Now, may I invite our senior management to come on stage. First of all, our Chairman and CEO, Mr. Yang Yuanqing. Our Chief Financial Officer, Mr. Wong Wai Ming. I would like to turn the presentation over to Mr. Yang now. He is going to give us his remarks on the progress of the Group in the past fiscal year. Yuanqing, please.
Thank you. Good afternoon, everyone. Thank you for joining us today. Even in a challenging economic and market environment, Lenovo had a strong fourth quarter to close another record fiscal year. I am excited to share our fantastic results with you and to discuss our strategy for the year ahead. Let me start with our fourth quarter. We have now been the fastest-growing major PC company for 14 straight quarters. We delivered a strong performance in a difficult market. Lenovo was the only PC company to increase volume year-on-year. We reached a PC market share of over 15.5%, gaining more than two points year-on-year. On the PC Plus side, our smartphone business in China more than doubled in volume year-on-year. We were profitable for the second straight quarter.
We also rolled out smartphones in more overseas markets and increased the tablet sales worldwide by 23% year-on-year. We also delivered a strong profitability. Our pre-tax income quarters ago, I was committed to you to improve our profitability. We actually delivered it. What I am most proud of is these record results came from balanced growth across all geographies as well as product and customer segments. In EMEA, despite a very challenging economic environment, we outgrew the PC market by more than 36 points and gained three points of the share year-on-year and reached the double-digit market share for the year for the first time. We jumped from number five to number two player in just one year. While growing rapidly, we still improved the segment operating profit to $147 million, up 77% year-on-year.
This was thanks largely to our strong profit improvement in the consumer space. In Asia Pacific, Latin America, we outgrew the market by over 20 points, gaining more than two points of the share to over 11% for the year. At the same time, this year started to contribute profit to our company. In North America, we outgrew the market by 20 points to reach our all-time high, almost 9% market share for the fiscal year, while the segment operating profit improved to $168 million U.S. We also had a record market share in United States of 8.5%. In China, we faced more challenges last fiscal year, but we still increased our market share by 2.6 points to nearly 35% for the fiscal year. We also increased our PC margin by nearly half a point to more than 6%.
We did well despite the weaker market, which we believe is a short-term issue tied to government transition, changes to rural subsidies policy, real estate price control, and other short-term measures. With still low penetration rates of the PC and the smartphone, and the continuing urbanization, that market will grow in the long term and provide more growth opportunity for Lenovo. Our PC business definitely delivered a record year. While we expect to continue this strong performance in PCs, we are now focused on becoming a true major player in PC Plus. In smartphones, we strengthened our number two position in China, with volume up over 360% year-on-year. At the same time, we have now entered the phase of profitable growth. Worldwide, we had strong early results in all five new markets. PC. Stronger future growth in the PC Plus era.
In PCs, while we will continue our Protect and Attack strategy, protect China and the global enterprise business, and attack emerging market consumer and SMB, we will be more focused on improving profitability. Overall, we have a strong PC business foundation that we are confident will be even stronger and more profitable in the year ahead, which will help us deliver our commitment of improving profitability. At the same time, we are now much more than just a PC company. Our PC Plus business will grow even faster next year. In smartphones, we first want to become the market leader in China. In addition, we will grow very aggressively in emerging markets by leveraging our rich product portfolio, strong brand, and broad channel networks. This strategy led to our successful launch in Russia, India, and we will definitely expand to even more countries this year.
At the same time, we will focus more heavily on our tablet business to grow even faster. We will attack this opportunity by leveraging our deep understanding of both Android and Windows to deliver a differentiated product portfolio that satisfies both consumers and the business users. Our target is, within two years, to achieve the same level of the market share that we have in notebooks today. In addition, we will grow our server and storage business to become a relevant global player in the next three years. This will be our strategic direction. Side by side with our strategy, we will continue to strengthen our business model. First, our recent reorganization will drive better execution of our strategy. As I said last quarter, we have reorganized our structure and established two end-to-end business groups, Think Business Group and the Lenovo Business Group.
