Good morning and good evening. Welcome to Lenovo's earnings webcast. Thanks to everyone for joining us. This is Jenny Lai, Vice President of Investor Relations. Before we start, let me introduce our management team joining the call today. We have Lenovo's Chairman and CEO, Mr. Yang Yuanqing; Group President and COO, Mr. Gianfranco Lanci; Group CFO, Mr. Wong Wai Ming; President of Data Center Group, Mr. Kirk Skaugen; and President of Motorola, Mr. Sergio Buniac. We will begin with a presentation shortly, and after that, we will open the call for questions. Without further ado, let me turn the call over to Yuanqing. Yuanqing, please.
Hello, everyone. Thank you for joining us. I'm pleased to talk about our record-setting second quarter performance and our vision for further growth in today's fast-changing world. Despite a challenging environment last quarter, we delivered a record quarter performance in both revenue and profit. Revenue reached a new height of $14.5 billion, growing over 7% year-on-year. All of our core businesses delivered a year-on-year growth for the first time in six quarters. Profit showed even stronger growth, with the pre-tax income and the net income both up over 50% year-on-year. Pre-tax income reached $470 million, and the net income reached $310 million. In addition, the top three credit rating agencies granted Lenovo strong investment-grade rating, further strengthening our ability to finance our growth. In our Intelligent Devices Group, PC and Smart Devices delivered another historic quarter.
Revenue up 8%, while pre-tax income improved 18% year-on-year. Both set a new record. Although market is shifting to consumer segments, we still maintained our industry leading and record profitability of 6.3% through excellent and high efficient operations. We returned to number one in PC with almost 24% market share. Our focus in high growth and the premium segments continued to drive strong growth. Despite the currency volatility in Latin America, our mobile business revenue grew 39% quarter-to-quarter and returned to year-on-year growth as we continued our strong recovery from the impact of COVID-19. Besides further solidifying presence in our stronghold markets like Latin America and North America, we have accelerated our development in Europe and Asia Pacific and saw clear results.
In addition to our strong product portfolio, we launched the Razr 5G phone and the Lenovo Legion gaming phone. Both have been well-received by market. In data center, we again saw double-digit revenue growth with improved profitability year-on-year. Our cloud service provider segment continued to grow over 30% year-on-year, with strong growth across all geographies, particularly thanks to years of investment in in-house design and manufacturing. We displaced the major ODMs to become the motherboard and system design partner to a top cloud service provider. We have also expanded the capacity of our factory in Monterrey, Mexico, to serve data center customers across the Americas. In enterprise and SMB segments, our revenue stayed close to flat year-on-year. We did outperform the market.
Our focus continued to drive double-digit growth year-on-year across software-defined infrastructure, storage, software and the service segments even more. We recently announced an exciting partnership with SAP. Our TruScale infrastructure as a service, combined with SAP's HANA Enterprise Cloud, enables customers to keep their sensitive data on premises and secure, while enjoying the flexibility of a pay-as-you-go consumption model. We already see strong customer response to this offering. Our service-led intelligent transformation continued to make a solid progress with smart IoT, smart infrastructure, and smart verticals revenue, each growing by strong double digits year-on-year. In terms of service, our attached service, managed service, and the solution service also continued the faster growth. Particularly, Device as a Service, triples its total contract value year-on-year.
Overall, software and the services revenue grew to a new record of over $1.2 billion, up 39% year-on-year, and now accounts for 8.5% of our total global revenue, even as total revenue increases. Our e-commerce revenue also grew by over 40% year-on-year. I have talked about the long-term growth of the total technology market in the new normal for two quarters. PCs and tablets are now one device per person. The cloud infrastructure is growing rapidly because of the work, learn, and play from home economy. We believe the total PC market will grow by around 25 million units and reach very close to 300 million units in just the current calendar year. Both device and cloud infrastructure market growth will continue for the long term. To meet the increasing demand of our valued customers, we are committed to further improving our supply going forward.
