Earnings Call: Q4 2019

May 23, 2019

Good afternoon, ladies and gentlemen. Welcome to Lenovo 2018 to 2019 Annual Results Investor Presentation. First, let me introduce to you the management with us here today. They are Mr. Yuanqing Yang, Chairman and CEO. Mr. Gianfranco Lanci, Corporate President and COO. Mr. Wong Wai Ming, Executive Vice President and CFO. Mr. Kirk Skaugen, Executive Vice President and President of Data Center Group. Also, we have Mr. Sergio Buniac, President of Motorola and Senior Vice President of Lenovo. Now may I invite Yuanqing Yang to start the presentations, followed by Wang Ming. Yuanqing Yang, thank you. Good afternoon, everyone. Thank you for joining us today. Over the last four years, Lenovo has been on a journey to build a customer-centric, multi-business company that can thrive in the transforming world. We have built many new capabilities along the way. Now, our multi-business operating system is in place, and the new foundation of the company has been built. I can proudly say that this is the most promising time in Lenovo's history. Let me start with our strong Q4. As revenue and the profit improved across all businesses for the first time since the x86 and Motorola acquisitions. Our revenue grew by double digit year-on-year, and we reached $11.7 billion USD. We also significantly improved profitability with a pre-tax income of $180 million USD, up almost four times year-on-year. Net income was $118 million USD, up more than 260% year-on-year. This strong performance starts with our intelligent device group, where PC plus smart devices revenue grew more than 10%. In PC, our volume grew 9% year-on-year, nearly 12 points premium to the market. And we were the fastest-growing PC company among the top five. We returned to number one in consumer. And our focus on premium segments led us to 34% year-on-year growth in commercial notebook above $800 USD to further strengthen our number one position. In our mobile business, we were profitable for the second consecutive quarter, improving pre-tax income by $146 million USD year-on-year. Revenue returned to year-on-year growth for the first time in five quarters at over 15% year-on-year, and outgrew the market by almost 27 points. Our focus on selected markets led to our revenue outgrowing the market year-on-year in Latin America by 17 points, in North America by almost 60 points, and in Europe and China by more than 230 and 600 points respectively. We also successfully launched the world's first 5G mobile product in store with Verizon. Our data center business revenue and profit continued to improve year-on-year, despite the tough market condition. The joint venture with NetApp in China is now operational. Our software and service revenue also improved by over 18% year-on-year, reaching nearly $620 million USD. This strong Q4 completed our record fiscal year. Our full year revenue exceeded $50 billion USD for the first time, reaching $51 billion USD, up almost 13% year-on-year. Our pre-tax income was almost $860 million USD, up more than four and a half times. Net income was almost $600 million, up almost $800 million year-on-year. Driven by our 3S strategy, Intelligent Device Group revenue grew by almost double digits and significantly improved pre-tax income by almost $1 billion, more than double year-on-year. Our PCSD delivered a record revenue of nearly $39 billion and a pre-tax income of almost $2 billion. In PC, we returned to number one with a record market share of over 23%. In addition, we are also the fastest-growing PC company out of the world's top five players. These strong results against the industry trend were driven by our focus on innovation in high growth and the premium segments, as well as our operational excellence. In mobile, thanks to our clear priority, focus on selected markets, competitive product portfolio, and expense control, we improved pre-tax income by more than $460 million year-on-year and were profitable for the second half of the year. We saw rapid growth in our focused regions. Latin America reached a record share of almost 18%. North America volume outgrew the market by almost 60 points, and in China by almost 190 points. In the rest of the world, we cleared the inventory, improved the profit, and are ready to return to growth. While driving our smarter infrastructure strategy, Data Center Group achieved the fastest year-on-year growth since the acquisition with the profitability improvement. This was led by strong growth of hyperscale and software-defined infrastructure, which had revenue growth of 240% and almost 100% year-on-year respectively. We remain number one in the world in performance with 139 world records. Number one in x86 server reliability and customer satisfaction, according to ITIC, TBR, and the various industry benchmarks, and the number one provider of supercomputers in the top 500 list. Our investment group, LCIG, also successfully exited three investments and contributed more than $100 million to the Group PTI. For the full fiscal year, our software and service revenue reached $2.4 billion, up almost 19% year-on-year. This