The new structure will significantly improve our product development cycle, time to market, as well as day-to-day operations. Second, we continue to strengthen our vertical integration. While collaborating closely with our partners, we will further enhance our in-house manufacturing capabilities. In the last year, we have begun production at new facilities in China, in Brazil, and in U.S. Looking ahead, our end-to-end model will give us a unique competitive advantage in the PC Plus era. Last but not least, we will continue to improve efficiency across our company. Every function will continue to focus on driving efficiency, reducing expenses and shifting investment to growing and strategically important areas. With a strong business model, innovation excellence is even more critical to succeeding in the PC Plus era. In the future, you will see us differentiate our products based on our core technology breakthroughs.
You will see us integrate hardware, software, and services perfectly for the best possible user experience. Our goal is to leverage our innovation advantage to win through differentiation. With the right strategy, efficient business model, and innovative products, our diverse team and unified global culture is the foundation for everything we do. This diversity and unity will continue to be our competitive advantage. Looking ahead, it is clear that our industry has changed. We are now in the PC Plus era. At Lenovo, we have built the foundation and are well-positioned to continue our strong momentum. We are ready to start another journey in the PC Plus era to continue outpacing the market, just like we have done with the PCs in the past four years. Thank you, everyone. Now let me turn to our CFO, Wong Wai Ming. Thank you.
Good afternoon. Thank you, Yuanqing. I will take you through the Lenovo financials and operational performance for our quarter 4 and for the full fiscal year 2013. Next chart, please. Yuanqing has just shared with you our fiscal year 2013 performance, which is a year of success for Lenovo. Quarter 4 obviously is another good quarter for us. We continue to grow in both sales and profit with margin expansion, even with the global PC market declining quarter 4. This is in fact the 14 consecutive quarters that we have achieved this year-on-year growth, despite the PC market has showed a negative growth for the last four quarters. Our balanced performance has been driven by the successful execution of our Protect and Attack strategy that enable us to continue to grow our top line without losing or giving up profitability.
Against a very challenging market environment, our mobile internet business is a very significant strength that has helped us to drive the sustainable growth. Group sales grew 4% year-to-year to around $7.8 billion. Our PC shipment was flat year-on-year against the global PC market decline of around 13% year-on-year. Lenovo is the only PC company that maintained shipment volume year-on-year among the top five players in quarter 4 according to IDC. PC sales were up 3% year-on-year to around $6.9 billion. Our strong performance in mobile internet business, especially the smartphone in China, helps contribute more to the group's revenue growth. Sales in our mobile internet business were up 74% year-on-year to $736 million. Sales of other goods and services were around $147 million. Gross profit was about $963 million, up 20% year-to-year.
Gross profit margin improved by 1.5 point to 12.3% year-on-year, primarily due to the lower base last year caused by the shortage of the hard drive. It was also up 0.5% quarter-to-quarter, mainly due to improving MIDH margin and the scaling benefit. Operating expenses, including our continued investment in the R&D and some costs incurred in the integration of our recent acquisitions, increased 13% year-on-year to $794 million to support our growth. Our E/R ratio was up year-on-year to 10.1% against 9.4% last year and 9.2% last quarter. Operating profit, $169 million, up 67% year-to-year. Pre-tax income, $166 million, up 63% year-on-year. PTI margin was 2.1% against the 1.4% last year, and effective rate for quarter 4 was around 25% as a result of our better margin. Profit attributable to equity holders is $127 million, up 90% year-to-year.
Net margin was 1.6% against 0.9% last year. For the full year, we finished the year with record high revenue. Revenue was up 15% to $33.9 billion. Gross profit up 18% to approximately $4.1 billion, and gross margin expanded to 12% from 11.7% last year. The E/R was flat at 9.7%. We have a record high pre-tax income of $801 million, up 38% compared to last year. Profit attributable to equity holders for the full year is also a record high of $635 million, up 34% year-on-year. Basic EPS, 1.22 U.S. cents in quarter four and 6.16 U.S. cents for the full year. The board decided this morning, in the meeting, to declare a final dividend of 14 Hong Kong cents per share. Next chart, please. Our balance sheet as at March 31st this year remains strong. Non-current assets was about $4.5 billion.