As the pandemic changes customer behavior, Lenovo continues to innovate and lead in this period of rapid change. Last week, we demonstrated our results and vision in innovation at our annual flagship event, Lenovo Tech World. At the client device level, we are expanding the idea of a computer to our computing everywhere with new form factors. In Edge, we offer both hardware and our own AI-enabled edge computing platform. In cloud, we can design, install, and maintain public and private cloud, as well as provide multi-cloud management solutions. We are expanding our infrastructure as a service to attach platform as a service and software as a service. In network, we now can file more than 1,000 5G essential patent applications and implement 5G networks and applications with network cloud conversion, virtualization, and network slicing technology.
Finally, with all these technologies, combined with intelligence like machine learning and artificial intelligence, we generate insight and provide solutions to customers of various industries and drive intelligent transformation. I believe that technology has never been so essential to humanity as it is today. Customers have new requirements to meeting this new normal. Our success in meeting these needs is demonstrated not only by our strong results this quarter, but also by how our service-led transformation prepares our growth well into the future. Thank you. Now, let me turn it over to our CFO, Wai Ming, Wai Ming please.
Thank you, Yuanqing. I will now take you through Lenovo's financial and operational performance in the second quarter. Thank you, Yuanqing. I will now take you through Lenovo's financial and operational performance in the second quarter fiscal year 2021. Next chart, please. The group continued its record performance in the second fiscal quarter. We set a number of performance records while still navigating the ongoing pandemic. Our revenue increased 7% year-on-year to reach all-time high of $14.5 billion. All three business groups recorded positive year-to-year revenue growth. Resilient and strong growth was achieved as a result of structural changes in demand of computing device, which include e-learning, work from home, play at home, and cloud. This also resulted in a gain in market share during the quarter. The group's gross margin improved 0.2 points quarter-on-quarter thanks to high-growth and premium segments.
The software and services and e-commerce grew their revenue strongly by 39% and 42% respectively year-on-year. Their high margin rates continue to support our strong profit trajectory. The segment profitability has improved, including margin rate expansion in consumer, Chromebook, e-commerce, and gaming segments. A higher COVID-19-led logistic cost caused a moderate year-on-year decline on gross margin. Our E/R ratio was reduced by 1.2 percentage points to 11.6% in the quarter, a result of our disciplined expense control and operational efficiency. Next chart, please. Our business group total pretax profit grew 15% year-on-year to reach a new record of $654 million. During the quarter, we recognized a fair value gain of $104 million on strategic investment, netted by a $53 million provision for intellectual property in our unallocated headquarter and corporate expenses. Our profit performance has reached a new milestone.
Profit attributable to equity holders increased by 53% to all-time high of $310 million, with consistent improvement across all three of our business groups. The basic earnings per share came in at $0.0259, up 33% from the previous year. The board of directors declared today an interim dividend of HKD 0.066, representing an approximately 5% increase on the interim dividend paid in the last fiscal year. Next chart, please. We lower our net debt by $390 million, thanks to the strong cash flow generated from our operations, and our finance cost reduced further by $45 million or 33% year-on-year. In October, we received strong inaugural investment-grade ratings from three leading credit rating agencies and successfully completed the first 144A issuance of $1 billion 10-year senior notes.
We will use the proceeds to retire a portion of the perpetual securities and secure notes in an effort to improve the efficiency of the group's liability management, while further reducing our financing costs and extending our test tenure. Inventory days improved sequentially by two days thanks to strong demand. Its year-on-year increase of 11 days was due to our strategic buy-ahead actions to secure critical parts. Next slide, please. PCSD revenue grew by 7.6% year-on-year to $11.5 billion in the quarter. Pre-tax margin expanded by 0.6 percentage points to a record of 6.3%. Pre-tax profit increased by 18% year-on-year to $723 million. This record-breaking achievement in the second fiscal quarter are encouraging, as peak of seasonality normally occurs in our third quarter. I would like to take this opportunity to discuss our pre-tax margin for PCSD. The process of managing margins is dynamic.
