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 Corporate President and COO, Mr. Gianfranco Lanxi Group CFO, Mr. Wang Weimin President of Data Center Group, Mr. Chris Gaojun and President of Motorola, Mr.
Sergio Buniak. 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 today. Before we start, I want to share my heartfelt sympathy to those affected by the novel coronavirus. I also would like to express my deepest appreciation to all medical professionals for their dedication in fighting the diseases. Fanonvo also responded immediately to the outbreak.
We have donated and installed all IT equipment necessary to construct the two new hospitals in Wuhan. Donation from Lenovo employees and the Lenovo Foundation has arrived at the pace they need. We have also given away 100 activation keys of our remote office and online meeting solutions to hospitals and small and medium sized businesses, which are heavily impacted by the epidemic. Although the outbreak happened around the Chinese New Year, Lenovo reacted right away and worked day and night throughout the holiday to implement a series of measures to protect the safety and well-being of our employees. Thanks to our global manufacturing footprint, while our factories in China are some of the first ones to resume production in the industry.
Our factories outside of China continued to operate. While the demand in China is impacted temporarily, the demand from the rest of the world remains strong, which will help accelerate the recovery of our capacity in China. We have also been working closely with our supply chain partners to ensure normal operation. Now let me turn to our quarterly earnings. Last quarter, despite the geopolitical uncertainties and the industry wide supply shortages, we demonstrated our world class operation and the strategy execution capability in delivering record setting performance.
Both global revenue and pretax income reached all time highs. Our global revenue was US14.1 billion dollars Pretax income grew by double digits year on year and reached US390 million dollars Net income also improved by double digits year on year to US258 million dollars These results would not be possible without our operational excellence, which allowed us to overcome the severe industry wide CPU shortage. We have quickly adjusted our product portfolio, converted every available supply to our product that meets our customers' requirement and greatly reduced our finished goods inventory. So these efforts enabled our PC and Smart Devices business to deliver all time records in revenue, in pretax income and in profit margin. In PC, we not only extended our clear number one position with record high shipments but also outperformed the market year on year.
Our strategy to focus on high growth and the premier segments continues to deliver results. The volume in gaming, sing and light, visuals, workstations and Chromebooks continued to grow at a higher double digits and significantly outgrew the market year on year. Innovation provides us another important growth driver at the recent Consumer Electronics Show. We demonstrated our leading technology in five gs and portable with innovative products such as the world's first five gs PC and the Lenovo ThinkPad X1 Fold, which was named one of Time's twenty nineteen Best Inventions. The ThinkBook Plus notebook PC with E Ink display on top also received very positive feedback.
Looking forward, while macro challenges may continue, With proven operational excellence and breakthrough innovation, we are confident that we will continue to drive primary to market growth in our PC business and industry leading profitability. Our mobile business delivered its fifth consecutive profitable quarter. In our stronghold, Latin America, our volume outgrew the market by 19 points while improving profitability. Going forward, our mobile business will continue to strengthen profitability while driving growth in new markets. Our new Motorola Razr foldable has received greater responses from investors, media and tech opinion leaders.
We will build on this excitement to reenter the premier segment. In data center, our server volume grew by 18% year on year, though data center revenue remained flat year on year as a sharp component price reduction resulted in erosion of average sales price. Profitability continued to improve year on year. Our now hyperscale business had its highest revenue in four years and grew nearly 16%. Especially in China, it was up almost 46% year on year.
We continue to see strong over 14% year on year revenue growth in software defined infrastructure and storage. Looking forward, we will resume revenue growth in DCG. In our hyperscale business, we will expand our business with existing customers and continue to acquire new customers. In our now hyperscale business, we will continue to drive a premier to market growth in servers, software defined infrastructure, high performance computing, storage, software and services with increasing customer diversity and broader indirect channels. Our Intelligent Transformation continued to show strong momentum.
In Smart IoT, revenue almost quadrupled year on year, driven by strong growth in ARVR, Smart Home and Smart Office. Smart Infrastructure also grew more than 50% year on year, driven by software defined and the network functional virtualization. Smart Vertical revenue doubled, thanks to triple digit revenue growth in Data Intelligence Business Group, Smart Healthcare and Smart Education Solutions. We have noticed accelerated demand in China for our remote office, online education, online healthcare and other online services solution due to impact of the ongoing epidemic. Last but not least, as we mentioned last quarter, our software and services revenue continued its hyper growth and reached US1 billion dollars in our quarter for the first time, up 41% year on year.
