilding our business models to better serve the distinct needs of enterprise and SMB customers. We are confident our infrastructure business will return to profitable growth soon.

SSG, our Solutions and Services group. By leveraging the Lenovo Hybrid AI Advantage framework, strives to provide the solutions and services for enterprises on their journey of intelligent transformation.

Last quarter, SSG achieved 18% year-on-year revenue growth, its 18th consecutive quarter of double-digit expansion with our operating margin over 22%.

Projects & Solutions and Managed Services revenue mix further advanced to almost 60% of SSG's total revenue. We are accelerating this business further by unleashing the power of Lenovo Hybrid AI Advantage, combining the AI factory, AI services and the AI library of repeatable, scalable AI solutions for selected vertical industries and horizontal functions.

To conclude, we are proud of our record results, confident in our vision and strategy and determined to capture the enormous opportunities ahead.

It's our firm belief that by rigorously executing our hybrid AI strategy, we will not only deliver sustainable long-term returns to our shareholders, but also make AI truly personalized for every individual and every enterprise and eventually bring smarter AI to all. Thank you.

Now let me turn it over to our CFO, Winston. Winston, please?

Thank you, Yuanqing. I will now go through the Lenovo's Fiscal Year 2025, '26 Second Quarter financial and operational results.

The group continued its strong performance into the second quarter, maintaining strong momentum across our business groups and sales geographies. We delivered record fiscal quarter revenue of $20.5 billion representing 14.6% year-on-year increase with balanced double-digit growth across all business groups.

Our adjusted net income grew 25% year-on-year to $512 million, and adjusted net income margin expanded to 2.5%, driven by higher revenues.

Our second quarter results demonstrate our strategic potential to capture substantial AI opportunities. AI-related revenues now account for 30% of the group's total with high double-digit revenue growth year-on-year in AI servers and triple-digit revenue growth in AI PC, AI smartphones and AI services.

Our PC business continued strong growth momentum and continue to grow share, reaching historic high of 25.6% global market share.

Our smartphone business achieved a record high concurrent quarter activations, underpinned by solid end-user demand. ISG delivered strong revenue growth year-on-year and improved operating performance driven by growth in AI infrastructure and related industry demand.

SSG delivered a record revenue quarter while continuing to expand operating margin. All reported geographies delivered double-digit year-on-year revenue growth, reinforcing our balanced strength across 180 markets supported by our Global/Local strategy and resilience and agility of our supply chain.

Turning to liquidity and cash position. Our growth continues to be supported by disciplined financial management. In the second quarter, we delivered operating cash flow of USD 1.5 billion, while free cash flow climbed to $1.1 billion, supporting continuous investment in focused growth areas.

This was driven by robust operational cash and effective working capital management with days of inventory reduced by 10 days year-on-year as well as disciplined expenditure.

We also achieved a 31% year-on-year reduction in adjusted net finance costs, reflecting ongoing cost optimization and working capital efficiency initiatives.

Our HKFRS net income this quarter was $340 million, primarily impacted by noncash items related to warrants and 0 coupon convertible bonds associated with our strategic transaction with Alat, a wholly owned subsidiary of PIF.

Key adjustments to reported figures include $148 million noncash fair value loss from warrant revaluation and $28 million notional interest from the convertible bonds.

Further details on other noncash items can be found in the supplementary financial materials at the end of this presentation. We encourage investors and analysts to focus on adjusted operating profit and net income, which excludes these noncash, nonoperating impacts and better reflect our core operational performance.

Now let's turn to the performance of our business groups. IDG delivered another strong quarter. Revenue up 12% year-on-year to $15.1 billion, and operating profit climbed 11% to $1.1 billion.

This performance reflects expanded PC leadership globally, obtaining a record high global market share of 25.6%. Growth was driven by high-margin segments, premium PC shipments grew 25% year-on-year, and AI PCs are now a major contributor, accounting for 33% of Lenovo PC shipments, solidifying our #1 position with 31.1% market share in the global Windows AI PC market.