We have enjoyed strong scaling benefits, and we have the most competitive profile in each of the segments we are servicing. Even the consumer and Chromebook sales, which traditionally carry lower margins, we are focused on higher-margin projects to optimize and improve their segment profitability. For high-margin products such as software, services, e-commerce, and high-growth segments including thin and light and gaming, we have doubled down on our investment to boost the contribution of these segments and hence gain market share. We are confident in maintaining the PTI margin above 6% on a sustainable basis. Next chart, please. Thanks to rebound in market demand, the team's continued efforts in expanding portfolio and carrier ranging, MBG average selling prices improved, and the business group delivered strong revenue recovery, resulting in 39% sequential growth, returning to a revenue scale of $1.5 billion, up 1% year-on-year.
The sales recovery helped to narrow MBG losses before taxation by $28 million quarter-on-quarter to $22 million, and the business was now cash flow positive. The business was impacted by higher freight costs, which show a decline in profitability by $30 million year-on-year. We expect the business will continue to grow and resume its profit growth track going forward. The business will continue to execute its portfolio expansion to increase global market share. Its 5G for all market strategy is starting to bear fruit. With our flagship Razr 5G phone launches, our 5G products now span across all product segments, which helps to drive ASP expansion. The revenue contribution from 5G models more than doubled quarter-on-quarter. The business will continue to execute its strategy while preparing for more aggressive carrier penetration. Next chart, please.
Our DCG continued to capitalize on cloud demand and achieved premium to market growth during the second quarter. With strong momentum and continued client diversification, cloud service provider or CSP revenue growth accelerated to 34% year-on-year. The prospect for CSP has been promising thanks to the richer mix of solutions and design wins supported by our in-house design and manufacturing. Enterprise and SMB or ESMB segment continued to outperform the market. Our revenue posted a small year-on-year decline of 1.7%, a solid performance compared to the sluggish sector. We achieved this superior performance based on the double-digit growth in software-defined infrastructure, storage, and software and services. DCG business continued to improve its operational result by $11 million quarter-on-quarter and $4 million year-on-year to a pre-tax loss of $47 million.
The group efforts in product diversification and development of alternative platforms, the availability of high-end system as well as storage solutions have started to pay off. With our continued works in more margin wins for profitable projects and advanced configurations, DCG is on track to drive long-term growth and profitability over time. Next slide, please. The invoice revenue of software and services surpassed $1.2 billion in the second quarter with a 39% year-on-year growth, whereas deferred revenue grew 26% to nearly $2 billion. Since the outbreak of the pandemic, there is a surge of interest in our service capability, as clearly reflected in the strong new contract pipeline we have built across attached services, managed services, and complex solutions. Among all, DaaS and infrastructure as a service are gaining significant momentum. The recent DCG partnership with SAP was an important landmark deal highlighting the potential for infrastructure as a service.
Next chart, please. Looking forward, the dynamic shift in PC demand will continue to create tailwinds for e-learning, work from home, play from home, cloud infrastructure, and 5G. We are optimistic that these long-term structural trends could enlarge the addressable market for PCSD and cloud infrastructure, as well as accelerate the development of 5G services. Our PCSD business will continue to drive premium to market revenue growth through investment in the high growth and premium segments. We are confident to increase supply to meet the strong demand. We will continue to build capabilities to drive sales growth in the software and services business and expand e-commerce based on this well-established infrastructure. For the MBG business, the group will invest in product innovation, including offering new and differentiated 5G smartphones.
MBG will seek to strengthen its competitiveness in target markets to grow at a premium to the market and improve long-term profitability. For the DCG business, the group aims to deliver premium to market growth and improve profitability. For its cloud service provider business, the group's new design wins will expand its wallet share with existing accounts by leveraging its unique strength in the global supply chain and worldwide reach, while expanding its portfolio with new product solutions and platforms. Lastly, in the enterprise and the SMB segment, the group will grow its high-margin service attach rate of self-premium services and expand its hybrid cloud solutions to drive profit improvements. Thank you. Now we can take your questions.