Looking forward, since there are still much uncertainty around the novel coronavirus, we will actively manage this evolving situation through our geographic balance, operational excellence and solid strategic execution. We are confident in overcoming this challenge and quickly resume to the normal. Thank you. Now let me turn it over to our CFO, Wei Min. Wei Min, please.
Thank you, Yuanqing. I will now take you through Lenovo's financial and operational performance in Q3 fiscal year twenty twenty. Next chart, please. Let me share with you the financial highlights. We are pleased to announce another record quarter for the group.
Our third quarter revenue was $14,100,000,000 a new record and up 0.5% year on year or nearly 2% in constant currency. Our business groups delivered exceptional execution against the backdrop of severe supply constraint. Gross profit increased 10% year on year and gross profit margin expanded 1.5 percentage points to 16.1%, thanks to favorable sales mix. Our team efforts in driving continued sales mix improvement paid off. The improvement of data center business was again in a positive profit catalyst.
Our transformation actions have led to accelerated growth in high margin software and services business and in turn improved overall profitability. Operating expenses rose 10% to RMB1.8 billion and the E2R ratio was 12.6%, up 1.1 percentage points year on year, driven by our continued investment in sales, marketing, research and development. The group PDI increased 11% year on year and PDI dollar is at an all time high. Among all business group, our PCSD business is the largest in the world with the highest ever PDI margin, while MBG and DCG continue to improve their profitability. Our ability to set a new milestone in PDI demonstrated our ability to deliver strong margins and robust growth on earnings per share despite the supply constraint.
Net profit attributable to equity holders were $258,000,000 up 11% year on year. Basic earnings per share came in at US0.26 dollars up from US0.96 dollars last year. Next chart, please. In Q3, our cash generated in operation was $538,000,000 compared to $1,200,000,000 cash generating in the first half of the fiscal year. We made less cash from operations compared to the corresponding period last year due to the two initiatives we took in the quarter.
We have built some strategic position on critical parts, leading to a $2.00 $6,000,000 increase in total inventory year on year during the quarter, and our accounts receivable factoring volume dropped year to year. Next chart, please. Our Intelligent Device business group, consisting of PC and Smart Device business group and Mobile business group, achieved a record quarterly revenue, thanks to the strong growth in premium segments within PCSD and the strength in the software and services business. With the all time high pretax margin in PCSD and profit expansion in MBG, our IDG delivered a PTI of RMB687 million, up 17% year on year, and its PDI margin increased 0.8 percentage point year on year to 5.5%. Next chart, please.
In Q3, despite being hit by key component shortage, the PCSD business group revenue grew 3% year on year to a record of $11,100,000,000 Our team continued to execute its strategy to capitalize on the high growth and premium segments' growth potential. The revenue from premium products across workstation, thin and light, visual and gaming PC grew double digits year on year and now contribute more than half of PCSD's revenue. We are making important progress in our intelligent transformation by focusing on our software and services business, with its revenue up by a strong double digit year on year and carry the highest margin profile among all products. Leveraging this strategic shift in sales mix, the PCSA business group set a record PDI margin of 6.2% in quarter three and reinforced its leadership position not only in the PC shipments but also profitability. Next chart, please.
MVG also suffered from a supply constraint, resulting in a year on year revenue decline of 17%. Its focused strategy to invest and develop the business in regions where it has competitive advantages remain effective, helping MBG deliver positive PDI for the fifth consecutive quarter. Latin America remain a stronghold and MBG's margin further expanded in this region. The MBG business is accelerating its innovation by launching attractive new products, including the recently announced foldable smartphone, the Razer. This product has earned positive customer reviews and will start contributing to the business revenue as well as providing an opportunity to upsell and reenter the premium segment.
Next chart, please. In data center growth, the business momentum is improving. Our server shipments grew 18% year on year, although revenue growth was again constrained by low average selling prices, a lingering problem caused by the significant correction in commodity prices. DCG revenue was billion, largely flat year on year. Our non hyperscale business reported its highest quarterly revenue in four years, representing double digit year on year growth.