The increase from that of March 31st, 2012 was due to the consolidation of our recent acquisitions, the new Compal joint venture plant and the investment in the IT system. Increase in our inventory was largely due to the increase in our in-house manufacturing consolidation of recent acquisitions like CCE in quarter four, increased mix of our consumer product and also increase on our sales. Other changes in current assets and current liability were largely due to our increased level of activities. Overall, the balance sheet remains healthy despite quarter four typically being a low season for us. We have net current assets of around $299 million as of March 31st, 2013. The non-current liabilities was around $2.1 billion. Next slide, please. Bank deposits and cash level were lower compared to last year due to our capital expenditure and settlement to complete our recent acquisitions.
Change in our cash conversion cycle has also impacted the cash flow in quarter four, as we increased the mix of our consumer and Mobile Internet Device business and in-house manufacturing, and started integrating our recent acquisitions. We drew down an outstanding bank facility at the end of quarter two before it lapsed that resulted in a higher bank borrowings compared to last year. The net cash reserve dropped to around $3.1 billion. We continue to do well in managing our working capital. Inventory days were 26, up eight days again last year due to the expansion into the consumer business, and emerging market, ramp up our new in-house manufacturing and integration of our recent acquisitions. Receivable days were 40 days, up five days compared to last year, driven by our expansion in consumer business and Mobile Internet Device business, as well as the integration of our recent acquisitions.
Payable days, 73 days, up three days compared to last year. As a result, the cash conversion cycle in quarter four was negative 7 days against a negative 17 days last year. For the full year, our cash conversion cycle changed from negative 19 days to negative 8 days. The change was driven by our strategic business expansion into emerging market and our consumer business, including MIDH. Together with our hybrid strategy of increasing our mix of in-house manufacturing to enhance our end-to-end efficiency as well as product time to market. Nevertheless, the group's cash position, we still have a very strong level of cash to drive our future growth. Next slide, please. Now looking at the geography.
We continue to do well in all geography in quarter 4 for both our PC and our mobile internet business, under our PC Plus strategy, resulting in a margin improvement in all regions year-on-year. Despite the decline in the global PC market in quarter 4, the group continued to show shipment growth in most of the geos and share gain in all geos with record high market share in APLA, EMEA, EMEIA, and North America. Our mobile internet device business, especially our smartphone business in China, continued to show strong growth momentum. Total revenue from China was up 8% year-on-year, driven by strong growth of our mobile internet device, which grew 74% year-on-year. Our smartphone business in China continued to be profitable in quarter 4 for the second consecutive quarter. Revenue from our PC business was down 2% year-on-year.
However, due to the decline in the overall PC market in China, we managed to hold up and further improve our PC operating margin. It was up year-on-year and quarter to quarter to 6.4% as we focus on upholding margin in the declining market. As a result, overall margin in China was up 1.5 points year-on-year and 0.02 points quarter to quarter to 4.9%. We remain confident that our PC Plus strategy is fully operational in China and can continue to drive growth in sales as well as profit in China. For APLA, revenue is down 7% year-on-year to about $1.7 billion in APLA, despite our shipment growth against a declining PC market in the region. Operating profit improved slightly compared to last year, break-even level, even though with the yen depreciation impact. Latin America and Brazil remained a key market showing loss this quarter.
We have included the CCE figures for the first time in this quarter. We expect that it will help to accelerate our expansion in Brazil and therefore will contribute to the further improvement in the region's profitability over time. For EMEIA, we had a very encouraging quarter in EMEIA with record high market share and revenue growth 6% year to year to about $1.8 billion. Strong growth in emerging markets and consumer business contributed to the strong growth in the region. In quarter 4, we achieved record high market share in Western Europe and became the number two PC player for the second consecutive quarter. Operating margin continued to improve year-on-year and quarter to quarter to 2.3%. Our consumer in this region was profitable in quarter 4 and achieved profitable for the full year for the first time.
