Earnings Call: Q4 2016

May 26, 2016

Good afternoon, ladies and gentlemen. Welcome to Lenovo 2016 annual results investor presentation. First, let me introduce the management with us today. They are Mr. Yang Yuanqing, Chairman and CEO. Mr. Gianfranco Lanci, Corporate President and COO. Mr. Wong Wai Ming, our CFO. Mr. Armand De La Longue Casson, Co-President, SVP of Lenovo Mobile Business Group, Chairman and President of Motorola. We will first have Yuanqing to give us an overview on the business performance, then followed by Wai Ming. Now, may I invite Yuanqing to come on stage, please? Hello, everyone. Thank you for joining me today. I will cover our performance then discuss our future strategy. Last quarter, despite a challenging economy and industry conditions, we protected our profit. While revenue declined, pre-tax income was up at 6% year-on-year, and net income was up 18%. Our PC business remains strong. We gained almost a point of share year-on-year and kept the PTI margin at more than 5%. When you combine PCs and tablets, we are now tied for number 1 in worldwide market share. In our data center business, we improved the operational profit margin by almost 2 points year-on-year and remained number 1 in China with almost 21% market share and 8% revenue growth year-over-year. In mobile, we outgrow the market in Asia-Pacific and EMEA and maintain the strong position in Latin America. Our volume dropped 85% in China due to shifting from carrier market to the open market. For the fiscal year, our revenue was almost $45 billion, down 3% year-on-year, but up 3% year-on-year if excluding currency impact. The decisive actions we took mid-year significantly improved our profitability. Our PTI in the second half of the fiscal year improved 116% versus the first half and 22% year-on-year. Our PC business continues to be strong in the last fiscal year, achieving record market share of 21%. We outperformed the market by almost 6 points while maintaining strong PTI margin at 5%. In enterprise or DC, data center business, our revenue was up 73% year-on-year, led by strong growth in China. Operational PTI keeps improving and totaled $53 million for the fiscal year. In mobile, our smartphone volume grew over 60% year-on-year outside of China. With strong positions in key markets like in Asia-Pacific, Latin America, and EMEA. While these are bright spots, we recognize we have challenges beyond the macroeconomy or industry situation. Operationally, our China smartphone business declined significantly as we shifted focus to open market and high price band. Our smartphone product transition in North America was not successful. In data center business, while we achieved great results in China and the emerging markets, we need to align our sales model and aggressively grow our top line in U.S. and other mature markets. These are definitely the focus areas for me and for our leadership team. We will stay fully committed to our mobile and data center businesses for the long term. We have taken a number of actions to address these challenges proactively. I believe what you are most concerned about is how we will get our mobile business back to growth. Frankly speaking, in the past 18 months, our progress and the results in Moto integration did not meet our own expectation. We are still in a learning stage. But we believe in our ability to learn and to apply the learnings to actions. Moto and Lenovo have solid products and technology foundation. We have built global markets and channel coverage. We have a strong talent pool. And now we have stronger leaders to more decisively execute our strategy, thoroughly integrate the organization, quickly streamline product lines, and strengthen product competitiveness. Recognizing how different China and the rest of world markets are, we now have Emma and Xudong as co-presidents to dedicate on rest of world and China, respectively. In rest of world, while keeping high growth in emerging markets, we will focus on getting U.S. business back on track. In U.S., we will invest in our brand, broaden our channels, and at the same time, launch more innovative products to gain market and improve profitability. In China, we will keep driving the strategic shift from carriers to open market, and leverage ZUK model to rebuild our end-to-end competitiveness. With all these actions, I am confident that we will get this business back to profitable growth. To better manage and grow these diversified businesses, we are changing our management system and adopting a multi-business operating system to give different authority to different businesses. Some businesses will be 100% owned by Lenovo, while some could receive external investment. Some will leverage the global platform more, while some will be built more independently. Some will be focusing on profit, and some will be focusing on growth. I believe we will better unleash the productivity and the creativity of each business by adopting this new operating system. The new structure and operating system will enable us to attack the opportunities