We delivered strong growth in data center infrastructure, software defined infrastructure, storage and software and services. Our DCG operation in China sees the opportunity to broaden its sales collaboration product portfolio. The storage revenue grew at a strong double digit rate, thanks to the NetApp joint venture and new product growth in entry and mid range flash arrays. Our software defined infrastructure product performance helped win market share and achieved strong double digit revenue growth. For hyperscale business, the annual revenue comparison was most difficult for the period under review, and therefore its revenue was still down year on year.
However, the price erosion will come to an anniversary after this quarter, implying easier base of comparison going forward. Our DCG strategy is to balance between future investment and profitability. In Q3, the business further narrowed its losses by US8 million dollars year on year to US47 million dollars Next chart, please. Looking forward, macro risk factors, especially novel coronavirus outbreak, could bring short term volatility. The unfortunate health crisis could lead to meaningful disruption in China's demand and supply chain.
For us, the delay in employees returning to work has had the biggest impact on our business. The majority of our factories in China have reopened and are now operational, albeit on a limited basis due to transportation and travel limitations. Our suppliers and logistics service across the country also affected. Given the situation remains extremely dynamic, it is difficult to provide an accurate estimation of the full financial impact. Nevertheless, we believe this is a one off event and our priority is to work with our supply chain to regain 100% capacity as soon as possible.
We have contingency plan in place, and we'll leverage our global manufacturing capabilities and strategic supplier partnership. We expect a rebound of demand in China after stabilization of the health crisis, but the demand from the rest of the world remains strong will help accelerate the recovery of our business in China. Further, our demand drivers could also emerge to bode well for our businesses. For example, our PCSD and DCG businesses are well poised to benefit from the trend of remote education, remote work, home entertainment and remote health consulting. We are confident of driving long term profitable growth when we aim to deliver a premium to market growth on the group top slide.
For PCSD, our goal is to continuously deliver industry leading profitability and increase the sales in high growth and premium segments as well as accelerating our software and services expansion to sustain premium to market revenue growth. For mobile, we'll continue to deliver innovative new products. Together with the launch of our five gs services, we look for potential growth opportunities by building more profitable core markets. For data center business, our journey to improvement has just begun. The trend of data growth is expected to accelerate following the develop of more products and applications featuring new technologies, including five gs.
Lenovo will tap into this opportunity to drive growth in multiple segments, including enterprise server, software defined infrastructure, storage and software and services. For hyperscale business, the group will leverage its differentiated in house design and in manufacturing capability to broaden its customer base. We are going to increase our pocket share within existing customers by expanding product coverage from service to storage. We expect an improvement of hyperscale business and better profitability when the new share wins are fully operational. Thank you.
And now we can take your questions.
Thank you, Wenning. Now we will open the line for questions and this session will be in English only. Please be reminded to limit yourself to two questions at a time. Please also state your name and company before asking the question. Operator, I'll turn it over to you now.
Please give us your instructions.
Ladies and gentlemen, if you wish to ask question, please press pound one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. We have the first question comes from the line of Ghoshul Hariharam from JPMorgan. Please ask your question.
Yes. Hi. Thanks for taking my questions, and congrats on the great results in the December. First of all, just to get some more clarity on the near term challenges. Could you talk a little bit more specific on both the demand outlook given the virus outbreak as well as in the supply side?
When do we expect to get back to a reasonable level of supply for various product groups over the next couple of months? That's my first question. Second question is on the server side, data center group. It looks like hyperscale seems to be the only area which is not yet ramping up in terms of growth. Non hyperscale growth seems to be ramping up both outside China as well as in China.
Could we talk a little bit about what kind of growth are we expecting either for fiscal twenty twenty one or calendar twenty twenty? And when do
we
expect hyperscale to come back to strong double digit growth after being relatively weak in the last several quarters? Thank you.
Thank thank you, Sokul. I will answer your first question. So probably, Jeff Franco can help to add something. Then, Kirk, Scott will answer your second question. So definitely, coronavirus outbreak impact our demand in China and our production capacity in China as well.