Thank you, Wai Ming. Now we will open the line for questions, and this session will be English only. Please be reminded to limit yourself to two questions at a time. Please also state your name and company before asking questions. Operator, I will now turn it over to you. Please give us your instructions.
Thank you very much. Ladies and gentlemen, if you would like to ask a question on the phone, please press star one and wait for your name to be announced. If you want to cancel your request, please press the pound or hash key. Once again to ask a question, please press star one. There will be a short silence while questions are being collected, thank you for your patience. We have the first question from the line of Howard Kao from Morgan Stanley. Please go ahead.
Hi. Congratulations on the quarter, thank you for taking my questions. My first question is on PC. YY, you mentioned in your prepared remarks that this year, you guys are expecting PC demand to be close to 300 million units. I think most investors are curious about your outlook for calendar year 2021. If possible, could you comment about, one is on the total market, whether you guys see the growth rate to continue in calendar year 2021, and also by sub-segments, if you guys can comment about the outlook for PCs, for example, gaming, educational, enterprise, as well as traditional consumer. Thank you. I have a follow-up.
Thank you, Howard. I would suggest Gianfranco Lanci to answer this question. Gianfranco? Are you there?
Hello?
Yes.
Can you hear me?
Yes.
Yes, YY. As we said, we see 2020 is probably going to be, as YY said, 25 million additional units in terms of total available market, right? It's coming from more or less -5 million Q1, then +10 million for the following three quarters. The market will be probably between 295 million and 300 million. If I look at 2021, in our opinion, we see additional 15 million-20 million TAM growth. Coming from, for sure, a big growth in Q1, because this year Q1 was the starting of the pandemic in most of the world, right? Then I think it's going to sustain for Q2, Q3, and until Q4. Assuming something in the range of 300 million this year, I think 6%-7% growth in 2021. Coming from, we will continue to see a very strong demand on education.
Not only, let's say, not only U.S., not only Japan, but most of the countries. Gaming, I think, will continue to grow because it's consumer. I think we will continue to see similar growth that we have seen in 2020, 2021 on this segment. I think the only segment that is probably going to show a very moderated growth is enterprise. At least, I'm not particularly optimistic in beginning of the year Q1, Q2, and then probably we will see enterprise starting to invest again in Q3, Q4 next year. Overall, probably a very small growth, or maybe more or less no growth. Education, gaming, and consumer, I think we will continue to see something similar to this year. This is why, in our opinion, 50, 20 million additional units in terms of TAM is what we predict for 2021.
Thank you.
Okay, thank you. My follow-up is on your remarks regarding the strong growth that you guys expect in the educational space. There are a lot of PC brands, not only Lenovo, but basically everyone is expanding their Chromebook product portfolio. Just in regards to competition, how do you guys see competition for Chromebooks going into 2021, whether that will drive some kind of ASP erosion on a year-on-year basis?
Frankly speaking, when you look at the number of players on Chromebook is more or less always the same. I really don't see a lot of new players can. There are four to five players in the Chromebook space. I don't see additional players can, not only. If I look at the evolution of Chromebook during the last three quarters, the ASP is going up, mainly for two reasons. There is a part that is related to education. There is also very good growth, talking about Chromebook on consumer. The average selling price of consumer is very different. Even on education, we have seen $10-$20 improvement in terms of average selling price.
On top, we will see probably mid of next year or later next year, 5G Chromebook coming. With the good 5G connectivity or 4G connectivity, because people they need to be always connected. I'm not afraid of any deterioration of the average selling price on Chromebook. We don't see any trend.