In China, AI PC with 5 key features now make up 30% of notebook shipments. Our cross-device AI ecosystem is creating a strong foundation for our Personal AI vision, delivering a seamless One AI, Multiple Devices experience that connects PCs, tablets and smartphones.

Our continued investment in AI-driven innovation and R&D are delivering strong results. Lenovo remains the clear leader in the PC industry across all major categories.

Globally, we hold the #1 position in both consumer and commercial segments, and we continue to expand market share in the second quarter. Within our PC portfolio, our leadership further extends into strategic categories, such as Windows AI PC, gaming and premium PCs.

These are critical growth drivers as the industry transitions to a more intelligent and immersive computer experiences. Our global leadership is balanced across the world with #1 market leadership in 4 out of 5 geographies and market share gains in every region during the quarter.

This broad-based growth underscores the strength of our manufacturing footprint and resilience of our global supply chain.

Turning to our Infrastructure Solutions Group performance in the second quarter. ISG continues to benefit from the strength of AI infrastructure spend and our leading product and technology for advanced computing, delivering 24% year-on-year revenue growth to $4.1 billion with improved operating performance, driven by new customer acquisitions in cloud service providers and advancing enterprise and SMB transformation.

ISG continued to experience strong growth in our Neptune liquid-cooling technology, which grew 154% year-on-year, reinforcing our leadership in sustainable high-performance infrastructure.

We continue to drive sustainable growth in high potential areas, advancing enterprise and SMB transformation to capture opportunities in AI infrastructure and inferencing.

Our AI server business achieved high double-digit revenue growth, fueled by rising AI adoption and supported by clear product launch road map.

In China, our operations delivered consistent operating margin improvement, leveraging uniquely localized offerings and our ODM+ model to drive differentiation.

In the second quarter, ISG broadened its customer base across CSP, enterprise and SMB segments with wins in the AI infrastructure, cloud computing and high-performance computing.

These deployments include AI training clusters, GPU as a service and liquid cooling solutions, reinforcing our position in next-generation infrastructure.

We also continue to see growing traction in AI inferencing workloads as customers deploy and scale AI applications across hybrid infrastructure, and we are actively accelerating our capabilities in this area.

The enterprise server and storage industry has evolved over the last few decades and benefited from the infrastructure spend behind some of the largest industrial revolutions underpinned by data compute and storage.

Lenovo's ISG business has an industry-leading technology and product excellence from its IBM x86 server heritage. Our leadership in high-performance compute and in liquid cooling positions in Lenovo well for the recent growth in demand due to AI training, and we are aligning our resources to capture the next future for AI inferencing in enterprise and SMB to traditional CSP and most recently, the emerging AI opportunities from CSPs.

Echoing Yuanqing's remarks, we're entering the next stage enterprise and SMB AI. This represents a significant opportunity as the AI transitions from training to inferencing, driving increased demand towards on-premise hybrid environments.

We've delivered another record revenue quarter marking SSG's 18th consecutive quarter of double-digit year-on-year revenue growth. Revenue rose 18% year-on-year to $2.6 billion, and operating margin expanded near historical high. SSG grew at twice the pace of addressable market driven by robust demand in high-growth areas such as hybrid cloud, AI and digital workplace solutions.

Growth in Project & Solutions was driven by enhanced AI solutions targeted at key verticals such as manufacturing and retail. Revenue from TruScale DaaS and Infrastructure as a Service also increased year-on-year with notable customer wins across global markets. In addition, both support services revenue and bookings growth accelerated.

Overall, SSG deferred revenue grew 17% year-on-year to $3.6 billion, providing strong visibility into future performance. With combined revenue for Managed Services and Project & Solutions now accounting for 59.9% of SSG's total revenue and AI services tripling year-on-year, we are capturing higher-value AI-led services business models.

Over the past 4 years, Managed Services and Project Solutions have grown at a 25% compound annual rate significantly outpacing the addressable market.

Our tech-driven offerings enable customers to optimize cost and deepen engagement, aligning with the industry shift towards subscription and consumption-based models that are gaining strong traction.

Meanwhile, support services remain a solid, profit growth driver, supported by rising attach rates from devices and sustainable recurring revenue streams.