in device plus cloud era. We used to be a device company, and then become a device primary, cloud secondary company. As we are heading towards our age of Internet of Things, everything around us can have computing, storage, networking modules built inside. While protecting our general purpose device business, we will develop more specific purpose devices based on customers' needs in different scenarios, at home, at work, or on the go. Lenovo has a unique advantage in integrating our traditional strength in end-user devices with our new capabilities in cloud and in infrastructure to meet customer needs for a balanced device plus cloud model. This is where Lenovo will attack and grow. We will showcase our innovative products and technology that best illustrate this vision at the Lenovo Tech World on June 9th in Silicon Valley. Please stay tuned. Last year was tough. And in the short term, we will likely continue to face the challenges. But we believe we have the vision, the strategy, and the strong execution, and we remain confident that the actions we are taking will bring us the growth that we are aiming for, starting from current quarter. Thank you. Now, let me turn this to our CFO, Wai Ming. Wai Ming, please. Good evening, everybody. Thank you, Yuanqing. I will take you through the Lenovo financials and operational performance in our quarter 4 in the fiscal year 2016. Next chart, please. First, let us have a look at our fiscal year highlights. We reported revenue of $44.9 billion, down 3% year-on-year, but 3% if it is restated in constant currency. Facing currency depreciation, a slower recovery in the PC market and a hyper-competitive smartphone industry, we have taken prompt actions to realign our businesses against these challenges as we announced in the middle of the year. The improvement in our profitability in the second half of this fiscal year is clearly demonstrated the result of our commitment to maintain a competitive expense structure. We have achieved more than our planned savings in the second half of around 3,600 headcount reduction, and we are on track to achieve our full-year run rate savings target. However, despite the expense reduction effort, the decline in the market result in a much weaker than expected E/R ratio. Next chart, please. For FY 2016, revenue was down 3% year-on-year. However, gross profit reduced by 1% only due to the improvement in gross profit margin to 14.8%. The year-to-year improvement in gross profit margin is driven by a favorable shift of our revenue mix to data center and Mobility Business Group. Operating expenses increased by 20% year-on-year to $6.7 billion due to the inclusion of the full year of the Moto and the System x results. Excluding restructuring costs and the one-time charges reported in our fiscal quarter 2, our total expenses were approximately $5.9 billion, increased by 6% year-on-year. Net non-operating expenses increased by 56% year-on-year to $250 million. The increase mainly represent interest expenses in respect of the USD 1.5 billion and the RMB 4 billion bonds that were issued, as well as the included interest expense from the Google promissory notes. We recorded a net tax credit for the fiscal year, largely from the tax benefit associated with the two acquired businesses. Loss attributable to equity holders was $128 million. However, if we exclude the restructuring cost and the one-time items and the non-cash M&A related accounting charges, our run rate pre-tax income was $976 million, down 14% compared to the year before. Please refer to the appendix for the details. Turning into quarter 4, the market environment remained challenging. Revenue was $9.1 billion, down 19% year-on-year, or down 16% if restated in constant currency. Gross profit down 50% year-on-year to $1.5 billion, largely due to the revenue decline. While gross margin increased by 0.09 points year-on-year to 16.6%. Gross margin improvement is primarily driven by our reductions of doing the low-end smartphones business in China. Operating profit increased 95% year-on-year to $248 million as a result of our business realignment and restructuring actions. Other non-operating expenses were $55 million, excluding the non-cash M&A related accounting charges of $77 million. Pre-tax income was $270 million for the quarter, up 37% year-on-year. Reported pre-tax income was $193 million, and reported profit attributable to equity holders was $118 million. Basic loss per share for the year was 1.16 U.S. cents, compared to earnings of 7.77 U.S. cents last year. The board decided in this meeting today to declare a final dividend of 20.5 Hong Kong cents per share. Together with the 6 cents we already pay as interim dividend, total dividend for the year is 26.5 cents, remain the same compared to the year before. Next chart, please. The change in our balance sheet mainly reflects our business activities during the fiscal year. Non-current assets were $12 billion and current assets, $13 billion. The major change year-on-year was from the decrease in the trade and the OEM receivables