year's success was guided by clear strategic goals set at the beginning of the year, followed by excellent execution. Our four primary objectives were to return PC to number one, achieve mobile business breakeven, drive faster growth in Data Center Group, and build our edge in AI, and we delivered. For the new fiscal year, we have clarified the 3S strategy. We will further drive smart IoT, smarter infrastructure, develop capabilities in big data and advanced algorithms. With these building blocks combined, we will build our smart vertical solutions and become the leader and enabler of intelligent transformation. Our ambition remains as strong as ever. Besides the primary goal of continuing double-digit revenue growth, we have set specific objectives to drive transformation. Quadruple smart devices revenue, double software-defined infrastructure revenue, double smart vertical solution revenue, and grow software and service revenue faster than companies' overall growth. At Lenovo, we are like mountaineers in the past years. We conquered one height after another. In the new fiscal year, we are ready for even greater height. Thank you. Now, let me turn it over to our CFO, Weiming. Weiming, please. Thank you, Yuanqing. Good evening. I will take you through Lenovo financial and operational performance in Q4 and fiscal year 2019. Next slide, please. Let me first share with you the financial highlights for our Q4 performance. Our Q4 results continue to show strong momentum. Revenue came in at $11.7 billion and grew by double digits year-on-year, driven by market share gains in PCSD and MBG. A notable improvement is the double-digit growth in MBG, which is a clear sign of a well-executed turnaround. Gross profit in Q4 increased by 23% year-on-year, and gross profit margin expanded 1.7 percentage point to 16.2%. Group PTI was $180 million, up $143 million from a year ago. We saw PTI improvement across all business groups. Key highlights include our industry-leading profitability in PCSD. MBG continued to record positive PTI even in the low season, as well as improved bottom line of DCG. For FY 2019, the group revenue surpassed $50 billion for the first time, setting a new record at $51 billion, up 13% year-on-year. Gross profit increased 16% year-on-year, while gross margin expanded 0.6 percentage point to 14.4%, thanks to the margin expansion at PCSD and MBG. We remain disciplined in our expense control that helped improve our operating efficiency. Operating expenses increased by 5% to $6.2 billion, and as a result, our E/R ratio improved from 0.9 percentage point to 12.1%. Group PTI was $856 million, representing a sharp improvement from $153 million last year, thanks to a record level of PCSD PTI, while losses in MBG and DCG were significantly reduced. Profit attributable to equity holders for the year was $597 million, reversing a loss of US$189 million the year before. Basic earnings per share came in at 5.01 US cents, compared to a loss per share of 1.67 US cents last year. The board of directors decided in the meeting today to declare a final dividend of 21.8 Hong Kong cents per share. Total dividend payout is up 5% year-on-year. In Q4, our cash use in operations improved year-on-year to $478 million, which was lower than the $1.5 billion net cash generated from operation in Q3, mainly due to the seasonal factor. In Q4, we had a larger amount of payable from previous quarters being settled, which resulted in a drop of net cash generated from operations. Our inventory days improved 4 days year-on-year, yet the receivable days worsened 5 days due to the timing difference in receivable collection. Overall cash position improved as reflected in our lower net debt. For fiscal year 2019, improvement in operational performances of the three business unit group, along with better working capital management, led to a $2.2 billion year-to-year improvement in operating cash flow. Operating cash flow improved at $1.5 billion at the end of the fiscal year. We will continue to deploy our cash resources to invest in business growth opportunities. Our intelligent device business group, which include PC and Smart Devices business group and Mobile Business Group, recorded double-digit revenue growth of 11% to reach $10.5 billion in Q4, mainly driven by share gain and increase in the mix of premium and high-growth product in PC and mobile business resuming growth. For fiscal year 2019, IDG revenue increased almost by 10%, and PTI margin of IDG was enhanced significantly by 2.1 percentage point year-on-year to 4.1%, thanks to the improved profitability in both PCSD and MBG. In Q4, we continued to show double-digit revenue growth of our PCSD business, and this is the fifth consecutive quarter that PC grew at a premium to the market, thanks to the share gain in the commercial premium and high-growth segments. Our focus strategy has made us the top player in the $800-plus price segment in commercial notebook PCs for the third consecutive quarter. We also saw double-digit improvement in our workstations, thin and light, and visual business. PCSD revenue in Q4 was $8.9 billion, up 10% year-on-year. Pre-tax income was at $458 million, and PTI margin expanded 0.4 percentage point to 5.2%. This fiscal year turned out to be a record-setting year for our PCSD business. We achieved record revenue and PTI for the business group by leveraging our growth strategy to focus on high-growth and premium segments. We are the fastest-growing PC OEM among the global top five players, and our share gain spanned across all regional markets. In addition, our consumer-centric strategy has helped us to drive our share gain in the commercial segment. PCSD revenue in the year was $38.5 billion, up 14% year-on-year, versus a four-year CAGR of 4%. PTI increased 34% year to year to a record-breaking $2 billion, while PTI margin expanded to 5.2%, boosted by favorable product mix and higher services attach rates. In Q4, our mobile business resumed growth in revenue and shipment. Sales were up 15% year-on-year to $1.5 billion. Share gain in our core markets, including North America and Latin America, as well as strong revenue growth in China, contributed to the growth in the mobile business. In the meantime, we are expanding our carrier and open channel sales and had several successful product launches during the quarter. Indeed, activation rate for our seventh gen Moto G is higher than the sixth gen in its first month of launch. Motorola One franchise has fared much better than expected, and MBG contributed to record profit despite Q4 being a typical low season. Our PTI margin improved 10.9 percentage point year-on-year. For the full year, MBG turned profitable in the second half of the year, thanks to the solid strategy execution to focus on selected markets, product portfolio enhancement, and expense reduction. We managed to achieve an expense saving of $433 million for the whole year and bring down our annual operating expenses to around $1 billion without compromising investment in marketing, research, and development, which are vital to our future competitiveness. Loss in MBG was narrowed by $464 million year-on-year to $139 million for the fiscal year. The efficient expense structure, coupled with reviving revenue growth, has established an important milestone for MBG as it resumes profitable long-term growth. In Q4, margin of our Data Center Group continued to expand year-on-year. PTI profitability improved by one percentage point year-on-year. The industry has been hit by a short-term demand dip as the cautious customer awaited launch of the next Intel x86 platform. Inevitably, DCG revenue growth slowed to a single-digit rate in the quarter to $1.3 billion. Nevertheless, our hyperscale business still achieved a very strong double-digit growth year-on-year, while our software-defined business outpaced the market with high double-digit revenue growth for the sixth consecutive quarter. For fiscal year 2019, Data Center Group concluded the fiscal year with a record revenue of $6 billion. Revenue grew by 37% year-on-year, the highest rate in the last three years. We have strengthened our business model, product leadership, sales and marketing to drive share gain and product expansion. Our hyperscale recorded triple-digit growth and software-defined infrastructure business almost double. Loss was narrowed by $194 million year-on-year, thanks to the margin improvement across all DCG segments and geographies. Last but not the least, I want to highlight the progress we have made in our intelligent transformation. Our software and service revenue increased by nearly 20% year-on-year to $2.4 billion, representing almost 5% of our group revenue. The device and service business continue its rapid growth with booking revenue up by more than 20% during the year, as our footprint stretches across the global market. Our big data and AI-powered smart vertical solution business also tripled compared to last year. Looking ahead, despite some geopolitical uncertainties ahead of us, we will leverage our extensive experience in managing in multitude of macro risk in order to drive growth and thrive as a business. Our growth is to lead in intelligent transformation era and drive service and software to become a key profit contributor in the long term. We aim to deliver premium to market growth on our top line, and we target to set new profit record. On PCSD, we are confident to achieve industry-leading profitability and premium to market revenue growth. We will continue to improve user experience, expand innovative product lineup, and grow our service and software business. For mobile business, we will establish a profitable business model, and we will expand this framework to our existing focus market and other high growth potential markets where we have synergies to leverage from other Lenovo franchise. We will hold on to our strategy in enhancing our product portfolio and investment in innovation. For our Data Center Group business, despite near-term demand softness as customer wait for the next Intel platform, we will continue to invest for the future. We will improve our profitability and grow at a premium to the market as we expect demand to