We are proud to share that group continues to be recognized globally for our leadership in ESG. In 2025, Gartner Supply Chain Top 25, we ranked 8th highlighting our strong performance in building sustainable, resilient supply chains.

Lenovo's factory in Monterrey, Mexico was recently added to the World Economic Forum's Global Lighthouse Network, the second for Lenovo, among only 201 leading manufacturing facilities worldwide.

Our ESG scores also improved across CDP and S&P Global, and we maintain our AAA rating in the MSCI ESG Ratings for the fourth consecutive year.

We've continued to build on our strong foundation of inclusion, the group was recognized as the Best Place to Work for Disability Inclusion in the U.S., the U.K. and Brazil.

We're also honored as an Ambassador in the Workplace Pride Global Benchmark, reflecting our ongoing commitment to LGBTQ+ inclusion.

In addition, we've deepened our collaboration with the United Nations Industrial Development Organization, focusing on circular economy initiatives. We also joined the Coalition for Sustainable AI, an initiative led by French government in partnership with UNEP, demonstrating our commitment to responsible innovation and environmental stewardship.

These achievements reinforce our long-term commitment to sustainability, innovation and building a more inclusive future.

Looking ahead, we are hopeful of global trade improvements. Our Global/Local model remains a key source of resilience and differentiation. We're also elevating our brand through major initiatives like the upcoming FIFA partnership and Tech World at CES 2026.

With strong execution and continued focus on Personal and Enterprise AI, we are confident in translating our strategy into sustained profitable growth. Thank you.

We will now answer any questions you may have.

Thank you, Winston. Now we will open the floor for questions, and this session will be English only. [Operator Instructions] While we are waiting for the questions, allow me to introduce the management team again.

Other than our Chairman, Yuanqing Yang; and CFO, Winston Cheng, we also have the following business leaders with us today for Q&A.

Luca Rossi, President of Intelligent Devices Group; Ashley Gorakhpurwalla, President of our Infrastructure Solutions Group -- of our Solutions and Services Group; and Sergio Buniac, Senior VP of Mobile Business Group and President of Motorola.

Our first question is from Albert Hung from JPMorgan.

How big will the memory price impact on margin? What is our strategy to go through the memory cost hikes? And when do you expect to see the impact from inflated memory price? And what will be the memory impacts on our business segments? For these questions, I'd like to invite our Chairman and CEO, Yuanqing, to give some remarks. Thanks. Yuanqing, please.

Thank you, Albert, for the question. So if you look at the industry and the market, so 2 key -- 2 key dynamics are top of mind. First is top of AI bubble. And the second is concerns about the supply shortages and the rising component prices.

And I believe these 2 topics are related to each other. So let me give you my opinion. First, on the so-called AI bubble, my opinion is as with any major innovation, there will be intense investment and competition at the beginning, particularly in certain areas such as large language models.

But overall, we do not see a bubble. The substantial investments in AI infrastructure are laying the groundwork for the next major technology wave, much like the early Internet [ field ] explosive growth in PCs, particularly actually triggered the smartphones first for sure, more PC and mobile applications as well.

What's happening now is the next wave of AI democratization, spreading across both personal and enterprise use, which is perfectly aligned with Lenovo's strategy. So we are addressing Personal Hybrid AI as well as Enterprise Hybrid AI.

So because this AI adoption accelerates, the supply shortages and high component costs are natural consequences of rising demand. Addressing this issue, so first, this is not new for our industry, supply shortage or supply cost up and down the normal situation for the industry.

But I believe Lenovo is better positioned and more flexible and resilient than our peers to manage it effectively. So this is not just because of our scale. So indeed, we are probably one of the largest buyers in our industry, combining PC, smartphone, server storage business together.

But also, we have the best supply chain in our industry. So we are very proud of that. So actually, we are ranked #8 as again global supply chain -- top supply chain is [indiscernible].

And we have a much stronger and better relationship with the suppliers. And typically, we signed a long-term contract with some top upstream suppliers. So that we are very confident we can manage this situation better than our competition to ensure not only we have enough supply, not just for short term, but for entire year, next year.