Mainly because the three reasons first, the either together our factory reopen time. Second, the less work will come back to the factory. So supply is also impacted, particularly the comp the component that are produced by the smaller suppliers. So they they also affect the issue to reopen the factory. But for the normal, we are more optimistic the on our supply.
Although, it will be impacted in this quarter as well. So, regarding of the factory, we open, so now by now, most of our factories, in China have already been reopened again, except for Wuhan and Chengdu factory. So we see up with government that got guided in those two cities. Regarding our workers, so we we are providing the support and the incentive to encourage more work to to come back to work. So two factors are more important for our PC supply.
What do you send another issue? So our current estimation is by the end of this month, we can resume 100% capacity. So you should just by the end of by end of this month. And then we can resume 70% capacity in COVID by the end of this this month. So definitely for Wuhan factory, so it's mainly for smartphone.
So we are working for government guidance to be to open again. And Chengdu Chengdu is mainly for for. And and also also, you know, Lenovo has has a very diversified manufacturing footprint. So we actually have the global footprint. So that will help help as well well.
So we have a smartphone manufacturing factory in Brazil, I. India. So that will that will help our smartphone business, particularly in Latin America and in North America. And also, we we have factory in Japan, in Mexico, in US for PC and and server as well. So that will help our PC and server business in the rest of the world.
From a demand point of view, so so definitely China, the current quarter will be impacted. So but the the good news is the rest of the world, our demand for all our products, including PC, smartphone, and data center are still very strong. So that no wonder we can leverage our rest of the world manufacturing facility to fulfill this demand. But also, so that we can help our China manufacturing factory to ramp up. So that's regarding of the your your first question.
So I don't know whether, Jeff Franco, you you want to add something to to that. Oh, by the way, so regarding of the supply, so I I I talked about the the the third bottleneck is the supply. So right after the outbreak of the virus, so we realized the issue. So we immediately are pulling some supply to our to our to our our warehouse. So that I think for a short term period, we have enough of component to resume the operation resume the factory production.
And, also, we are helping those suppliers smaller suppliers to resume work. We resume the the operation so that from a longer point some point of view. So we still can have enough component in the hotline. So that's the that's my answer. So, John Franco, you you want to add something here?
Yeah. I think, well, on a couple of things. One, maybe what we asked, the one we will be back to full capacity. I think that within q q one, by the March, we should be able at least in a failure and some other factory to be back at the 100% capacity. The other thing is that we see, for sure, the slowdown in China.
On the other side, we we see very strong demand on PC in the rest of the world, US, EMEA, Japan, Asia Pacific. So I think in in terms of demand in the rest of the world, we see a very good demand. The only slowdown is is really China. I think even the transition to the same transition to Windows 10, clearly, it's not it's not over yet. The the the projection from major market analyst, it was very negative where we do see a very good demand.
Yeah. So by the way, so this quarter is not in the normal peak quarter. So our peak quarter was actually last quarter. Yes. I'm not thinking of this for a year.
So when I talk about the the the capacity, it's definitely about the the the peak of capacity. So that means that the impact to our shipment in this quarter will be less than last quarter if we we have the same situation. So that's what I want to want you to understand. Okay. So, Kirk, would you please answer your second question?
Yeah. This is Kirk speaking. So with regards to the hyperscale business, I think we have very strong confidence as we go into our next fiscal year that demand is definitely recovering. At the existing accounts we have, we've been holding or growing share relatively consistently. A few of those customers were still working through excess capacity, but, there's a few things that I think should give us, confidence.
Number one, we're winning business now in storage, not
just in
the server space. And we're winning business in the hundreds of millions of dollar range in storage, which is a first for us. The second is we have confidence because in the past, we had been a system integrator and perhaps not the motherboard supplier to some of these large accounts. But with our ODM Plus strategy, we know, you know, eighteen months in advance that we have gotten design wins for motherboards. And that will improve our profitability as well as our ability to manage our supply chain more effectively than if we were acquiring boards from an OEM.
The third thing is we're seeing components like SSD and memory that had seen the largest drops in a decade now beginning to grow again, which will improve the revenue outlook year on year. So I would say, you know, as as we said before, we're in six of the top 10 hyperscalers in the world, and we expect in the next fiscal year to be growing significantly across almost all of those. In addition, we just added a a Salesforce to cover the next wave of hyperscalers globally, and we have acquired now dozens of new customers that will be coming online, in the next fiscal year. You know, we are waiting week by week to look at where we do rely on ODMs for motherboards, how their factories are coming back. But for the stuff we have internally, we have plants in Hungary, plants in Monterrey, and plants in Chitlin that are all up and operationally supplying the demand this quarter.