recover strongly in the second half of the year. We will further strengthen our core capability, including in-house manufacturing, in order to expand in the high-growth segments, including software-defined infrastructure and hyperscale, and further enhance our product portfolio and optimize our end-to-end solutions tailor-made for the local markets. We will accelerate our market share gain in high-growth segments such as in hyperscale, software-defined infrastructure, high-performance computing, and AI and IoT solution. We will accelerate our intelligent transformation by bringing smarter technology to all in the connected world. In smart IoT, to accelerate transformation, we will focus on building intelligence in our PC and smart devices. We will further improve our profitability through higher average user selling price. In smart infrastructure, we will continue to strengthen our capabilities and solutions and grow our services attach rate. In the smart vertical business, we will continue to optimize our business capabilities to accelerate our growth across software, services, and solutions. Thank you. Now we can take your questions. Thank you, Wang Ming. May I invite the four gentlemen to come back to the stage? Wang Ming as well. Yes, Wang Ming. Thank you, Jirarko. Now we move to the Q&A sessions. We will take questions from the floor. If you wish to ask questions, please raise your hand and we will pass over a mic to you. To make sure all of us, including our participants in the live webcast, can hear your question, please wait for the microphone before you speak. Also, please try to limit your questions to two questions at one time, and please state your name and the company that you represent. May we start the Q&A now? Any questions from the floor, please? Yes. The gentleman. Yes. Thank you. Sorry. Thank you. This is Gokul Hariharan from J.P. Morgan. Maybe I will start off with the most topical question. I think, a lot of geopolitical challenges in the last couple of weeks. Could we share what Lenovo was thinking, preparing for, especially in terms of additional tariffs, et cetera. I think you have been preparing for some supply chain realignment already over the last 12 to 18 months. Could you talk about the preparedness of Lenovo if we see further tariffs? And how do you compare yourself with some of your competitors as well? Because it looks like an industry-wide issue, because pretty much everybody ships a lot of their products from China. That is my first question. Thank you for the question. I know the question must be asked. We are a pure global company. We have very balanced business across geographies, and very sophisticated supply chain across the geography as well. Different from other players, actually, we do a lot of in-house manufacture. Our in-house manufacturing facilities are across the world, as well. We have the factory not just in China, but in India, in Brazil, in Mexico, in Hungary. Hungary is not in-house, it is a third party. To compare with our competition, we have more flexibility to adjust the supply chain so that we can better meet the competition. Definitely today, PC and smartphone have not been tariffed yet. Manufacturing in China still give us certain advantage. If the situation will be changed, definitely, I think we are in the better position than our competition to make the supply chain adjustment. So another point is, we actually have less exposure in U.S. than our competitors, key competitors, particularly in the PC areas. My conclusion is, we are in the better position than our competition, and we are try our best to mitigate the impact to our performance. Thank you, Yang. No, I think you said, we also have factory in Japan. Oh, yeah. I forgot that. On top. We have factory and a small factory in U.S. Thank you. Thank you. The next question, please. Yes. This is Robert Chen from Bank of America Merrill Lynch. I think my question is because I feel right now that probably the problem is beyond only tax. Because probably the reason, in the past few days, you probably heard, firstly is Huawei. They start to ban their, I mean, talking about component and even operating system. Then next, I think the day before is talk about Hikvision. I think right now there is a lot of the other company coming out. Basically, pretty much all the leading company in China was being named as a banned list. Of course, I think Lenovo is one of the leading company. Right now it is globally, but of course, they have a lot of facility and a lot of technology from Basically, it is impressive, China's brand. Some of area I feel is probably more sensitive, especially on server, especially you guys involve so many super-computing project, and also have a lot of exposure to U.S. hyperscale data center. Also another one is in mobile side. Because mobile, actually, you guys do very good in a lot of market share picking up in North America. So, I do not know if the supply chains disruption become an issue, how do you guys would really deal with this kind of situation? Thank you. Thank you for the question. Lenovo has always been a global