But for sure, hopefully, the demand will not grow too fast than we forecasted. But also we believe we can get the most competitive cost so that we can remain competitive in the market while protecting our profit and margin.

More specifically, for the next 2 quarters, we are very confident we can continue to drive double-digit growth in both our PC business as well as our server and infrastructure solution business.

Meanwhile, we are confident that our margin and profitability will not be impacted during this period. Last but not least, from a longer-term point of view, so we have the mechanism in place to adjust the price and continue delivering on our commitment to ensure the market competitiveness while maintaining our margin and profitability. Thank you.

Thank you, Yuanqing. The second question is on PCs, and we also have a few questions on PCs as well. So we've got Anthony Leng from JPMorgan and Leping Huang from Huatai, asking about the PC outlook for the next year.

And from Leping, he mentioned congrats on the industry-leading 7.3% OP margin in IDG and looking ahead, how do you assess the headwind from the rising storage memory component prices? Are you confident in maintaining this margin profile via pass-through? Luca, can I invite you to answer the questions.

Thank you, and thanks, Anthony. Thank you, Leping. So maybe I'll start with the demand side. And here, I will say that we are definitely more optimistic than what we are seeing from some of the industry analyst reports.

So with the visibility, order visibility we have, as of now, I think we are confident to continue that we will continue to grow at double digit, at least for the next 2 quarters and also for the remainder of calendar 2026, on top of that, Lenovo will continue to grow at a premium to market, so faster than the market while maintaining industry-leading profitability, which brings me to the second point and our Chairman and CEO already mentioned it.

So regarding the memory SSD commodity cost up trend, first of all, I want to remind to all that this is something we have been able to manage several times in the past, in the previous many years, generally speaking, always successfully expanding our market share without impacting our profitability trajectory.

And that is coming with the combination of our strong procurement power, strategic inventory preparation that you can bet we made and definitely also the ability to understand each single market globally so that we know how to price correctly.

So I think the combination of all these things bring me to say that we will price in the right way to expand the market share, to continue to gain market share, like we did in the past. Now it's 9 consecutive quarters that we are gaining market share and maintaining our industry-leading margin and our industry-leading profitability. Thank you.

Thank you, Luca. The next question is from Cherry Ma from Macquarie. So this is on smartphone. She's asking the smartphone outlook for 2026 and what is our strategy for new product launches and the pricing given the component price increases?

And what's the market to focus on given emerging market demand would tend to be weak when phone prices go up? So can I invite Sergio to address this question? Sergio, please?

Yes. So thanks for the question. I think, I mean, no different than what Luca mentioned. I think, number one, we expect the market next year to go single digit, a little faster in value for the price adjustments.

We are not changing our strategy. So we have been 9 quarters premium to market. I think in the last few years, it's not the first time we see component pressures. We have navigated those cycles very efficiently given Lenovo supply chain position.

Our strategy continues the same. I mean we are going to double down in double-digit market, share markets, continued expansion in B2B that is growing double digit, and we will continue to accelerate premium.

We believe the premium devices will be a little less affected by the component costs rising. Our Edge and Razr franchises are growing 28% year-over-year. We continue to see much faster growth in that segment. And we are now further investing in the [ $400 to the $700 segment ] and above [ $700 ], you'll see some announcements.

We also will continue to double down on ecosystem. It's a fast-growing segment for us, and not less important to continue to invest in monetization. Now market-wise, we are more diversified now. So we believe our footprint is not -- we're not going to change.

We are seeing strong growth in markets like India, Japan, Italy, Middle East, Latin America, North America. So I think the footprint is appropriate for what we see ahead of us in the next 18 months. But our expectation is to continue to grow premium to market in the next quarters.

Thanks, Sergio. We've also got another question on SSG. So how do you capture opportunities in hybrid AI infrastructure, both in and outside of China? And what medium-term targets do you have for managed AI compute under TruScale? Yes. Ken, would you like to address this question?

Yes. Thank you. Thanks for the question, Jim. Well, so when we look at the deployment of AI, and there's a lot of customer feedback in terms of key consideration, right? I mean those key considerations are cost, latency, sovereignty, privacy.