as a result of slower business activities and efforts to reduce age receivables. Net current liabilities, $2.8 billion. Similarly, the year-on-year change was mainly due to the decline in our business activities. The non-current liabilities were $6.1 billion. We have started actions to monetize certain of our non-core assets. Coupled with an increasing focus on further improving the management of our working capital, those actions will continue to improve our financial position. Next chart, please. Cash flow from operation at the end of fiscal year 2016 was $292 million, against $238 million the year before. Decrease in bank deposits and cash was mainly due to the payment of the restructuring expenses in our second half, and interest expenses for the bond and the promissory notes. We have a net debt of around $1.2 billion at the end of the fiscal year 2016. We will continue to drive improvement in our balance sheet by reducing the working capital requirements and rearranging part of our short-term borrowings into long-term facilities. We will continue to see improvement in our cash conversion cycle. In quarter four, it improved from a positive 3 days last year to zero day this year. Though for the full year, it dipped slightly from the negative 2 days last year to positive 1 day this year. Next chart, please. For our PC business group, we continue to grow our PC market share to record high of 21%, further solidifying our number one position. In the expanded PC market, which include PC, slate tablet, and detachable, Lenovo returned to our number one position in the fiscal quarter four. Among the regions, North America achieved a remarkable 19% year-on-year growth in unit in quarter four, with record high market share. However, the contraction of the PC market and the weaker currency conditions continue to put pressure on our revenue. Full year revenue was $29.6 billion, down 11% year-on-year, or down 6% in constant currency. Pre-tax income was $1.5 billion, maintaining a solid margin of about 5%. For our enterprise business group, revenue increased 73% year-on-year to $4.6 billion. We achieved operational profitability with margin improvement for six consecutive quarters since the close of the System x acquisition. Our business in China remains strong with 76% year-on-year revenue growth driven by our success in the hyperscale business. On the other hand, we are still optimizing our sales model to accelerate top-line growth in mature markets. For quarter four, revenue declined due to longer pipeline conversion and some deals delaying into quarter one. This year, we recorded an operational profit before the non-cash M&A related accounting charges of $33 million, with a margin of 1.2%, improving from a loss of $29 million and a negative 1.1% margin last fiscal year. For the mobility business, revenue increased 7% year-on-year to $9.8 billion. We recorded an operational loss before the non-cash M&A charges of $469 million. Due to softer market growth and the hyper competition, we saw mixed result in our smartphone business across geographies, as Yang Yuanqing has just discussed in detail. We've regained leadership. We've realigned leadership team and the strategy. We're committed to bring this business into profitable growth. Next slide, please. Looking at China, revenue was $12.4 billion, down 16% year-on-year, and profit down 29% year-on-year. Overall margin in China was down 0.8 percentage points year-on-year to 4.6%. The margin deterioration was mainly resulted from a strategic shift of our China smartphone business towards open market and rebuild our end-to-end competitiveness. PC business continued to perform well. PC market share improved to 36.5% with stable margin. Enterprise business continued to maintain a strong position in the market with solid revenue growth. Asia Pacific. Revenue up 9% year-on-year to $7.2 billion in the region. The growth was mainly supported by strong smartphone shipments, especially in the ASEAN countries and India. Operating margin declined by 3.4 points year-on-year to 1.2%, mainly due to the significant weakness in the PC market as well as the currency situation in Japan, and in other emerging market countries. EMEA. Revenue down 8% year-on-year to $11.8 billion, and operating margin declined by 2.1 points year-on-year to 1.1%. Similar to Asia Pacific, decline mainly is a reflection of the severe market softness and currency depreciation. Despite these challenges, our PC business continued to gain share and achieve record high market share. In smartphone, we recorded strong growth in the EMEA, driven by the momentum of the emerging market regions from Eastern Europe as well as from the MEA region. Americas. The revenue was up 11% year-on-year to $13.6 billion, owing to the strong PC shipment during the year. We continued to deliver solid growth in the PC business in North America, achieving record high market share, while our profitability in Brazil continued to improve. On the other hand, our smartphone business suffer from the slower than expected product