company, originated from China. We have always been a trusted player across the world. So we have never had the problem on security, on the compliance. Actually, we always comply the law and the regulations, everywhere we do business. Also Lenovo, we are a very transparent company, with a very high level standard, high standard governance. If you consider our board and our executive, we are probably the most diversified company in those multinational companies. So I do not think we have a reason to be targeted. Thank you. I think for super-computing, as you mentioned, right? We are very proud now we are on the top 500 list. We are actually in 17 countries, which is more than the next three of our competitors combined. And the most supercomputers in 10 countries, the fastest in 10 countries. So we actually see ourselves now as globally diversifying and super-computing as well. On hyperscale, we have been public that we are in six of the top 10, but I can tell you our design win rate is growing. So we are getting more customers. We are expanding into the next set of customers beyond the top 10, which represents about 40% of the worldwide hyperscale market. About 40% is not in the top 10, and we are just now starting to focus on them this year after the success in the tier one. Yeah. Just to complement, on the mobile side, we see continued momentum in North America. Our ranging, that is a very good indication North America about future business, has increased significantly year over year. Supply chain, as we mentioned, we have a flexible supply chain, so we see momentum continuing the North America business for the mobile side. There is also a lot of innovation as we launched the first 5G device. For the second half, there is a lot also coming from innovation. So we see a lot of buckets of growth in North America still. Thank you. Next question, please. I am sure the results are doing very good. Any more questions from the floor? The gentleman again, please. Thank you. A couple of questions. First, on the gross margins, I think, this is probably a three-year high in terms of gross margins at 16-plus percent. Could we have a little bit more detail in terms of why we saw such a big jump in gross margins? Typically, during a weaker quarter in terms of seasonality for the China business as well. Could we have some view on how we should think about gross margins over the next fiscal also? Second question I had is to Gianfranco. If you could talk a little bit about how we should think about PC business, where we are in the enterprise refresh cycle. What do we think about China PC market, as well as you highlighted coming back to number one in consumer, what do you feel about the overall consumer PC market as well? You want to answer that? Okay. Well, in fact, I think I can address one of those. I think if I look at the group on a good floor, I think we actually saw improvement in margin in the two business unit or the three product groups. I think PCSD, MBG, and DCG. Clearly, I think from a percentage perspective, I think PCSD actually is the largest. So I think when Gianfranco answers why we actually be able to actually achieve that result, and I think that will answer the question. Paul, again, I think from a result perspective, the improvement is across the board. It is not just one business group or one geography. So maybe I pass it on to Gianfranco. For Data Center, I think, a few milestones we hit. Actually, storage now, we successfully executed the joint venture with NetApp in China. Remember in the past, we were fastest growing storage company in the world, but only covering the entry space, 15%. Now we can cover 92% of the storage space. So for year-on-year, we actually grew five times the market. And in flash arrays, which is obviously one of the fastest growing parts of the market, as flash pricing goes down, we are growing twice the market. More than triple digits. So the storage is definitely now more than 80% of our generalist sellers are selling storage, not just server. So we are transforming from a server company to a server storage company, and obviously we can compete with the large companies when we do that. The second milestone we hit this quarter is actually our deferred revenue on services is the highest it has been since the System x acquisition. So we have been aggressively attaching more professional services and more services to our servers and storage. And as a result now, we have confidence in the future profitability because our deferred revenue is now higher than it has ever been on our balance sheet. Gentlemen, PC. PC. No. If we talk about margin, I think it's coming from, I would say, three major things. One is the mix. We have been very careful during the last couple of years to move our mix from low end to mid and high end. This is the reason why today we are number one on more than $800 price point, right? We are even bigger than Apple. This, of course, is running with a different margin than entry. We also been very careful on also considering the shortage and some other things, but today commercial is probably 65% of our