And that's why I think our hybrid AI strategy resonate a lot with our customers. And also, as you can see, it's proven in our performance. So that's number one.

Number two, that is why we introduced the hybrid AI advantage, which is basically 3 important components. One is about the AI factory. Second is for the AI factory to power the solution, the AI solution for our customer.

And lastly is to put together by all these things by our AI services in order to help our customers to accelerate their AI journey and help them to achieve the fastest time to token, right?

I think this is so important in AI deployment and also getting ROI out of it. The other thing that we focus on is that there's a lot of requirement on agility and flexibility.

And that is why when we put the TruScale as a service on top of our AI factory, I think that is even more resonate with our customers. So with that, if you look at the market and especially on our performance, I think this part of the business is actually growing much faster than the overall market.

If you look at the overall IT services market, it's growing at about low single digit, but this part of the business is actually growing at double digit, and we are for sure much faster than the market. So thank you for your question, Jim.

Thanks, Ken. So previously, we've also got a question from Randy from UBS asking, can we sustain the strong growth and margins on SSG? And moving forward, are we considering separating the warrant business? Would you like to take this question, Ken?

Well, thank you for the question. If you look at our business, I think there are 3 parts of our business. One is definitely the attached business, right? The attached services is basically to make sure to elevate and enhance our hardware experience from pocket to the edge to the cloud.

The other part of our business is an extension of the attached business, right, into managing all the hardware and software and services in the workplace, which is digital workplace solution.

Second is based on our compute leadership, right? We help our customers to build hybrid cloud. And lastly is the sustainability business. I think this is one of the most sought after all over the world, right?

And the last part is our AI services, which is, as I answered earlier on, this is what is every customer is asking for. But when I look at all these businesses, they're actually interrelated, right?

If you look at AI services, I think it's AI are all powered by hardware, powered by compute, right? So you need to make sure you have the world-class hardware as well as the world-class experience in order to deliver AI ROI, right? So my point of view is it has to be integrated and each part of our business plays an important part of the overall AI solution.

Thank you, Ken. The next question also comes from Leping Huang from Huatai Securities. It's on our Alat strategic partnership. So could you share a timeline for the MEA manufacturing hub coming online? And when can we expect material financial contribution? Can I invite Winston, our CFO, to answer this question? Winston, please?

Sure, thank you, Lixi. Thank you Leping for the question. I think in February, our Chairman, YY actually went to do the opening ground ceremony. And last month, he also visited the Saudi and saw now a group over a very well developed plant. So I think I personally was there as well, very much amazed by the progress.

I think this is even fast for China standards. So amazing progress in the foreign land. The plant is one of the most complete for us in the international market.

We will have desktop PC, mobile and server. So one of the most complete plants that we have in our supply chain. In terms of the timing, we'll start testing next month with volume production really by the middle of next year.

I think we are doing quite well in the business, particularly in the PC space, where we have a #2 position there and really continue to gain.

And so I think from that basis, we're looking to expand our business there by way of server and also mobile, where we will now have a more focused opportunity.

So a lot of dialogue, a lot of excitement for our plants, which have been recognized locally there as the most complete end-to-end manufacturing, not just simple assembly. So I think we expect to have quite a bit of traction and market expansion opportunity with the made in Saudi products coming out. Thank you.

Thanks, Winston. We've got more questions on ISG. So can you update us on the ESMB initiatives on ISG to drive profitability improvement? And how much should we factor offsets from the component cost? This question is from Randy Abrams from UBS. Can I invite Ashley to answer this question? Ashley, please?

Sure. Thank you for the question. Maybe I'll also address the general server market as well as part of that. Today, we're experiencing strong momentum in the ISG business. That's mainly driven by accelerating demand for AI infrastructure, various new customer engagements and also definitely our unique dual CSP and ESMB strategy.

And we think this momentum will provide a strong foundation for our commitment to long-term sustained profitability in our ISG business. If I elaborate in CSP, we're seeing our industry-leading scale and our unique Lenovo R&D deliver strong growth across the customer base of hyperscale to now emerging neo cloud AI providers.