Operator, we are ready for next question, please.
Next question comes from the line of Abelie from Bank of America. Ask the question.
Jenny and the management team. I'm grateful for results. Actually, I would like to have an update on all The US sector, like for PC. I think the memory price hike is positive for data center, but do you worry about the memory price hike would impact on your PC margin? Also, on smartphone, yeah, I can understand, like, a near term demand could be kept due to the coronavirus in China.
But how do you feel like the four g smartphone inventory in China? I feel like the four g smartphone inventory is pretty high. And lastly, about data center, can I have more update about, like, what would be the driver? Is it hyperscaler enterprise in China or non China? Thank you.
Could you please answer the the the memory price issue? Probably, can can help on the four g unit. Yeah. Okay. Yes.
Go ahead. Yeah.
Go ahead. No. On memory, we we see some I would say, there is more increase. I would remain the SSD rather than rather than DRAM. We we need we need to see with the coronavirus and with the current in the current environment what is going to happen in the next couple of quarters because we have seen already during the last couple of weeks that than increase, they start to decrease again.
And so we start to see memory going down again. But I think in terms of the impact on the margin, I don't see any major issue in terms of any impact on on the margin. For a couple of reasons, have built up a very good inventory in terms of memory, though we have enough components for at least for this quarter and also next quarter. And on the other side, the price are now slowing down again. And we will manage also in terms of configuration and pricing in order to avoid any impact on the on the margin.
So, frankly speaking, I I don't see any major issue on on on memory.
You, Jeff Hendra. So, Puneet, could you please answer the four gs inventory issue?
Yes. So, I mean, we see the opposite. I think our inventory levels are slightly below target as we ended Q3 all over the globe, including China. Our activations in Q3 were much higher than our sell in by almost $05,000,000 globally. Was not normal for this period.
And in this current quarter, we are still seeing very strong activations even with some measures we take to contain the expenses. So we expect the inventory by the end of this quarter as we are not seeing any drop in activations to be extremely healthy. Both in four gs and of course, we are just launching five gs phones in the next few weeks. We I see actually the opposite right now. We have a very healthy inventory position, much, much better than a year ago and much better than one quarter ago.
What's top normal for this time of the year?
Yes. So I agree with Puneet. So actually, in the rest of the world, so last quarter, we our our volume and volume is the job as many because the supply supply supply shortage. So, actually, we we sold more than we we sold out more in the in the retail part, then we sell into the the distributor and the and the retail retailer. So we don't have the the the inventory issue in the rest of the world.
So I think probably the the the majority in the inventory you talked about is in China. But fortunately, in China, we our business is another rather big. So, actually, we don't have any inventory issue until that will the the the answer the the the the
Yeah. I think the the simplest answer is we're seeing strong premium to market across all geographies and in all segments. So hyperscale demand is recovering and strong. It should get stronger each quarter as we go through the next fiscal year. Again, because I mentioned earlier, not just in servers, but also in storage.
And with improved profitability as higher end workloads like SAP HANA move to the cloud, we're supplying not just two socket, but four socket and even eight socket capabilities to some of the large cloud providers to meet that demand. And and, obviously, those margins are better than some of the entry products. Our non hyperscale revenue, as you heard, was the highest in four years. And we're seeing, you know, premium to market growth, and it should continue to see that across software defined infrastructure. We're seeing strong growth across our hyperconverged infrastructure from Microsoft, from Nutanix, from VMware, as well as from smaller players like Pivot three.
On storage, especially in all flash arrays and hybrid flash arrays, we've seen more than 40% growth across our aggregate storage business, both with the NetApp joint venture in China but also with the expanded entry and midrange portfolio we have in the rest of the world. On services, we're making very good progress. Our attach rate on services penetration is up another 7% year on year. And we have our highest ever deferred revenue on the balance sheet now, which should continue, again, consistently improving every quarter. And then in supercomputing, you know, we've continued to use our Neptune warm water cooling to deliver on the top 500 list.
