Earnings Call: Q2 2019

Nov 8, 2018

Good morning and good afternoon. Welcome to Lenovo's Quarter 2 Result webcast. This is Hugh Wu, Vice President in Investor Relations and Treasurer at Lenovo. Before we start, let me introduce our management team with us today. We have Chairman and CEO, Mr. Yang Yuanqing. President and COO, Mr. Gianfranco Lanci. Group CFO, Mr. Wong Wai Ming. President of Data Center Group, Mr. Kirk Skaugen. President of Motorola, Mr. Sergio Buniac. We will first start with our presentation. After that, we will take your questions. Now, let me turn it over to Yuanqing. Yuanqing, please. Hello, everyone. Thank you for joining us. Last quarter, I said that Lenovo had entered a phase of acceleration in both our business performance and our transformation strategy execution. Today, I am pleased to say that our acceleration continues, and we now have even stronger momentum. Our group revenue continued the double digit growth year-on-year for the third consecutive quarter, reaching $13.4 billion, highest in almost four years. Our pretax income reached $230 million, six times as much as the previous year, as all of our businesses improved profitability. Our Intelligent Devices Group continues to deliver strong results, thanks to the synergy from the shared platforms and the resources. We will continue to drive the convergence of the computing and the communication technologies to enable smart IoT. In PC, we returned to undisputed number one by both IDC and Gartner, with a record market share of 24%. Our PC revenue grew more than 20% year-on-year, 17 points faster than the market. Our PC plus tablet, or PCSD revenue, reached $10 billion milestone for the first time. We achieved all this while improving our industry-leading profitability year-on-year to more than 5%. We will continue to focus on customers and invest in high growth segments, including workstations, gaming, and thin and light. We are confident that this business will continue to thrive at a premier to the market in volume, revenue, and profit. Our mobile business reached an important milestone last quarter, as operational PTI of the Motorola brand become profitable at $2 million, reaching break even. This past quarter, we continued to execute our focused strategy. We reduced the operating expense by $175 million year-on-year. On track to control the full year expense to less than $1 billion. Our investment in products and innovation showed clear results. Our Moto G and Moto E product lines gained market traction. We are the first to launch a 5G upgradable phone in the industry. Our focus on selected markets continued to deliver strong progress. In North America, shipment grew more than 50% year-on-year for the fifth consecutive quarters. The market share reached almost 8%, ranking number four by IDC. In Latin America, we continued the top-line growth and become number one in Mexico, while maintaining solid overall number two regionally. In China, revenue grew almost 85% year-on-year. We will continue to execute this strategy to further improve the health of our smartphone business. Our data center business is on track to become a sustainable growth and profit engine. Revenue continued a strong double-digit growth at almost 60%, and profitability improved almost 10 points year-on-year. This performance was driven by yet another quarter of triple digital year-on-year revenue growth in software-defined infrastructure and hyperscale. We are now the worldwide number 4 in cloud infrastructure vendors, and the fastest-growing player among top vendors, according to IDC. We will continue to invest in technology leadership and strengthen our capabilities in software-defined storage and networking. Our multibillion-dollar partnership with NetApp, announced in September, significantly expanded our storage and data management market coverage. In addition, we will continue to refine our hyperscale business model, strengthen our leadership in high-performance computing and AI, and drive service revenue growth. In our annual flagship events, Tech World and Transform last quarter, we clarified Lenovo's mission to become the leader and the enabler of intelligent transformation. showcased how we will drive this transformation through smarter IoT, smart infrastructure, and smart vertical solutions. We also displayed our Lenovo Smart Home Essentials smart home products at the events, including the smart plug, smart bulb, smart camera, and smart door lock, after the successful launch of Smart Display and the Mirage AR/VR series last quarter. Also, Device as a Service continued its rapid growth, with booking revenue up 1.5 times quarter to quarter. Big data and AI-powered smart vertical solution revenue was also up 44% year-on-year. In addition, overall service and software revenue reached $688 million. Strong execution is one of Lenovo's key capabilities. With a clear mission and transformation strategy, it is now reflected by the strong momentum we have today. I am confident that we are in a period of robust, sustainable growth, and we will continue to