revenue against the consumer. It does not mean that we do not look at consumer. We are back to number one. But commercial is still our strong end. We continue to grow share. The gap with the number two is getting bigger, and also answering to the previous question. When I look at Fortune 500 customers, probably 70%-80% of Fortune 500 customer in the world, they are running with our PC. Even big government or administration in U.S., they are running with our PC. Talking about the trusted company. The other reason is the service. We have seen the service on PC growing by more than 20% year-on-year. So we have over 1.5 billion, which is not a small number in PC. The last thing is component cost. Component cost for sure is also helping because they have been going down during the last six months. My projection is that they will continue to go down at least until the end of the year. There is no sign that components, they should come back to increase the cost. I would say mix, service, commercial consumer, and some help from component cost. When we go to PC, how do we see PC? I think when you look at PC in terms of units, it probably will continue to go down slightly, maybe 1%, 2%. This is in line with the IDC. Just the IDC released a new forecast today. It is a little bit better in terms of revenue, so revenue is almost flat or slightly down. But when I look at revenue, and this is much better indicator than the quantity, the market is probably going to be flat. It is coming from still Windows 10 refresh because it is not finished. It will be probably completed by the end of the year. But it is still big in most of, I would say, except probably U.S. and a little bit EMEA. It's still big in all the other geo, including Asia Pacific, including Japan, including all the emerging market, even EMEA in some cases. I think Windows 10 refresh will continue to drive commercial at least until the end of the year. There is even some possibility that some big customer, they will not move, and they will wait next year. When I talk about big customer, I'm mainly talking about government customer, that they are not ready to move. I'm not talking about emerging market, I'm talking about mature market. PC is at the refresh. Then what we see, of course, is consumer, they will continue to go down. It's still negative. Commercial, it's probably continue to grow. If we look geo by geo, I think the only geo that today is showing some weakness in terms of demand is China. It's not only on PC. It's showing weakness on PC, on phone. There are some weakness in China. The other geo are more or less at the same level. It's not exciting, but also it's more or less flat in U.S., more or less flat in EMEA, more or less flat in Asia Pacific. We continue to gain share, in my opinion, for a couple of reason. Because in terms of product, we are in the position to offer a better product to our customer in terms of innovation and in terms of the quality. We have today a much better balance between the different geo. Today, I think we have, when you look at our $38.5 billion, we have three geos running around $10 billion. It's very good in the sense that out of five geo, Latin America is very small. We have three geo running around $10 billion and the other two contributing for the $8.5 billion. Also in terms of profitability, it's now 30%-40% coming from China. The rest are coming from outside China. Thank you for the detailed explanation. Yes, the next question please. Thanks for taking my question. I am Fred from eFusion Capital. I have two questions. The first question is regarding the Data Center Group. Because a bit surprised to the market that some unlisted company, say, some facial recognition company, are under the spotlight today in the Bloomberg News. I guess those facial recognition company also install a lot of server as they claim that they sell those servers to their customers as well. Nearly 50% of those facial recognition company, their revenue comes from the hardware sales, including server and storage. So I am not sure whether this part is also the potential growth for Lenovo's data center business. If that is one of the part of the growth driver, will it affect the coming data center prospects as well? So this question mainly for the camera, the surveillance camera, the connecting server and data storage. The second question is regarding the Because we are seeing more company are doing vertical integration, are designing some in-house, not only production, but also semiconductor side, going upstream to those chips. Say, the H company also spend a lot of time and R&D expenses in those semiconductor development, so that they have a fabulous design methodology to place order to secure their design IP. So I am not sure whether Lenovo has also such kind of plan. Also regarding the software side, which is dominated by the M company, right? So not sure in the PC or in the smartphone side, whether you consider to develop in-house operating system for long-term development. That is my second question regarding the strategic reason, not necessarily for the tariff or not necessarily