Yeah. Gianfranco, our Chromebook increase is significant last quarter, but we still shipped much less than our competition, key competitors. If you see our AUR, actually it's much better than our competitors. We are less impacted by the Chromebook and the low-end product. That's one thing I hope you can pay attention to. Actually, we know the market is shifting from enterprise to consumer. At Lenovo, we are more focusing on the high-end product in the consumer, like thin and light, like gaming PC, with much higher AUR and definitely margin. That's the first point I want to mention. The second point is, when market is shifting to the consumer, so Lenovo, we are more focusing on improving our expense to revenue. We know to sell a consumer product is different from to sell enterprise product.
If you don't have the efficient expense-to-revenue, you will not have the good margin in the consumer. If you can see our E/R ratio, we improved significantly last quarter. That even in the low-end product, Chromebook, tablet, we still can deliver very different profit. Probably you cannot imagine. Our tablet profit, let's say pre-tax income ratio, is even higher than our entire PC segment. That's just $100, $200 product tag. We still can make very different margin. The third one is, in the past, we sell only hardware. Now we emphasize the service. We sell more hardware with attached services. You know the service definitely. The margin and the profit is much higher than in the hardware. With these three focus on shift, we are driving the better margin and the PTI. Yeah, so particularly PTI.
If you look at the last quarter, our PTI in the PCSD was a historical high, so 6.3%. We believe, so Gianfranco, at least the third, we can maintain this PTI ratio, right?
Yes.
Got it. Very clear. Thank you.
Thank you for the question. Our next question comes from the line of Jerry Xu of Credit Suisse. Please go ahead.
Yeah. Hi. Thank you for taking my question. I want to follow up on the comments about the gross margin. I think, in the prepared remarks, you have mentioned that the past quarter's gross margin was impacted by a higher mix coming from consumer Chromebook. Could you give some color about what is the mix coming from these two segments in the last quarter, and how do you view how the mix is going to change into the third quarter of this year, and how will that impact your overall gross margin?
Gianfranco?
You mean impact the positive or negative?
Well, I think, on a group level, I think, whether it's going to be positive or negative, yeah.
What I think we have been very, very clear that we don't see any deterioration of the margin coming from the different mix for a few reasons. One, as YY already said, when you look at Chromebook, our mix of Chromebook compared to the rest of the market is relatively small. I can give you a very simple example, because it's part, you can find it from market researchers. I'm not disclosing anything. I think we shipped 1.7 million last quarter, Chromebook. One of our largest competitor, they ship 3.7 million or something like that. We ship more than 19 million. The weight of Chromebook on 1.7 million out of 19 million is less than 10%, right? We've been able to improve ASP because we look at deal by deal, and we pay attention on what is the marginality of the different deal.
The mix, the impact coming from Chromebook, it's almost irrelevant, and probably compared to the past, we have seen a good improvement on both margin and AUR on Chromebook. Consumer, same story. Now we are running consumer at profitability that is very close to the average profitability of PCSD. Very close to the 6.3%. Why? Again, our mix of consumer, we are not focused on low end at all, is mainly coming from gaming, thin and light, or what we call, let's say, prosumer. That is still part of consumer because it's mainly coming from consumer in terms of addressing this new segment, that is the segment of people working from home. In terms of margin, I think when I look at PCSD margin compared to last quarter, compared to last year, there is no deterioration at all.
When I look at this quarter, so Q4 calendar year or Q3 financial year, the trend is exactly the same as Q2, last quarter. The only small impact, but we've been able to absorb the impact coming from better margin on the product is logistics. Logistics continue to be more expensive than before. This is already from, let's say Q1, just after the February, March. We need to move things sometimes by air, due to the supply shortage. Logistics is still more expensive than one year before. When you look, we have been able to compensate with better margin on the product because you don't see deterioration of the margin coming from logistics.
Thank you. Okay. Thank you. Then a follow-up question is, I think you also mentioned about the DCG expanding a factory in Mexico. Can you provide a little bit color about what's the capacity in this area as percentage of the overall, the group's capacity, and also what kind of service that is expected to be in that facility?
Kirk.