We have the right innovative product, the right organizational structure, and strong leadership, and we have built a much more effective business model for our consumer business in the region. We are very confident to outperform the market or to continue to outperform the market, and that will support the group's margin improvement over time. For North America, we continue to achieve a very strong growth premium against the market decline in the region and record share in U.S. and North America. Revenue for North America was up 13% year-on-year to about $1.2 billion. We continue to perform well in the commercial business while building the foundation of our consumer business to drive future growth in the region. Operating margin improved year-on-year and quarter to quarter to 3.6%. We are optimistic about our strategy, execution, and outlook in the region, which should continue to drive a stable operating margin.
Next slide, please. We have a more balanced product portfolio to help our expansion in the consumer PC and mobile internet device business. Notebook unit shipments were flat with a 15-point premium to market, but sales were down 2% year-on-year, respectively. Unit shipments and sales in our desktop were flat, again, with a 12-point premium, with sales down 2% year-on-year. Our MIDH business continued to show strong performance, 17% growth year-on-year in sales, led by our smartphone business in China, which obviously fueled the growth for the entire group. Next chart, please. I want to take this opportunity to report the status of our recent corporate transactions. In this chart, we have included the highlights of the deals and their progress for your reference, and how these fit into our existing strategy. The integration of all these transactions is well on track.
We expect these transactions will provide us a steady contribution to the company alongside with our organic engines. Before I end my presentation, I want to give you some color on the market outlook. Our PC Plus strategy has been working well to drive the group growth in sales and profit, with margin expansion in the past several quarters and years. Strong growth momentum in our mobile internet device business, especially our smartphone business in China, has helped to fuel the group's solid growth with improving profitability. We expect this trend to continue. We will continue to roll out our smartphone business in emerging markets and our tablet business in mature markets. Our core PC business is performing well, despite the uncertainties in the global economy impacting the PC market growth in the short term.
We remain very confident that we can continue to outperform the global PC market, and to improve our operating margin. We have been successful in upholding our share and profit in the Protect strategy in China and enterprise business, while at the same time, our investment in our Attack strategy in the past several years have already enabled us to reach critical mass in most emerging market and our consumer business, which have already shown improving profitability. We expect this investment to start generating returns to the group, even in a very challenging market environment. We will stay focused on our efficiency improvement initiatives and growth opportunities. We will continue to invest in our core competence building and product innovation, and redeploy resources to invest in the high-growth area and to drive sustainable future growth.
We have a very healthy balance sheet, will provide us the flexibility for executing our M&A strategy in order to capture the opportunities in the high-growth area, which obviously will help to accelerate our future growth. Now, thank you very much, and we will take your questions.
Thank you, Wai Ming. We will now take questions from the floor. If you wish to ask questions, please kindly raise up your hand and we will pass you a microphone. To make sure all of us, including our participants on the webcast, can hear your questions, please wait for the microphone before you speak. 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 before asking your question. Now, may I invite the first questions, please? Yeah.
Hi, Yang Yuanqing and Wai Ming. Congratulations. This is Arthur Hsieh from UBS. My first question is regarding to the U.S. competitive landscape. I believe some of your competitors is talking about getting more aggressive in pricing, but it seems like the result is not really showing any impact to your performance. Could you give us a bit more details in terms of how did you manage to deliver such a good result, and whether there is still room for this kind of a potential further improvement? That's my first question.
Thank you. Our U.S. performance was really strong. We gained almost two points of market share, to reach 8.5%. From one aspect, we protect our stronghold in the commercial side because we have a much more competitive product, more reliable products. Meanwhile, we are more aggressive to attack the consumer market. Because at that market, our market share is still low. We have a lot of room to increase the volume and improve the market share. That will continue to be our strategy. We think we will reach the double-digit market share in that market very quickly. Good product, efficient cost structure, will be our key weapon to win that market. I don't know whether I addressed your- I think you did. Maybe I actually add a little bit color.