or you have already planned this kind of project before. Yeah, that is my two questions. Thank you. Thank you. I will answer your second question, probably Kirk will answer your first one. We still believe globalization is a trend. For a company, we don't need to do everything by ourselves. We have no plan to build the chips by ourselves, to build the operating systems by ourselves. We have ourself position. We provide the best product for our customers, using the latest technology, partnering with the trusted partners. That's our strategy. Yeah. Relative to video and video analytics, I think I saw some data, almost 75% of data created today is video. As we expand to the edge, we see the compute going to where the data is. The data will not go to where the compute is. If you go outside this hall, you'll see our new ThinkSystem SE350 Edge server. We had over 650,000 YouTube views just in 4 days at MWC when we showcased that technology. We've already been public, for example, that we are helping with safe city for smart city. For example, we did City of Bogota, Colombia. We worked on the hyper-converged infrastructure so they can detect license plate and the color and type of car. If someone tries to change the license plate to a different color car, they can immediately detect it's a problem for the city safety. This was one example where we used Pivot3, which is a hyper-converged infrastructure company. But there are hundreds, if not thousands, of camera companies out there. That will not be a deterrent to the growth. The second case study we did was in smart retail at the edge. Ahold Delhaize has 33,000 grocery stores in Europe. It's the largest retailer in Europe, and we run Scale Computing, which is their hyper-converged infrastructure at the edge. And there they do point-of-sale terminals, they do customer loyalty systems, they do video analytics for store safety and theft, this kind of thing. We have many case studies. It's a very fast-growing part of our market. But I don't see, I haven't heard of any issues with this deterring our growth with any of the things you mentioned. Thank you. Yes. Next question. Louis Wong from Investment Management Hong Kong Limited. My question is concerning the 5G development of Lenovo. As I know, the mobile business of Lenovo just turned around the profit. My question is about 5G development of Lenovo. As I know, you already launched two kind of mobile phone. My question is, how is the market share of the 5G phones in the future? My second question is about the, how is the strategy of the supporting device of the 5G related device of Lenovo? Thank you. You will answer the first question? Yeah. As we announced to you, the first commercial 5G call globally was made from a Lenovo phone in the U.S. We will keep investing in 5G. We will be launching new models to the end of the year. We see that as people start replacing the phones. What we are not going to do is accelerate, as the carriers deploy their networks, and we are being very cautious, right? It is still early stage, but we had a small time to market in terms of what it did, in terms of learning antennas, trimmer, and we are going to continue to deliver on that. We see 5G probably coming stronger at the beginning of next calendar year, but you will see some announcements coming to the second half of the year. Yeah. Oh, yeah. If we talk about devices, it is easy to think that probably in three to five years from now, even Wi-Fi will be replaced by 5G because it is faster and easy to use, right? People, they do not need to switch from one to the other. We just announced, foldable PC two weeks ago. The foldable PC. This is a typical example. It is going to be 5G connected because it does not make any sense to have a foldable, ultraportable, small without connectivity. We have another part of our product line, still small today. It is based on Windows on ARM. All these kind of product, when you think about Windows on ARM, it is today 4G, tomorrow 5G connected. I have to say, the Edge server we announced at MWC can also connect on 5G. It actually has six antennas on it. As you start putting these in your factory, you connect not just with wired, but with Wi-Fi, with 4G, and with 5G. It's very interesting to see a server that almost looks like a ThinkPad and has antennas on it. But this is part of the excitement around Edge servers as well. By the way, we are the member of the O-RAN, so we have the project. We actually already have the business to develop the NFV, network function virtualization business, particularly for the 5G. I think that's a potential growth area for Lenovo as well. Thank you for the explanation. Very detailed. Any more question, please? If there's no further question, thank you very much for joining our investor presentations today. We have some new products displayed outside of the room. If you have time, please stay a little bit more with us and try to test it, and let us know your feedback. If you have any further question, feel free to contact the IR team. Once again, thank you very much to all of you. Wish you all a good evening.