And in ESMB, we saw a solid 30% year-over-year revenue growth, reflecting much stronger than market momentum. This is driven by our focus on new transactional models, commercial AI growth and Lenovo's high-performance infrastructure portfolio.

We saw Lenovo's AI server growth at high double-digit year-over-year. And we are really proud of the growth in our Neptune direct liquid-cooling solution, which grew well over market at 150-plus percent year-over-year.

So for all the reasons that YY mentioned earlier, we believe the server and data center infrastructure market will expand over the next year by high double digits in year-over-year revenue in the CSP segment and by high single-digit percentage year-over-year in the ESMB segment. We remain very optimistic that the compelling value of our AI portfolio and services continue to drive our ISG growth momentum and improving profitability. Thank you.

Thank you, Ashley. We've also got some follow-up questions on the general server demand in calendar year 2025. And how do you think the general server demand will trend into the next calendar year? This is from Howard Kao from Morgan Stanley. Perhaps if you can give a little bit more color on the general server demand side. Ashley, please.

Sure. Thank you for the question. As I said earlier, I think if we segment the server market through our lens of CSP and ESMB, we believe we'll see continued high double-digit growth in the CSP segment and high single-digit growth in the ESMB segment, which would include for us general server marketplace.

What we believe that as YY mentioned, AI democratization is a very compelling transformation and productivity enhancement for our customers, along with our capability to deploy in a very quick manner with our services capability. And we think this market remains impacted by AI going forward. And so we remain optimistic that the general server growth in the marketplace that we see this year will continue in the next calendar year.

Thanks Ashley, great answers. For AI PC, we've seen some interest from analysts and investor communities. So Lenovo appears ahead in AI PC penetration versus our peers. So what is the strategy driving this competitive edge? And how durable are these competitive edge to us? This is from Jim Au from DBS. Can I please invite Luca to answer this question? Luca?

Thank you. Thanks, Jim. So I will say we definitely have been working hard to build our AI PC franchise. And currently, as you probably know, we are the #1 in Windows AI PC with over 30% of share.

I would say that the current results come from our innovation capability, combined with time-to-market, combined with the best-in-class cost structure and then our operational excellence and our unique, what we call Global/Local business model.

So I think all these advantages that I mentioned, they are structural and they will continue to serve us in the future. But additionally, we are also not standing by, and we look forward to what will be the new AI native device era. And here, we will leverage our unique position for the breadth of our offering, PC, tablet, smartphone, IoT devices, all part of a single ecosystem driven by our vision of One AI, Multiple Devices.

So on this front, you will see us doubling down with new innovations, a lot of new innovation coming at the Tech World at the Sphere in Las Vegas coming soon in January 2026 during CES. So I believe that this innovation -- new innovation will also serve us to help us to solidify our competitive advantage. So to be frank, our ambition is to continue to expand our market share above and beyond where we are today while expanding profitability at the same time. Thank you.

Thank you, Luca. So back to ISG. We don't really break down the CSP and ESMB, but what is Lenovo's expectation on the growth rate in these 2 segments in the coming 2 years?

So this is from Robert Cheng from Bank of America. So actually, we've also got additional question from Jim Au from DBS and asking how do we capture the ISG opportunity through our Neptune liquid cooling service. Perhaps you can help address these 2 questions, Ashley.

Thanks for the question. As I said earlier, I think we remain pretty optimistic that the democratization of AI through both personal use and use by enterprise customers is a very compelling reason for our customers and what they tell us to drive enhancements in their infrastructure.

And so we don't break out, as we said, our segmentation revenue. But we see double-digit and high double-digit growth in the CSP market that we serve in that segmentation and high single digit in general or the ESMB space as well, mainly driven, of course, by many workloads with AI really becoming one of the most important workloads that our customers are deploying.

We believe that one of the factors in AI deployment for all customers, enterprise, small and medium business, global hyperscale Tier 2, it doesn't matter. It's really making sure that power consumption and the efficiency of power usage and cooling remains a factor within how they deploy, how they use, what they can afford.

And so this is where a multi-decade development of industry-leading direct liquid-cooling and water-cooling system, Neptune, which we're now on our sixth generation of development of has become a very important engagement with our customers through services and capability.