I think you probably have been hearing us saying Protect and Attack, and it is very, very meaningful. This is not two words or two adjectives. I think we actually execute and have a very strong execution for that, and we'll begin to see the result. I think one best example for America is obviously, we again, have been saying that we will invest in innovation and invest in branding. Now, the innovation give us a premium or very, I think, best-in-the-class of product like X1 Carbon. I think if you have not already bought one, you should buy one. I think it's one of the best Lenovo products, which actually, and I hate to say, exactly give us very good margin, and it was very loved by the market, very strong demand.
And of that then, because of our continuing investment in the brand and product innovation, and if you recall, I think in the last quarter, we reported back the first time that our Yoga product get into the high-end consumer. This does not happen overnight. This has been a consistent execution of a strategy, very, very strong execution. We begin to see the result. We continue to see there are opportunities in front of us because we begin to see the result, and we will not be happy to stop here. We will continue to do it. Obviously, product execution, looking at the market opportunities, there are still a lot of room for us to grow, even in the challenging market.
Yeah. With the Yoga and the Twist products, actually, we have a very high market share in the U.S. retail market. In the $700 and above price band, we probably have the 30%-40%
40, yeah.
market share of the business.
Yeah.
Thank you. My second question is regarding your Attack PC Plus strategy. You mentioned about the target to grow the server and storage to relevant global player in three years. Could you share with us about the latest in the joint venture with EMC, and also whether further M&A is a potential strategy that you will consider? Thank you.
If I were to tell you, nobody can buy or sell our shares, how can I do that? No, I think that first of all, I think the EMC joint venture worked pretty well. I think the real value of working with EMC is really the cooperation for them to help us to build up our server capability so that they become one of our anchor customers. I am happy to report that this is on track. So I think that relationship fit in our overall strategy very well. I think for the existing business that we acquired from them or from the joint venture with them, the Iomega business, I think we begin to roll out. I think that today is still relatively small.
We are sure, and we are very, very confident and sure that our relationship with EMC will continue to help to grow, I think, to expand into new areas.
Okay.
Next questions, please.
Can I ask a question in Chinese? I am Huang.
I have two questions. Page 10 of the PPT, PC Plus strategy of the company. I would like to ask you, the first one is about overseas smartphone strategy. The major target. Can you explain more about the price range? Who are your major overseas smartphone competitors? Second question is about tablet. For low-end tablets in the mainland with Android base, they are growing very quickly in the market. So for Chinese PC consumers, is it bringing negative impact, or there are also some positive impacts? When it comes to smartphones, our strategy is very clear. First of all, in China, we have set a good foundation. We are number two in terms of market share with 11%. The final quarter, the market share was 13%.
We trust that we will become the market leader very soon. At the same time, in emerging markets, we feel that their demand for such products are similar to China. Our products are already ready. We have already established good channels. We have established good brand image, so it will be easier for us to develop our smartphone business. Therefore, this is going to be a key strategy. We are getting prepared to enter into mature markets as well. According to our experience, smartphone growth will be substantial. Last year, we sold nearly 30 million. This year's target, 50 million. As for our tablet business, last year, we sold 2 million. Previously, the market was dominated by the iPad, including Android was also affected, and some Windows systems were too expensive. I trust that in the coming year, there will be fundamental changes to the tablet market.
With the dominating trend, Android will enter the market, and Windows will provide more new products. Lenovo's advantage is that inside these two ecosystems, we are highly competitive. We understand both ecosystems very well. Our growth is very obvious, and our target will be 10 million for tablets. You also talked about another point. When any new product comes into the market, the situation in China is that there will be some short-lived enthusiasm, but it is not sustainable. This is what we can see from previous experience. For example, when desktops were first developed. At the end, people care about the brand and also after-sales service, because brand represents quality. Do not worry too much about the low-end products in China.
I thank you for taking my question. Nam Kim from Arete Research . I want to ask about margin here. If you look at component now, for example, DRAM price went up over $10, so $10-$15. Based on our calculation, you guys maybe made around $18 EBIT per PC last year. I am a little concerned about margin. In one hand, you said you are going to increase margin, but there is a component price headwind going forward. Can you talk about this term?