drive even stronger results. Now, let me turn it over to our CFO, Wai Ming. Wai Ming, please. Thank you, Yuanqing. I will take you through Lenovo's financial and operational performance in Q2 fiscal year 2019. Next chart, please. Let me first share with you the financial highlights of our Q2 performance. Our transformation actions continue to show accelerated improvement in Q2. Our revenue grew 14% year-on-year and grew 18% year-on-year if currency impact is excluded. This is the highest quarterly revenue in nearly four years, led by strong performance from both PCSD and DCG. Operating expenses decreased by 1% to $1.5 billion, and the expense to revenue ratio improved by 1.8 percentage points year-on-year to 11.2%, mainly due to our revenue growth and expenses savings in MBG. Group PTI was $230 million, up $178 million from $35 million a year ago. Our PTI has shown consistent year-to-year improvement for four consecutive quarters, thanks to our PCSD improved industry-leading margin of 5%, as well as better profitability performance by both MBG and DCG. Profit attributable to equity holders for Q2 was $168 million, up 21% from a year ago. The smaller improvement compared to PTI was mainly due to a $118 million tax credit recorded in Q2 last year. Basic earnings per share for the quarter was 1.41 US cents, compared to 1.26 US cents same period last year. The board of directors in today's meeting declare an interim dividend of six Hong Kong cents, representing the same level of interim dividend paid last year. Next chart, please. Our operational cash flow continued to improve. Q1 versus Q2 cash performance was affected by payment skew between quarters. If excluding this timing difference, Q2 cash flow will show quarter-to-quarter and year-to-year improvement. On half-year basis, our operational cash flow for first half fiscal year 2019 shows strong expansion over second half fiscal 2018 and first half fiscal 2018. We will continue to use our cash resources to invest in growth businesses. Next chart, please. In the beginning of this fiscal year, we combined PCSD and MBG into Intelligent Device Business Group or IDG. Through its first two quarters, IDG has benefited from synergies of the shared platform and infrastructure, which help to expand ecosystem. This enable us achieving healthy revenue growth with profit improvement both year-on-year and quarter-on-quarter. Revenue growth remains strong at around 10%, driven by our strong PC business. The PTI improved year-on-year for the fourth consecutive quarter, driven by PCSD business in both revenue growth and profitability improved to 5%, while MBG achieved its operational break even outside of China and Motorola globally. Next chart, please. Our PCSD business achieved record-high revenue, and for the first time, surpassed $10 billion in the quarter with 18% year-on-year growth. This is the third consecutive quarter that we achieved double-digit growth. Besides the strong growth from the commercial business, it also attributable to the fast-growing premium segments, including gaming, workstation, thin and light, and visual products. All of them achieved double-digit revenue growth in quarter 2. The group's intelligent transformation saw solid progress in building capabilities in smart IoT, smart infrastructure, and smart vertical solution in Q2. We showcased the Smart Essential products at our Tech World event in September to demonstrate our innovative capabilities. Our Device as a Service business continued rapid growth with booking revenue up 1.5 times quarter on quarter. Our big data and AI-powered smart vertical solution revenue also grew 44% year on year during the quarter. Meanwhile, our services and software revenue has surpassed 5% level of the group's revenue. PCSD revenue in Q2 was $10.2 billion. Pre-tax income was $550 million. PTI margin improved 0.7 percentage point to 5% level. Our PTI margin improvement was driven by improved product mix in high-growth premium segments and increase of service attach rates. Next chart, please. For the mobile business, we achieved an important milestone at the business in market outside of China, and Motorola globally became profitable operationally in quarter 2. The profitability improvement was the result of a continuous strong momentum in North America, solid business performance in Latin America, and well-executed expense reduction. Reported PTI margin was thus improved 4.8 percentage point year on year, and 2.8 percentage point quarter on quarter. Our strategic focus on core markets resulted in short-term revenue decline. However, we believe we have stabilized the business and built a solid foundation for sustainable future growth. Next chart, please. Our data center growth is on track to become a sustainable growth engine for Lenovo. Q2 revenue continued its double-digit growth for the fourth consecutive quarter, while PTI margin continued to improve year-on-year. All GEOs saw high double-digit revenue growth. In North America, we continued to maintain triple-digit growth for the sixth consecutive quarter