Now one in three of the top 500 computers in the world run Lenovo, and we have coverage now in 50% of the countries that are even on the list. So that's 14 countries in the world where we're number one in total core, number one in aggregate performance with 35% share. So the simplest answer to your question is we're seeing strong premium to market growth and want to continue that on the top line. And this is our tenth consecutive quarter of PTI improvement. We want to continue that while still driving premium to market revenue growth.
Thank you.
Thank you, Kurt. Operator, we are ready for the next question.
Next question comes from the line of Varina Cheng from Goldman Sachs. Please ask your question. Yes. Hi. This is Varina from Goldman.
My first question is on data center. So I would like to know you mentioned that your software defined infrastructure continue to win the market share. So could you elaborate more, like, what's our edges advantages here and who we are winning over the market share and what's our target market? Is it China or or, outside of China? And my second question is on smartphones.
So I would like to know, like, how much of production is coming from the Wuhan factory, and can our other factories cover the supply? And will this affect our mobile business profitability? Thank you.
Yeah. So So this is Kurt.
I can answer the first question maybe on software defined.
Yes. Please. Go ahead, Kurt.
Yeah. So so I think what what we are seeing is in whether you're talking about the the larger players like Nutanix, Microsoft, and VMware, in many cases, what we're hearing from our partners is that we may not be their largest partner, but we're definitely their fastest growing partner. So we're seeing a good balance and and good consistent growth across Nutanix, VMware, and Microsoft on Azure HCI and others. There's also some smaller players like skill computing, pivot three, where we're doing, some really good work around smart city, in terms of protecting citizens, we've said publicly before, for cities like Bogota and others. So certainly, in China, we're also seeing strong growth there, but it's been a consistent strong premium to market quarter after quarter for many quarters now, and we think that will continue.
You know, our differentiation is we've built our ThinkAgile brand to make it the most simple, highest performance, highest reliable solution in the market? Thank you.
Okay. So, Punjak, could you please answer the second question? Pump volume, which is produced with Martin in Yukon?
So let me first so first, half of our volume is produced produced, manufactured in China. And around 60% to 70% of that in Wuhan. So the factories reopening tomorrow and I think we expect some short term volatility and you manage through that. Now that said, the Brazil factory, the India factory, they can we can increase capacity if we need in the near future. So we are managing carefully.
Let's see how it goes around half in China from what 70% in Wuhan.
Yes. So
we we we actually so not just produce smartphone by ourselves. We also navigate the ODM to to produce a product. So in this conjunction, so definitely, we try to to to to shift some production from a Wuhan factory to the third party as well. So if they can resume the the operations earlier than you have, so definitely, that will help.
Yeah. Actually, we are already doing that. So in many parts of China on the OEMs, our production has resonated last week. We are making some because that is
not we We we I think we given the number of the global footprint. So although you are still seeing the the impact So we are trying to get the the impact to the minimum. So, hopefully, so the the maximum volume to impact our
Thank you. Operator, next question, please.
The next question comes from the line of Howard Koh from Morgan Stanley. Please ask your question.
Hi, good evening. Congrats on the quarter and thank you for taking my questions. So I have two questions. The first one is, in the very beginning, you guys talked about how there are some components from smaller suppliers that could be in constraint. Could you just give us a little bit more details on what kind of components there are these are?
And whether how much inventory we have right now? And how we are thinking about that if there are any kind of logistics constraints where we could see some component shortages. And my second question is throughout this coronavirus outbreak situation we're hearing across the supply chain that there are increased labor costs, logistics costs and just all kinds of different costs. How will that impact our profitability this quarter and perhaps the next quarter? Or maybe are we able to pass it on to our end customers?
Thank you.
Howard, thank you for your question. So, you know, to produce a product, so even your lack of a small piece of component, you cannot finish that. So I I have heard some of our competitors just because they are lack of the package so that they cannot resume the operation.
But
fortunately, they are fully normal part. So because we realized the issue earlier part. So we prepared earlier part. So as I just talk talk to you, write so even before the Chinese New Year, we we realized the issue. We started to pull in all the components as early as possible, as many as possible.