Yeah. Hi, can you hear me okay?
Yes.
Great. Yeah, thank you for the question. I think we're excited about the growing customer design wins we have in North America, as well as in the cloud service provider space. While some of our competitors had significant issues supplying through this COVID pandemic into North America, we just had our Tech World, and you heard customers like DreamWorks, who we just signed a five-year relationship with, say that they were able to deploy a supercomputer flawlessly through the pandemic. The Monterrey, Mexico facility expansion is going to be a dedicated expansion of our factory. We're moving into a second building. It's up and operational, and we've started shipping our first racks into some of the Tier 1 cloud service providers.
I think this is a good sign, I think, for the market that we're confident in the growth, both in North America for Enterprise SMB, as well as in the cloud service providers. They've asked us to increase the capacity based on future orders that we've had. Over time, we will not just do the system development, but also do motherboard development in multiple geographies. Again, I think with North America being the largest Data Center market, it's also our strongest growing market right now. We're excited that that plant is now fully up and operational. It's a significant capacity expansion. Thank you.
Okay. Thank you.
Thank you for the question. Next question comes from the line of Sebastian Hou from CLSA Securities. Please go ahead.
I think the first questions I have is on the DaaS. Total contract value grew triple digits, which is a pretty impressive result. I'm curious about what's your current expectation for the invoiced revenue. Still tracking about $1 billion, for this fiscal year? If we look from the group company perspective, what's the adoption rate of such a subscription business model now for both the PC and PCSD and DCG business, and what's the reasonable target, say, in two years from now? Thank you.
Gianfranco, would you like to answer first?
Yes, YY. DaaS, I think what is the reason, I would say one for sure. We are probably one of the few company today able to offer a worldwide coverage in terms of DaaS. For large enterprise, I would say Fortune 500, but not only Fortune 500, with the operation all around the world, there are very few people today able to offer a DaaS solution that is able to cover the entire world. Of course, the other big reason is that if people, they start to realize, like in other businesses, if you take car or other things, it's very similar. The opportunity to change after two to three years your install base, just paying a monthly fee and without any asset cost. It's a very good solution because you have a new install base every three years.
You have the service covering for the three years, whatever you need. The last thing is that we started to address DaaS also for small-medium business, mainly through the channel. Today, we have a solution on DaaS that is going from very large enterprise down to, let's say, medium business. In terms of perspective, in my opinion, we have seen that it's growing 40%, 50%, 60% the entire service revenue, right? Our service revenue is growing more or less in the range of 40%, now very consistent during the last probably four to five or six quarters, more than one year, almost two years. We reach $1.2 billion as a company this quarter, and I think that very soon it will represent 10% of our total revenue. In my opinion, between three to five years, can represent probably 20% of the total revenue.
Thank you, Gianfranco. Kirk, would you like to add something on our TruScale, particularly the deal with SAP?
Sure, YY. We're extremely excited, as we announced just recently at Tech World with the CEO of SAP, that their new HANA Enterprise Cloud, customer edition will be available now using Lenovo TruScale. TruScale is our as-a-service brand that does on-demand pay-as-you-consume metering and enables you to get cloud-like economics, but be able to have that hardware located on your premise, either for security or for your own data requirements. This was a significant commitment by SAP to both TruScale and as a service, where they'll be enabling that to their customers to support the new on-premise HANA Enterprise Cloud. Previously, we had won many of the Tier 1 cloud providers as SAP moved to the public cloud. We're seeing TruScale as a great example there, and SAP is just another example of the momentum we have there. Thank you.
Yeah. I think the SaaS and the on-prem data center or infrastructure as a service will be the number one focus area for a long time. That will help us to drive this service-led transformation. Because the SaaS or data center as a service will not help us to shift the customer from the transactional customer to a subscription customer. Also, that give us the opportunity to attach more services at the top and the side. That's why I think for this kind of business, there is a very bright pitch. That can help us to drive not just the growth, but also profitability improvement.