transition, which contributed to the operating loss. Enterprise revenue declined year to year due to slow acquisition of new customers. More focus will be devoted to build up sales coverage and leverage on new partnership to drive growth opportunities. Looking ahead, even though the market we are in remain challenging under the current economic environment as well as the industry conditions, we are actively taking actions to improve each of our business units. In the short term, we see PC industry as being relatively soft, but growth opportunities from new form factors in the second half of this fiscal year will definitely help the market perform better. With our competitive cost structure, we will continue to take advantage of consolidation and attack growth areas in the expanded PC market. We target to outperform the market while maintaining our margin performance. For our mobility business, we have actions in place to get our mobility business back to growth. In markets outside China, we will focus on affordable premium products and invest in selected key countries. In China, we will leverage our ZUK brand to rebuild our end-to-end foundation and keep driving the strategic shift from the carriers to open market. For enterprise business, we have in place a focused management team and continue to build our end-to-end capabilities, and this group will be renamed as the data center group in the new fiscal year. We will attack the top-line growth across all geos, and we will adopt a new partnership approach with the best-in-class partner like SAP, Nutanix, Red Hat, and Juniper to open up new top-line revenue opportunities. We are confident to grow faster than the market with improving margin. While the market remains challenging in the short term, we will continue to examine further actions needed to improve profitability. We have action in place to drive sustainable growth and profit improvement, although these actions will take time to see results. Meanwhile, we will continue to invest in area we believe are important to our future successes. We are confident that Lenovo can outperform the industry to drive profitable growth and hence increase shareholders' return over time. Thank you. Thank you. Please remain. Okay. Thank you, Wai Ming. Now, let's have Yuanqing, Gianfranco, and Aymar come to the stage. We will take questions from the floor. If you wish to ask questions, please raise your hand and we will pass you a microphone. To make sure all of us, including our participant on the webcast, can hear your questions, please wait for the microphone before you speak. As we would like to accommodate questions from as many participants as possible, please avoid multi-part questions and limit to only two questions at one time. Kindly state your name and the name of your company you are representing before the questions. May I have the first questions, please? Hi, this is Arthur Hsieh from UBS. I remember in the last result, Yuanqing talked about the Mobility Business Group's financial target. Is now aiming for breakeven for the fiscal year. I think in the December quarter, we had about 20 million, the kind of quality shipment that helped Lenovo to reach around breakeven level. I am wondering whether there is any adjustment, in terms of how we should look at this business. Mainly in terms of breakeven point and the financial target. Are we sticking with the breakeven that kind of a fiscal year target? Is the breakeven level going to be lower after any kind of adjustments? So for the. Definitely, we broke even in Q3. In Q4, we lost $60 million in smartphone business with much lower volume. Why the volume was lower? I think three reasons. The first is definitely the lower season, compared to the Q3. The second is our volume in China significantly dropped, because we almost shut down all the operators business in the low end. We are very determined we will shift from the carrier market to the open market and the online market. That's the key reason for the volume drop. But definitely, this is good for the AUR, average unit revenue or price. And also it will improve the GP margin as well over time. The third reason is in North America and Latin America, because of the product transition issue. Actually, we didn't perform very well last quarter. I think that's key three reasons. Definitely. I think this business, mobile business, the integration of the Moto and the Lenovo product, organization and the product, are still in the beginning stage. We are still learn something there. I think in this business probably we still needed to invest for couple of quarters to make this business as a profitable growth business. Emma, you want to add something on? Hi, everyone. I took over this responsibility April 1st. There is a lot of work that we have to continue to do to better align our respective businesses, in particular, between the Lenovo-branded phones and the Motorola-branded phones. We have good assets, as Yang Qing mentioned, in terms of geographical footprint. And it's a matter of how fast we can reorganize our