of growth, and all other GEOs also achieved double-digit growth. In terms of product segment performance, we have become the worldwide number 4 cloud infrastructure vendor, and the fastest-growing supplier in the industry. Our hyperscale segment maintained a strong triple-digit revenue growth with margin improvement year-on-year, thanks to the continued optimization of our in-house design and manufacturing business model while diversifying our customer base. Our software-defined infrastructure achieved triple-digit revenue growth for the seventh consecutive quarter. Our flash arrays growth also grew at a triple-digit rate, which is more than double the market rate. Revenue from our data center business was up 58% year-on-year to $1.5 billion in quarter 2. Our PTI margin improved significantly by 9.5 percentage point year-on-year in the quarter. Next chart, please. Looking ahead, we will continue our track record to deliver profitable growth, building on the strong results of the last few quarters. As Yuanqing mentioned, we have entered a phase of acceleration in both business performance and transformation strategy execution. We aim to drive premium to market revenue growth and deliver industry-leading profitability for PCSD business. We will continue to improve the user experience with our innovative products and drive future growth. Our investment and capability building in the smart devices and smart IoT are gaining traction to become a future growth driver. For mobile business, we will continue to execute our strategy to improve sustainable profitability. This includes reducing complexity, streamlining our product portfolio, and driving a more competitive cost structure. Meanwhile, we will focus on driving profitable growth from core markets, including Latin America and North America, and strengthening our presence in mature markets. We will also continue our investment in innovation, such as our 5G upgradable phone, which will soon be available in the U.S. market. For the data center business, we are confident we will deliver sustainable profitable growth over time. We have established a solid foundation through our organizational structure, product portfolio, and sales force to drive long-term growth. We aim to continue to outgrow the market in every segment where we participate, from IoT to telecom to software-defined infrastructure. Meanwhile, we will continue to strengthen our leadership position in high-performance computing and AI, and we expect growth momentum in our hyperscale business to continue, thanks to unique in-house design and ODM+ manufacturing business model. With respect to accelerating growth in storage and data management, the NetApp strategic partnership and the JV will enable us to increase coverage from 15% to over 90% of the storage market. We will accelerate our intelligent transformation in driving long-term growth across all our businesses. We will focus on converging different technologies and devices, thereby address more market opportunities and drive our smart IoT plus cloud business to the next level. Coupled with a competitive cost structure and strong execution, we remain confident in delivering long-term profitable growth. Thank you. Now we can take your questions. Thank you, Weiming. We want to accommodate questions for as many people as possible. Please avoid multi-part questions and limit to just two questions at one time. Please say your name and the name of your company before your question. All the Q&As will be in English only. Operator, would you please give us your instructions? Certainly. Ladies and gentlemen, we will now begin the question and answer session. If you want to ask questions on the phone, please press *1 and wait for your name to be announced. If you want to cancel a request, you can also press the pound or hash key. Our first phone questions comes from the line of Gokul Hariharan from J.P. Morgan. Please go ahead. Yeah. Hi, good afternoon. Thanks for taking my question and congratulations on a great result. First question I had was on server side. Great progress so far. Pretty strong growth across the categories. Now that we are very close to reaching a breakeven point, could you talk a little bit about the path forward? If you look at your larger competitor in the U.S., they have probably 2 to 3x the size of revenues, but they make about 10% operating margins. If you think about longer term server profitability as well as size of the business that you're comfortable with, could you talk about what are the next targets for the data center BG over the next couple of years? I had a follow-up. Our DCG President, Kirk, will answer your question. Back to the box. Go ahead, Kirk. Yeah, hi, this is Kirk speaking. Thank you for the question. I think our short-term goals are to continue to grow at nearly double the market. Our short-term goals are to grow at nearly double the market across not just hyperscale, but in software defined and in flash arrays. I think we're seeing that consistently, that we're not seeing just one part of our business