Winston Cheng, CFO of Lenovo discusses the expected demand in the company's AI business. In response to bubble concerns, he says there could be some valuation adjustment within the sector, but believes AI is being led by solid fundamental companies that are well funded.

Beijing

Lenovo's Chief Financial Officer emphasized the company's commitment to long-term investment in artificial intelligence, citing robust growth in its AI and server businesses. The company continues to expand its capacity to meet strong market demand, particularly in areas such as liquid cooling for AI servers, and is preparing for future trends like AI inferencing.

Despite industry-wide challenges such as memory chip shortages and price fluctuations, Lenovo has managed to maintain supply stability and market share growth through strategic supplier engagement and inventory management. The company holds leading positions in multiple PC segments globally and expects that future developments in AI will further support healthy margins and business growth.

AI is a long term game and we're investing in it: Lenovo CFO

We have a very diversified ISG business. We serve both the cloud service provider, hyperscalers, but also the HPCs, and also the enterprise and small and medium businesses. So we are a very, very diversified ISG business. So our capacity is sometimes not necessary for rack-based, but overall our plants around the world, we have a lot of capacity that can fuel the growth of a business that we need. The market demand is very, very strong. There is a fundamental demand. The overall, in the last 10 years, you will see that the server market, which traditionally the devices market was larger, and now has surpassed the devices market. So we see this as a sign for infrastructure built. And then we actually are pretty optimistic that the device market will actually then grow to become even bigger in the future. So that's something that we have observed. Are you worried about the bubble that the market continues to swing wildly? On Friday, a huge sell-down. Hopefully, we should see a rebound today, given the strength that was in the U.S. market. What are your concerns about a bubble? Clearly, the market is driven by several factors, fundamentals, but also valuation. I think this could be some valuation adjustment, of course, also sectorial within AI. But I think overall, AI is being led by very, very solid fundamental companies, right? And so overall, these type of hyperscalers in the global top eight, I would say, are very well funded. Even the next tier, I think there's a lot of talk about new cloud service providers, but I think the equity markets right now, private markets, are funding these players, and we're seeing healthy offtake from also healthy companies. So those dynamics we're watching closely, and we're happy to, very, very happy to do business with these group of players. Very, very strong group of fundamentals, and there's long-term trend in terms of AI. Can you share with us the rack demand that you're seeing? How many racks are you guys making in a week, and what is your planned AI infrastructure spend? I think overall, our AI business is probably going to be continuing to be very strong in terms of our liquid cooling business, strong triple-digit growth, and we're seeing that quarter after quarter. And we have leading technology in this regard from our acquisition through the IBM x86. So we were already doing this from over 10 years ago. So I think this part really fundamentally supports the growth of the high demands of AI, particularly in terms of power consumption. So I think from that perspective, we're well positioned. In terms of the AI business overall for servers, I think it's a very long-term game, and we're really investing it. We hire a new leader last year, and really driving this business, and we're overall having an overhaul of this business as well to really align for the future. And that future right now, currently driven by AI training, right? Next phase really around AI inferencing, and we're well positioned for that as well. Let's talk about some devices. We heard from smartphone maker Xiaomi last week about flagging price hikes next week due to memory chips. The shortage there for smartphones as well as laptops. Your CEO Yang Yuanqing said that you guys can manage the situation better than competition. Can you elaborate on that? Yeah, no, we're very well positioned. I think as I said earlier, our business has been growing very, very fast. So while the market was really cautious for the second half of this calendar year, so we continue to engage with suppliers, and the suppliers really appreciate that. We continue on our confidence in our business to be able to continue to secure the supply, and to grow our business, and to gain share, I think has been a fundamental factor in terms of supplying that engagement with the supply chain. Of course, as part of that, we also saw memory prices going up significantly in the last quarter. And so on the back of that, we've been actually buying more, and so really holding our weeks of inventory in terms of parts higher than we usually would. And of course, we've also secured long-term contracts as well. Have you had to raise prices as a result of chips or Trump tariffs? We will supply, we will balance this as part of what we see in terms of end demand, working very closely with our channel partners in terms of how to really best clear the market. And I think from this perspective, we're better than, we're best in class from this perspective to do this. And we continue to gain share in terms of our PC, now 25.6%, global number one, highest market share ever, in terms of AI PC, Windows-based, even higher at 31 plus percent. So I think we feel very comfortable in our balance in terms of geography. So not just concentrating in one market, and also balance across segments. Commercial number one, consumer number one, gaming number one, premium number one, AI PC number one. So all of these number ones make us feel very solid about our prospect going forward. Can you talk about your profit margins and your gross margins? How is it impacted by potentially all these concerns about memory chips? You know, talk about margins. Well, as a CFO, you're never happy with the margins. You always want it to go higher. So I think, but I think overall, given the growth of our business in the last several quarters, in terms of market share gains, I think for the IDG in particular, given the growth of that business and market share gains, the margins was actually relatively stable. So very, very healthy, I think. And we're growing in the premium segment. Within the overall group, because of the rapid growth of our CSP business, I think that has a natural dilutive effect. But that business is very profitable operating basis. So I think we continue to feel that. And as I said earlier, the current trend is for AI training. And so a lot of it is with the CSP related hyperscaler business. But the next phase would be the AI influencing as it relates to enterprise and SMB. And I think that has much more of a normalized industry margin. And I think that should be drive our overall group margin higher as well.

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Breakdown