internal operations and then accelerate in the markets that we're strong in, like Brazil as an example. Other than that, I have nothing to add to what Yang Qing said. Well, I guess, just to make it simple, the question should be, does this still take $20 million a quarter to reach that breakeven point? And previously, I think we've been continually being informed expanding overseas sales is actually a very helpful, compare with domestic Chinese sales. Is that still the case? And how is the priority between China and the overseas business? Yes. Emma, you want to talk about the rest of the world? The first thing, obviously I can't really speak that much for China because it's not in my scope, but even having said that, look, we have three geographies. We split the world in five. Three geographies, we're doing relatively well. It's Latin America, it's Europe, Middle East, Africa, and Asia Pacific. In all of those regions, we're not particularly dependent on any one country, and we have market shares ranging sometimes from 5% to as high as over 20%. We sort of demonstrate that it can be done under either brand, by the way. If anything, I would say that the organization needs to maybe focus on some of those regions a bit more than we have in the past, while paying attention to the other two markets, which are the Chinese market, where we have a massive shift from having been operator-focused to now being open market-focused, and we have to manage that transition. In North America as well, we want to change the product mix as well as diversify the customer base. We're in the midst of that transition. A lot of it being driven by product. We need to streamline the portfolio very clearly between the two brands. That will help us achieve better economies of scale and therefore improve profitability. I'd say that we have a lot of homework to do still. But the opportunity is clearly in front of us. Yeah. Yeah. Regarding the China market. Given now the base has been very low. Definitely, I think we have opportunity to drive the growth up. But driving the growth, definitely we need some investment in branding, in channel expansion and definitely in the product. Fortunately, last year, we established a new company called ZUK. This is a more customer-engaged business model. We want to fully leverage this business to grow our China business over time. Definitely, they still can leverage our worldwide product portfolio to sell in China with the Moto, with the Lenovo brand. But I think the ZUK team is the foundation. We want to build a completely different end-to-end business model. Last month, we launched the new ZUK Z2 product. I think it has attracted a lot of attention in the market. We think leveraging this product and this business model, we can grow our China business. But in short period, probably in the next fiscal year, is still in the investment stage in China. But probably one year later, we can drive the profitable growth. Okay. Thank you. Next questions, please. Thank you for taking my question. This is Joseph from GF Securities. Two questions. First, going to the basic, back to the PC business, two-thirds of your revenue, and what we observed so far is you had a higher market share, but at the same time, lower sales due to shrinking PC market. I remember at some point you mentioned about a market share gain target from 20% to 30%. Can we see more aggressive steps to achieve that? Can you give us some update how you are going to get that, and how fast can you get to that 30%? That is very important in order to drive growth. That is number one. And second is on the smartphone business. I think this is the start of a new fiscal year. Last year, 66 million smartphone shipment. Can you give us some guidance for this year? How much you are targeting for this year? You can. On PC, I think that we are always very careful to balance market share growth and PTI. If you see last year, we have been growing share in the range of 1.5%, still keeping 5% PTI. One thing that we see is that the consolidation process is probably speeding up. We see even a bigger number of players in the process to leave or already left. I think this year, for sure, we can be more aggressive than before in terms of gaining share. But still, as I said, with a good balance between growing share and PTI, without compromising the profitability. I think that talking about 30% is still in the range of 2 to 3 years, the possibility to go up to 30%. No doubt. We are also working on two-in-ones, for example, we just announced the X1 tablet a few months ago. We are going to announce a new product in that category in the next couple of months. We are also looking at some new segment in order to speed up the growth. Okay. Regarding our smartphone. You want to talk about the rest of world target? Well- Volume. Look, no, it was a guidance for this year, right? For the year ending in March, correct? Yes. I think the guidance is that it is probably not going to be substantially different from what you had last year. You said 66 million the year before. It is