growth. That's why we tried to share the guidance of more than 100% growth in flash arrays. That's even before our NetApp joint venture, as well as in software defined and in hyperscale. I think we're seeing quite good balance growth. I think the other thing that should be exciting to investors is that we've now had seven consecutive quarters of our services business deferred revenue growth growing year-to-year. This is helping our balance sheet as well in, obviously, one of the most profitable parts of our business as we've increased our professional services and our premier services around the world. Then, of course, with the NetApp joint venture, prior to the NetApp joint venture, we were still growing at 2x the market, but we were only participating in the entry space in about 15% of the market. After the NetApp joint venture, we're participating now in more than 90% of the storage and data management market in more than 160 countries. Those products, as we mentioned at our Tech World and Transform, are already shipping into market, and we're seeing strong demand from our customer base on that. That's something we're quite excited about. I think our immediate goal is to continue to improve profitability every single quarter, and we remain confident for as long as we can see in the future that we'll be outpacing the market. Okay. Okay. Thanks, Kirk, for the answer. Maybe a follow-up question on that part. Could you talk a little bit about what you are observing from a demand perspective within the data center market both for hyperscale as well as for enterprise? Feels like enterprise could see some turning point in terms of the peak of the cycle approaching. Would you agree with that classification, and what would you be focusing on when you think about going into the next year or so, given that the last 12 months have been extremely strong growth for the overall market as well? Yes, I think publicly we have said we are now supporting six of the top 10 hyperscalers. We branched out of China and now are supporting several large hyperscalers in the U.S. Our growth strategy will remain to do that, but also to grow into the tier 2 and tier 3s. We are building out a more aggressive sales force to cover the tier 2 and tier 3 hyperscalers, and we are seeing strong demand there, as well as using our supply chain and our own motherboard development to improve the profitability of hyperscale. We are also seeing hyperscale and the public cloud, not just the single socket or two socket systems, but we are seeing demand as more enterprise workloads go into the public cloud to deliver four socket and eight socket machines as well. That is improving the profitability, as well as GPU based and FPGA based designs that are also more margin rich. That is the hyperscale answer. In software defined, we have announced several new collaborations this year. We have an exclusive relationship with Cloudistics around composable cloud. I think we remain Nutanix's fastest growing OEM, and we are also seeing strong demand on both vSAN and Azure Stack. Across pretty much every part of software defined, we were a little bit more public this time saying that it is not just seven consecutive quarters of 100% growth, but now we are growing at over 150% in software defined. But we also had a relationship with Pivot3. We had the city of Bogota, Colombia install 3,000 video surveillance cameras for public safety, and we had them at our Transform events, and we have done edge computing with Scale Computing as well. If you look at the investments we said at Transform, there are three things that we are continuing to be on track for. Number one, building out a whole set of edge servers and edge gateways to compete in the rapidly growing edge space. Number two, moving into network function virtualization. We had both China Mobile and China Telecom in our booth at Mobile World Congress. We are getting aggressive pull for network function virtualization as part of the 5G build-out. Then third is starting to move into as-a-service offerings. We have been doing this on the PC side, but we are on track to launch as-a-service offerings in a significant way in the data center side as well by the end of our fiscal year. Those are all incremental growth areas in Edge, IoT, telecom network function virtualization, and as a service. Thank you, Gokul. Next question, please. Next question comes from the line of Arthur Lai from Citi. Please go ahead. Hi. YY and management, this is Arthur Lai speaking from Citi. The first thing is congrats on this strong performance. I got some investor question. Many wonder is this strong performance sustainable? My question actually is to the PC and also the MBG. Can you walk us through from the different components, such as, number one, the component shortage impact the supply? And also the second thing is investor pretty concerned about the China consumption impact. And the third one is can you continue to gain a share from the tier 2 players? And we can more understand this strong performance is sustainable or not. Thank you. I