So by now, I think we have enough components to to ensure a couple weeks production. I I I would note that we think we have enough inventory to ensure a couple of months or a couple of weeks. So we we we we are we are okay. So that's the set for for us. But for sure, I I if you you you want to ensure us, we will not have the issue here.
So we need to ensure all the smaller suppliers can resume the work, can resume the operation as early as possible. So we are trying to help them to get the the approval from the government as early as possible. So that regarding of the level of cost. So, actually, the the the the level of cost account for more portion of our total expense. So I I I'm not that worried about the the the significant impact.
So it it will impact a little bit, but then not a significant.
So, Jim, that's what you
I agree with Ray. If you think that the MBA, you're a notebook, it's between 5 to $6.
Yeah. Yeah.
So that's the yeah. That's that's yeah. Our MVA. So that means our cost to manufacture one unit of the PC. It's just a $6.
Yeah. That one other impact.
There is almost no impact. Yeah.
But it's so small, but
it's not really one to go.
Yes. Thank
you. Operator, we are open for the last question, please.
The last question comes from the line of Hui Chen Yang from CICC. Please ask the question.
Hi. Congratulations. This is Hui Chen Yang from CICC. Thanks for taking my question. And I have two questions.
The first is also regarding to the the shortage the part shortage. I was wondering about the PCSD and the MPG. If we don't consider the wireless, it it because you are talking about the shortage. And can I can I understand this as a pressure to the of gross margin to the next quarter? Because shortage will continue.
And the second thing is about the can I have two numbers? The first is the percentage of revenue of your MDT in both source and America. The second is the percentage of hyperscale server in your DCT sector. Thanks.
So so can can can I call? Could you please answer the margin impact, please? Before before the the shortage, we will we will continue. I I suppose.
Hello? No. Yeah. I think that yeah. Yeah.
Because I think that that that that there are two different, I would say. When you go about the shortage, I think there are two different kind of short shortage. One is for sure the the impact coming from the coronavirus. And the other is is that we received we received some shortage on the CPU. The situation is improving, but it's not yet normalized.
And my plan is speaking on both. As you see from q three result, I don't see any negative impact on the margin. May may maybe we can get some positive impact from from the margin simply because the entire market will be short of a product. There no reason to to lower down the the the lower down price or to take action or to clean inventory. All these things are are good.
And in terms of, like, in terms of margin, we have been able to if I look at q three, and if you look at the result, we have been able, you know, to improve margin in a difficult situation in terms of supply, you know, or in terms of component supply. And so I really don't see any margin impact on negative margin impact. I may see an impact in terms of some positive margin impact due to the due to the shortage. But simply because there is a demand worldwide on PC is still very, very good. And probably in Q1, the entire the entire market, the entire industry will not have enough supply.
Yeah. So I I want to echo, John Franco's point. So, actually, operational excellence the call. More than that, we know how to manage the margin during the supply shortage. So as we jump on the table, so actually, supply shortage is probably will help us to improve the gross profit.
But also, so even in the supply shortage situation, we still can manage our business well. The last quarter was actually a very good example. So, actually, we plan to sell more Intel based chip to the beginning of the quarter. We were informed so we could we could look at the supply. They're committed at the beginning of the quarter, in the middle of the quarter, so like November.
So that we quickly shift our product portfolio and the supply to other CPU vendor as a MB and and media media tech. So that's a help to to deliver this, but it's part of the high shipment and the and the and the revenue. And also the fantastic performance in our PCS. So, actually, the PCS, we believe that we follow the high shipment. We follow the high revenue and the and the GP profit margin.
Yeah. That's because of our excellent operation capability. So we we we we had a very short period to adjust, but we did that. So, actually, last quarter, we we sold almost a two net of the and the that the and the that the PC. And also, we sold more media check the best, the Chromebook as well.
So even I know what the history are. So that's the kind of our capability. We we we give in the West even one unit of the supply. So at the end of the quarter, so we we converted those to supply into the finished goods and into the and to meet the customer requirements. So that's for sure.
We are not worth the unique call competence. We we believe that we will have in current quarter as
well. Thank
you, Yuanqing. Due to limited time, we are going to end our webcast now. We thank you very much for joining today's call. If you have any further questions, please feel free to contact me directly. The replay of this webcast will be available in the next couple of hours on our Investor Relations website.
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