probably not going to be substantially different from that number, with a different mix, yes. Yes. Definitely, PC is still our stronghold. I think Gianfranco is very confident. We can keep at least 5 to 10 points premium to the market. Hopefully, the market will not decline more than 5%-10%, so that we can still keep the positive growth in the fiscal year. Smartphones, definitely, we will try to drive the growth. I think we have a good share in EMEA and in Asia Pacific. We are growing faster. We will keep the growth path. In Latin America, we have good foundation and good position. We should fully leverage that. Actually, we have 20% market share in Brazil. In rest of the Latin America, we still have the room to grow. I think in China, our situation would not be worse than last quarter. That is the growth area. Now, definitely smartphone market is becoming more saturated or matured. I think Lenovo could become stronger in this kind of market. Actually, you see our PC business. We grow this business, in a similar situation, in a similar market environment. We grow from a Chinese local company to global company, from the 3%, 4% market share to today, more than 20% market share, just in past seven, eight years. You are very saturated in a mature market. Now it is still very decent business for us. $30 billion with 5% PDR. It is a pretty good business, because we know how to balance the innovation and the efficiency. I think we have the opportunity to replicate our success in the smartphone area as well. I think this environment probably is more appropriate for Lenovo. That is my thinking. Definitely now we need to fix the two biggest markets, China and the U.S. That is the key part. I talked about China. We will leverage our ZUK brand to address the open market and the online market. Meanwhile, definitely we can leverage our global portfolio to sell Moto and other Lenovo phones. In U.S. and other mature markets, we wish we could break through with innovative products. We will launch a very innovative product next month in our Lenovo Tech World in Silicon Valley. Hopefully, you can pay attention to that. Thank you. Thank you. Next questions, please. Hello, this is Leping from Nomura. I have two questions. One question, I think one major concern stock market currently is whether, because of your loss making in the smartphone business, whether you need to write off part of the goodwill in your Moto asset. I think maybe it's, I'm not sure, YY or William comment. In what situations, this may trigger for accounting-wise, this may happen to write off part of your goodwill? Another thing is, I think linked is that if we can maintain the current scale, like 66 million, do you think we can this year can roughly make break even in this smartphone business as a standalone, or we are still in investment phases, need to fix something? Yeah. You talk about the goodwill. Right. I thought about goodwill as far as the sort of the financial side of goodwill. I think we actually have a plan that really, I think with the help of McKinsey, how to address the market. I think based on the plan that we're going to execute, I think we probably will not run the risk of, I think writing off goodwill. I think that's number one. Number two, I think that when you look at the smartphone business, I just really want to put a perspective how Lenovo look in the smartphone business. China, we are really, I think shifting our strategy from operator to the open market. Therefore, I think it's not just the volume that you're looking at. I think we are actually taking actions to build a more solid foundation so that when we're going forward, I think we'll be a sustainable, profitable growth. I think likewise, as Amos said, I think we are also, I think have a very clear strategy as advised by McKinsey, where they actually do an independent look at it. We actually have very clear go-to-market strategy, which particular market we are investing in. We will definitely will continue to grow the business. But obviously, I think from an investment point of view, I think we are looking at this as the transition state where we will invest to build a more solid foundation. I would say that based on even today, I think you will not be surprised when McKinsey looking at the numbers, they take into consideration of how we perform today. I think even based on today's, I think financial performance plus the actions as far as the strategic direction for us to enable to build a much healthier business, I think there is, at this point in time, the risk of writing off goodwill is not significant. Yeah. I think, in short term, we still needed to invest something in our smartphone business to build the foundation, because I don't think now our smartphone business foundation is as strong as our PC business. So we need to build the brand. We need to expand the channel networks. We need to invest in the product portfolio. I think, this shouldn't be the concern. Because if you don't invest to build the foundation, you will not have future. Probably is not that difficult