will give you the overall view of mine and then probably Gianfranco and Sergio will address the PC and the mobile business separately. So definitely, I believe this strong growth and performance will be sustainable. Over the past couple of years, we have built a solid foundation for all three core businesses. And we set up the right strategy for each of them. For mobile business, the first step, definitely, we are focusing on profit. So we adopted the focus strategy. We focused on selective markets. We focused on the mentioned products. We focused on cutting the expense. So that strategy has been very successful. So you will see the significant improvement on the profitability in our mobile business. So actually, if you only consider Motorola business or outside of China business. Actually, for the first time we delivered a positive $2 million PTI in many years, probably 10 years. We are very confident that now we can control the total expense below $1 billion a year. That is mobile. We will continue to improve the profit stability. Probably could address more on that. Meanwhile, we have seen the positive growth in Latin America, in North America, in China as well. That is the first thing. Definitely. DCG, this business will be our growth engine. They really delivered a strong growth. Also with the higher scale of big volume. Now we are approaching to the breakeven as well. We are very confident we can further improve the profitability over time. Definitely. PC is still our core pillar. But this is not just our profit engine. Actually we leverage the consolidation of the industry to further grow the business. You can see the entire PCIC will grow by 18%. If you only consider PC, we grow even higher, 20% with even lead. Definitely. We have a much stronger foundation in all three core businesses today. Meanwhile, we have very clear strategy. We clarified that at our Tech World and the Transform event. We understand IoT is the trend. Cloud computing, edge computing is the trend. Big data and artificial intelligence are the trend. But fortunately with the Lenovo business, with our strategy, we can address all these trends. Our IDG, Intelligent Devices Group will address the smart IoT trends for sure. Not only we will keep our leadership in the PC and the smartphone, we will develop more opportunity in the smart IoT area. Also our DCG will address the smart infrastructure or cloud computing, edge computing trends. Meanwhile, we are trying to address the smart vertical in manufacturing, in healthcare, in retail, in education. Through driving the solution, driving the service. You have seen some progress in this area as well. I just try to give you an overview of Lenovo. With this vision and the strategy, definitely I believe we can sustain our growth in both revenue and profit. Gianfranco, you want to talk about some more on PCSD or IoT? Well, on PC, it is true there is some show we are facing some shortages as you said, it was already true last quarter. It is still true this quarter and probably even Q1 calendar next year. One thing is that in that situation, usually if you have a big scale, you can manage the shortage and the issue much better than if you have a smaller scale. Not only, but I think we have also been able to move demand from one CPU supplier to another CPU supplier. It does not have any problem in terms of shortage. We are helping to grow the share and things will be said. I think, we will continue to manage the shortage for this quarter and next quarter, and we continue to see good opportunity to show and to report a double-digit growth in terms of revenue moving forward. One good thing when you look at the market is that PC in terms of units is still declining, but in terms of revenue, it is growing. It is growing, including China, even China in terms of revenue market is growing. It is declining in terms of units, but it is growing in terms of revenue. I think we will continue to see the upgrade to Windows 10 for the entire next year, including China. So I am not so worried about the consumption in China, frankly speaking. When I look at the consumption in China, as I said, from revenue point of view, the market is growing and transition to Windows 10 is happening like in the other GEO. We will continue to gain share, as I said, in this difficult environment from a supply point of view. We will continue to gain share from second tier, no doubt. But I think we are still very, very positive on the outlook of PC. We are also investing on new area where we see big growth, like workstation, gaming, thin and light. We are seeing growth in the range of 25%-35%, depending on the different segments. As Jianxin said, this is not big in terms of revenue yet, but it is big for the future. We are investing on IoT, particularly when we look at commercial IoT on retail and manufacturing and AR/VR in terms of maintenance, education and healthcare. But not just in terms of device, it is device platform, service, and the entire system integration. I leave to Sergio on MBG. Yes. I think a very right