Thank you. I have a follow-up. Is that with the TruScale offering on the enterprise IT solutions and also more in-house motherboard design to win more CSP business, also lower costs, these all seems to pretty margin accretive strategies. How do you quantify the profitability enhancement target? Let's say, within what time frame can the DCG business at the pre-tax level achieve breakeven? Thank you.
So-
Yeah.
Yeah, so I think-
Go ahead.
Right now we feel very positive, especially when you look at Intel's results, and as we talk to some of our other suppliers, that we're growing at a significant premium to market, and likely a double digit or higher premium to market. I think the confidence we have in our top line growth is driven by a few things. Number one is we're very well balanced now between our geographies. If you look at China versus rest of Asia, versus Europe, and the Americas, we have a pretty decent split of almost a quarter of our business in each. Secondly, we're expanding pretty rapidly into the storage market after we had our announcement and our joint venture with NetApp.
Significant premium relative to what I think you're hearing from the analysts reporting the overall storage market, and we're growing at the numbers that we've been talking about of 15% in storage and 22% in hyper-converged. That's feeling quite good. We're really trying to balance this double-digit growth, at a premium to market, versus just continuing to improve our pre-tax each and every quarter. That's really what we're trying to drive as a commitment to the market, and how do we grow double-digit premium to market, and how do we continue to improve pre-tax each and every quarter. The reason we're exposing you to the four S's, SDI, software, storage, and services is, that's where we're really getting decent attach on profit.
As you said, as we now win some of these motherboard designs for designs all the way out there now that are going to be in 2022 and beyond with next generation Intel and AMD silicon, that is also helping us improve our margin because we started out as a system integrator, putting together other people's systems into racks. We did what they call copy-exact motherboards, where we would take the motherboard from someone else and manufacture it, and now we are actually becoming a design partner where other people will be paying us a royalty on the boards to become a second or third source to the tier ones. This is something that hopefully you have been tracking over the last several years. It has been a consistent improvement.
Both where we're gaining share, we're gaining the number of customers, and we're gaining their confidence to do more and more of their products. Lastly, I think in cloud service provider, we've said this consistently over the last several quarters, we're doing Intel now and AMD. We're doing server now and adding storage. We're not just doing motherboards and systems, now we're doing motherboard design and systems. Our services attached across the board is increasing double digits from a penetration rate for all our premium services as well. I'm confident we can continue improving PTI. Relative to exactly when, I think we're just going to continue to drive double-digit premium to market and improve PTI ideally every quarter as we go forward.
To add something here. For our DCG business, we are focusing not just in short term but also the long term. In short term, I think the most important thing for us is building the foundation, building the competitiveness. Definitely. We understand the market is shifting from Enterprise SMB to the cloud. If we cannot address the CSP, we cannot make money from the CSP segment. We will not be competitive in that market. That's why we are building the in-house design and manufacturing capabilities from motherboard, all the way to the system integration. I believe we are in a better position than our traditional competitors. Like HP and Dell, they just focus on the Enterprise and the SMB. I said a couple of times. This mix is similar to the consumer PC and the commercial PC mix.
Consumer PC has less margin, but if you don't play in that segment, you will not have the scale. If you don't have scale, you will not have the cost competitiveness or efficiency. Consumer gives you the scale. Commercial gives you the profitability. Similar in the Data Center business. If you don't have the CSP, you will not have the scale now. Definitely, we can make a better margin from the enterprise with stronger in-house design and manufacturing capability. That's why I think we are in a better position than our traditional competitors in that sense. Secondly, the Data Center, the service, particularly on-prem Data Center service. You could say on-prem private cloud or on-demand private cloud.
If you believe the public cloud would have the bright future, you should think this on-prem, on-demand private cloud should have the bright future as well. Should make better margin in the future as well. Most enterprise customers, they would not shift all their infrastructure to the public cloud because of the data security and application security issue. The hybrid cloud will be the dominant business model over time. Definitely, enterprise customers also want to enjoy this kind of pay-as-you-go business model. We believe if more customers start to use this model, we can make more money from this kind of business.