Definitely, some component cost increase is a short-term challenge for us. I wish we could manage that well. But definitely, it will have a little bit negative impact on our margin, our profitability. But from a long-term point of view, as I committed to you, we will further improve our profitability. I give you my commitment two quarters ago. In the next three years, we will improve our PTI ratio by at least one point. This is still my commitment. But definitely, it will not happen in one day. Gradually, we will improve that. That is because of our good execution of the strategy. In the past four years, we invested a lot in the new business to drive the growth, to drive the shares.
Once we reach the double-digit market share, we will quickly shift the focus from growing the volume to the profitability. Our three new businesses, emerging market, mature market consumer and SMB business, and the mobile internet business, all have reached a very decent scale and market share. I think it is time to pay off. I am very confident. Over the next couple of years, we will further improve the profitability.
Yeah. And one more thing.
Well, maybe I add one more comment. I think you are absolutely right that DRAM prices went up, but I think without telling you how we are going to deal with it, I think prices go up as well as some other component prices come down. I would just give you one example. A couple of quarters ago, when we have a very unfortunate high flood there, I think hard disk was actually went even much higher, and yet, I think there are ways for us to manage the overall cost. DRAM is not 100% of the cost, but I can assure you that it is a challenge, but it does not necessarily translate the increase in DRAM price and hit our PTI. It will not like that.
Okay. Thank you. There is one item, working capital. I see on the financial statement increase in trade payable, note payable, provision, and other payable. USD 18 million, compared to USD 2 billion last three years. Can you explain? I struggle to understand why this number came down to USD 18 million. It was worth USD 2 billion each year, last three years.
Are you referring to the financial statement?
Yes. Increase in trade payable, note payable, provision, and other payable, fiscal year 2013.
Right. Which page?
Yeah.
I have it now.
Well, I think that while you can actually give me numbers, I probably know why it is. I think partly because, again, we begin to change about the business model. I think partly change the business model.
Really from the traditional ODM, I think to moving a little bit more towards the in-house manufacturing. Now, in the traditional ODM, I think normally you actually have a buy-sell relationship, meaning that we buy the component, we sell to ODM sell it back to us. You can actually see the same component actually go into my accounts, go out to the ODM, and then come back to me. I think that in some way you can actually say is the same component count twice. But for in-house manufacturing, we actually buy the component, we do it ourselves, we sell. I think a large part of that is actually from the change in, I think the account payable.
The other thing, for the change in account payable, if you're really looking at the quarter-to-quarter number, because I really need to find out what exactly the number you refer to. But if it is a quarter-to-quarter, I can tell you the reason being that I think quarter 4 obviously is the smallest quarter, and is obviously a very challenging quarter. The way we manage the business is how do we, I think at the beginning of the quarter, I think obviously the market, I think if you really look at IDC, the market is probably not, I mean, dropping about maybe 2%, 3%. Only during the middle of the quarter when we operate the business, I think we found out that the drop is even much bigger. What do we do?
We probably control our expenses, and therefore, I think in quarter 3, I think you spend your money, some of that will not be paid under the normal trade condition because you have account payable period. You actually have a much higher account payable. In quarter 4, we obviously spend significantly less because obviously the market come down. The account payable will come smaller. I think these are the factors, but I'm more than happy to take it offline rather than to go over in detail with you. I think to me, as I explained in my presentation, the change of, or I think the cash conversion cycle, I think pretty much reflect the way that we want to execute the strategy. We want to grow very aggressively in emerging market. We want to maintain the growth in profitability as well.
We actually leverage the availability of cash in our balance sheet, I think to drive our strategy. I think that is well within our expectation, and our cash level, we feel very, very comfortable.
Okay. Next questions, please.
Thanks for taking my questions. I am Steve Zhang from Macquarie. My first question is related to your PC business. How do you view the commercial PC business in China and abroad right now? What are you seeing in terms of government and also education sector demand in China? My second question is related to your handset business. You had mentioned that you are hoping that scale will help you improve profitability in the MIDH business. Given that we are seeing component shortages in the sector, how are you seeing those headwinds in relations to your profitability in the second half of the year?