We believe that we've helped the most customers in the industry convert data centers over from air cooled to liquid cool, and that's reflected in our very, very high growth rates going forward.

We continue to invest in the business and in the R&D and technology on behalf of our customers. And so over the next 2 years, we believe this will become one of the dominant factors in choosing Lenovo AI infrastructure going forward.

Great. Thanks a lot, Ashley. Next question is on our smartphone. So what is our smartphone AI strategy in leveraging Lenovo's strong PC installment? What is the current monetization road map for Moto AI? Sergio, can I invite you to answer this question, please. Thank you.

Thanks for the question. Well, our strategy, One AI, Multiple Devices, so full leverage across Lenovo AI capabilities. Our mobile monetization strategy is anchored in providing our customers a differentiated and integrated experience, which will drive growth for the business.

So our approach links devices for multiple partners, Microsoft, Google, Perplexity, many others. And these efforts are fully integrated into the group AI strategy. So we believe the cross-device experience is going to be the key differentiator for our solutions in the future.

Now in terms of monetization, we are looking to the device value uplift. So AI features drive premium attach rates, AURs and volume increase, preloads and ads and of course, very strategic AI partnerships with shared revenue.

So a lot happening, and a lot of leverage from the broader group, and our vision is fully integrated with One AI, Multiple Devices.

Thank you, Sergio. We've got one more question on ISG. So in AI servers, you talked about the AI inferencing being a significant market opportunities. What is Lenovo's strategy to capture the potential growth upside? Ashley, would you like to answer this question, please?

Thanks for the question. In addition, as you mentioned, with the inference being a significant market opportunity, we think we're only in the beginning of that market opportunity.

We see through our -- especially through our CSP business, we're able to work with customers on foundational frontier model training, and we're beginning to see the move into production AI models, agents and capabilities into the enterprise, which requires a focus on inferencing services capability and infrastructure.

As an example, today, our recent addition to the portfolio of the NVIDIA RTX 6000 Pro family across, for instance, today, we're delivering on our ThinkSystem, SR675 V3 and the SR658, V4 has already become a significant portion of our AI server demand and delivery.

And so we expect as we continue to build out the world's best inferencing capability, as Ken said, really delivering time to token that this becomes a very important part of our business and of into our customers.

Thank you. We've got one more question. So on the overall outlook, it's from Randy Abrams from UBS. How are our business tracking into the year-end? And what is the initial view for first quarter versus our normal seasonality? I think with this question, I would like to invite our Group CFO, Winston, to answer it. Winston, please?

Sorry, the question is -- can you just repeat?

The overall group outlook into the year-end.

As stated earlier, and I think we reaffirmed today by our business leaders, I think we are reaffirming what we have in the Street estimates even prior to the recent changes by some of the analysts, in particular due to the DRAM cycle. So we continue to see strength in the order, particularly for PCs, as Luca mentioned earlier.

So we are confident of the estimates out there. I think they may be slightly lower, but haven't tracked in the past few days given some revisions in the target price, but maybe not the estimate. I don't -- this part of me I have not changed the check. But I think overall, we are reaffirming what we had outlook a couple a month ago or even before. So I think consistent with the [indiscernible].

Thank you very much. I think for the next question, we would like to invite Luca to answer. This is from Goldman Sachs, Verena Jeng, and she was asking if there's any plan for AI or AR glasses or new devices outside of our existing portfolio. Luca, would you like to give a few comments on this?

Sure. So as I alluded before, we are not standing by. And obviously, with this AI revolution that is in front of us, we are getting ready for that. That includes more AI native devices, more AI sensing devices.

But of course, today, I will not launch or announce anything, but I will invite all the analysts to follow us at Tech World in the Sphere in Las Vegas, in January. We -- that will be the beginning of a journey where AI ecosystem -- One AI, Multiple devices, will be at the epicenter. Thank you.

Thank you very much, Luca. It's an exciting journey ahead, and we're very looking forward to our Tech World next year. So this is the end of our earnings announcement and webcast, and thank you, everyone, for joining this webcast. Thank you. Goodbye.