Thank you. Okay. Thank you.
Thank you for the question.
Thank you, YY . Operator, we are now ready to take the last question due to consideration of time.
Certainly. Our last questions comes from the line of Nam Hyung Kim of Arete Research. Please go ahead.
Hi. Thanks for taking my question. This is Nam from Arete Research. I have one question for server and one question for mobile. This year, local players in China, such as Inspur and others, seem taking enterprise server share from U.S. OEM, such as HP and Dell. Lenovo as a Chinese company with global footprint, I think you have a good opportunity in China market. Also, when do you expect the global enterprise server demand to recover? Then second question for smartphone. Now I feel like Lenovo try to refocus on scale, not only profitability in mobile business. In the past, you focus more on profitability than market share, like focusing on more mid-range and low-end segments and targeting the market. Now you're changing your strategy to move more premium segment and additional region like Europe.
Any update on your Mobile Business and strategy would be great. Thank you.
Probably, Sergio, you can answer the second question first. Kirk, you can prepare for the first one.
To be very clear, our main focus is still profitability. Now that said, we are entering in the premium space. We launched the Razr and now with 5G also coming, we are seeing an improvement in our AURs. We grew 5% year-over-year, 10% quarter-over-quarter. We expect this fiscal year, the AURs keep growing. We are also expanding a range of our products throughout many carriers. What is driving growth in additional markets like Europe, Asia, and even India. I think as we get more competitive, we are proving to be able to play globally. What is also going to help what we call our main core markets, like Latin America, North America. Main focus, profitability. We are improving our mix, [not sweeping], exactly, around 10%, 16%. That means we are a little more into the premium side of the market without deviating from our strategy.
We are seeing growth from other regions, including Europe, but not also to include like Asia and all other markets, giving a better execution, improved ranging, and growth of 5G. Our 5G double quarter-over-quarter. Now we can expect over the next six months to double again from where we actually were.
Yeah. Our mobile business strategy is very, very clear. As a first step, we need to turn around this business to make it a healthy business. We achieved that actually a couple of quarters ago. Unfortunately, because of the pandemic, our business was impacted significantly. We lost a little bit of money. Fortunately, last quarter, we significantly reduced the loss. We are very optimistic current quarter, we will try to go back to normal. After we achieved the first step, for the second step, we will drive the profitable growth. To drive the profitable growth, while we will continue to maintain our position in Latin America and North America, we will pursue the growth opportunity in Europe and other Asia Pacific markets. That's about our mobile business plan.
We will drive the product portfolio from the near end to the high end. With the Razr and the gaming phone launch, we are more confident on that. Kirk, please.
Yes, I think, well, first of all, if you look at the overall TAM over the next several years, we think it'll be roughly 6% or greater TAM as we go into the next fiscal year out through the middle of the 2020s. I think that the demand that we all know for data is out there, and the movement to the edge and where data gets competed will drive a nice 6% or higher data center TAM growth. In China specifically, we saw high single-digit growth. I think we're definitely growing. We're taking smart share. I think some of the deals in the tier 1s are just really negative profit, and we're not necessarily engaging in those today. We're taking smart share. We can improve profitability while growing with the market and then, or as greater than market.
In storage with our NetApp JV, we're growing at a significant premium to market as well. I guess it's the balance of both server and storage growth as we look at China and the balance of smart share growth, but growth with profitability, not just for growth for top-line revenue sake.
Okay, thank you.
Thank you. Thank you, Kirk. We thank you very much for joining today's call, and that is our last question. Meanwhile, if you have any further questions, please feel free to contact us directly. The replay of this webcast will be available in a couple of hours on our investor relations website. Thank you again for joining us. Bye-bye now.
Ladies and gentlemen.
Thank you.
That does conclude the conference for today. Thank you for your participation. You may now disconnect your lines.