if we only focus on the profitability. Probably, yeah, we can do that. That's right. We can do that. But probably we will not have the future. We will not have the future. I think now we are still very committed to our smartphone business. Also, as I said before, I am very confident. We can win in this industry over time, even though it has become a saturated, matured industry. In this situation, we think Lenovo could become an even stronger player, but we need to invest in the foundation building, branding, product, channels, particularly in China and the U.S. These two, the most important markets. The second question from me is that, I think in the slide you mentioned you are slightly changing your leadership style, which you have new business area called, what should I say? Explorer area. As in new business, you welcome some third-party investment. Can you further elaborate which area you are exploring? You are exploring new consumer electronics, like drone, or you are investing on some more software-related stuff. Can you elaborate? Because I think this will be a future of the company. I talked a little bit about that. In the past, we just focused on the general purpose devices, like PC and the smartphone. They are all general-purpose devices. But definitely now, it is a device plus cloud model, business model. But for Lenovo, it is device primary and cloud secondary. Actually Apple is a similar model. But in the future, probably more and more specific purpose devices will emerge at home, at office or on the go. But for these kind of devices, it cannot exist just by device itself. It must be device-cloud balanced business model, to give you a different experience on entertainment, on e-commerce, et cetera. Also these kind of devices will be with intelligence. I think now we are focusing on these directions. Definitely we cannot communicate too much on the product details. But at our Tech World next month, we will disclose a little bit more. You can pay attention to that. Thank you. Thank you. Next questions please. Any more questions from the floor? Yes. Hi, Mario from Lighthorse Asset Management. Just coming back to the PC side, because Huawei is launching a new pad, and Xiaomi is coming to the place as well. Could you comment a little bit on this new competition, particularly with regards to your 5% margin? Okay. I'll look. Thank you. Well, I think welcome to the new competition. Welcome to the club. First of all, I think it's very, very different because if we look at Huawei, they are coming with a two-in-one. Two-in-one for sure is growing very, very fast. We need to see when they can deliver the product because it looks like they are not really on time. We don't see or we don't perceive at least any major threat from Huawei when we think about two-in-ones. I think this market is going to be probably this year in the range of 25 million, growing from 15 million. It's growing very, very fast. PC market is very different than mobile market. It's really very, very different in terms of, IT for sure is important, but then you also need to understand in terms of specs and features and performance. If I look at the product, it's probably what they show at Mobile World Congress. If it is still the same, it's probably start to be a little bit outdated, simply because the evolution during the last three to six months is already there. On the other side, as I said, it's also very difficult to run this kind of business with one product only. Either you run with the full range of product or in my opinion, to stay in the PC business with one product, I really don't see how they can be successful and they can compete. They may have some space with telco and so on, because this is their natural ecosystem. But I see very difficult for them to be successful outside this channel. On Xiaomi, I think they are coming, based on what we know, with a couple of products. They are also late. They have some delay. I think, in this case, it is probably even more difficult for them, because to come with a couple of traditional notebook when form factor are changing, because we really start to see traditional notebook and traditional clamshell move into very thin and light or detachable, two-in-one or convertible. I see the traditional notebook, they will continue to go down. And same things, I do not think you can come into the PC market with one or two products in order to be successful. Not only, if I look at our scale, running 60 million PC, I think that in terms of economy of scale, before they can catch up with us, it takes some time. Frankly speaking, I am not scared at all about the 5% PTI from Huawei or Xiaomi. I still look at competition in a different way. We still have some other big solid competitors, but not these two. Yes. Simply put, this is our stronghold. So they will not easily win over us in that battlefield. Okay, thank you. Due to time constraint, we now end our investor presentation here. Thank you once again for coming. If you have any further questions, please contact Lenovo IR team. Thank you