Commercial PC in China, we are facing the challenge because of the government transition. I think the demand has dropped significantly. Probably with the finish of the transition, we can hope the market will recover again. Also, I believe, currently, the penetration rate of the PC in China is still lower, if you compare with the mature markets, developed countries. With the trend of the urbanization, I believe that will still drive the growth of the PC demand. That is my belief. Regarding the MIDH, actually I do not know. What do you mean the shortage of the components? What kind of component is in shortage?
In the supply chain, we've seen shortages in terms of mobile DRAM and also, to a certain extent, large capacity, well, camera modules and then also panel. Are you seeing any pricing pressures for those, or are you seeing you have to pay a higher price in the open market for those components?
Well, memory is, I think definitely in the PC-
In PCs.
Because we actually see more DRAM going to the mobile, I think that is for sure. I think generally we definitely, I think the way we manage our overall GSC, I think we obviously have a reasonable amount of buy ahead, I think to hedge ourself, I think for shortage of supply. I think if this is a general industry trend, that resulting increase in component, as I said, I think not all the components will go up. I think some components will go up, some components will come down. And again, one very important, I think principle you have to remember, is I think the cost of components is always related adversely to volume. So if you actually be able to be a significant player, you obviously have a better ability, I think, to manage your cost price.
That's the reason why I think on one hand, we balance, I think the growth and profitability, and on the other hand, we actually drive very, very hard to grow our top line, increase our market share.
Okay. Due to time constraint, now we accept the last question from the floor.
This is Alberto Moel from Sanford Bernstein. A couple of questions. First one is, there's a line in your financials about the subsidies that have been growing year-on-year. Last year it was $30 million, this year it was $115 million. So it estimates that this quarter's subsidy was $38 million. Can you tell us some color on what the subsidy is and where it comes from, and will it continue?
Well, I think it's primarily due to some of the, I would say, quarter subsidy or incentive, primarily from our R&Ds in Hefei. That is not an ongoing. We do not rely on subsidy to back up our earnings. As and when there are projects, there are some opportunities we obviously apply for those subsidy or incentives.
One more question.
Huh? Sorry.
One more question.
One more question. Oh, sorry.
It's on MIDH business. We estimated that your MIDH operating margin last quarter was about -70 basis points, and this quarter is about -50 basis points. That's sort of slowed down from trend, where it used to be a lot less profitable. Do we expect profitability in the entire MIDH unit to be slower than expected from what you were thinking? Or are you still seeing this to be on track with your forecast or your thinking of the unit as a whole?
Yeah. I think that from a planning perspective, they are absolutely on track. I think the way we look at MIDH is, first of all, let me just explain the way that how we manage our overall profitability. We obviously, again, because of, sorry to use the word yet another time, protect and attack. If we are actually able to generate more profit from protect, we will go aggressively go into the attack area. The attack area obviously does not necessarily carry initially profitable profit in the first place when the business is small. In so far as Lenovo Group is concerned, PC is our protect. That is going to generate profit for us.
If we'll be able to beat up our competitors to generate more profit, no doubt we will invest aggressively in MIDH and go into more countries in a more aggressive way so that we grow our market share. In that sense, you can actually say, well, MIDH is actually losing more money. But within MIDH, we have to look at it very carefully. MIDH, the smartphone business in China, that will continue to grow with increasing profitability. For the rest of the world, countries like, for example, in the recent quarters that we go in, like Indonesia, Vietnam, and so forth, they will not be profitable for sure. But as to how quickly, how aggressive we want to go, it all depends on how much money will actually come out from the protect.
In a way, I think we are absolutely on track in expanding our MIDH business.
Yeah. Actually, our gross margin of MIDH in China is higher than our PC business. In short term, we think we still needed to invest more on the R&D and the marketing to drive the future capability building. We are definitely confident. Over time, we will make money from China's mobile market.
Okay, thank you. This is the end of our Q&A sessions and today's presentation. Once again, thank you for coming. We have prepared some refreshment outside. Please help yourself. If you have time, please stay behind to see and try our new products launched recently. Thank you.