comment. We see solid demand in the core market, especially Latin America, North America. We see activations growing also in Europe from a quarter base. On the rest of the regions, we see a significant inventory reduction that will allow us to continue the momentum in the next two quarters. We are also seeing continuous improvement in profitability. So we see the momentum holding in the next quarter. Thank you, Arthur. Next question, please. Next question comes from the line of Laura Chen from BNP. Please go ahead. Hi. Thank you for taking my question and congratulations for the good result. My first question is actually coming from the mobile business. We see the good improvement in terms of the profitability, particularly outside China. I am just wondering that, we know Lenovo's mobile business in China exposure is very small. Given that, can we expect that the mobile business to turn around faster than expected? What are your strategy now? Thanks. That is my first question. Well, I think the momentum outside, talk about outside China is going to continue. We see profitability, continuous improvement in the last quarter, and I think everything is going as planned. We are still focusing on profitability. I think now we need to stabilize the positiveness of the profitability achievement we did. Pretty soon start talking again about growth in a very positive way. It is going as planned, and we should see the profitability holding in the next few quarters, especially as the markets where we are playing as recording core, we see very good momentum, mainly North America, Latin America. Yeah, we are committed to further improve the profitability in our mobile business. We are confident that we can achieve that. As Buniac said, we see the strong demand in Latin America and North America. Particularly in North America, actually, we have seen more than 60% year-on-year volume growth for five quarters. Now we have been the number four player in that market. We believe this trend can be continued. Also, although we will not be aggressive in most of the emerging markets, we will still invest in China and India, these two largest mobile markets. Okay. That will be our strength. Yes. Thanks. Because we all know that particularly in the recent quarters, there is a lot of volatility in emerging market currency. So far, you have not really seen any impact to your mobile business recovery or other business as a whole? Yeah. Laura, sorry. I think we definitely see significant fluctuation of currency, I think in countries or in regions like Latin America. In particular, you see the Argentina, Brazil. But I think there are two things that we actually been doing well on a consistent basis. Again, that is the reason why you do not see that there are significant, I think, decline in profitability. I think one is, I think the group actually had a very, I think, diligent hedging policy. It is really protecting, I think, the business going forward, especially in, I think we will do hedging unless the hedging cost is too high that for business to do hedging. For those countries that we do not do hedging, we obviously have a much more frequent repricing of our products. Really looking at, I think taking in the, I think if you are operating in a depreciating currency country, obviously your cost will go up and therefore, in order to maintain the margin, I think we need to reprice to the extent that it does not damage the market. At the same time, we also look at, I think in running the business, and in fact, our smartphone colleagues in Latin America demonstrate that, I think we are really looking at the entire profitability business. On one hand, that we continue to do the repricing to mitigate as well as looking at the expenses. I think running a global company, where we do not actually have one geography account for 60%-70% of our business, I think it is such a diversify. We have a very, very tight discipline as really, I think, dealing with the fluctuation in foreign currency. That's really demonstrated. The result has really demonstrated that we actually been executing very, very well. Okay. Thank you very much. My second question is about the Data Center Group business. We know that in the past two quarters, our cost control has been quite stable, and our sales also quite stable. Given recent uncertain macro economy, how can we see further improvement in our profitability? In the past two quarters, the net profit of this business has been around a negative $60 million. Can we see more substantial improvement in the coming quarters? Yes. We plan to continue to improve profitability in the upcoming quarters through greater scale across all our businesses, improved services margins. I talked about the deferred revenue and services and the improving services margins, which are obviously much, much higher than the base hardware business. I think we have a more educated sales force than we ever had. Our system integrator relationships are helping us sell greater solutions. Our software attach is growing. I heard that we expect in terms of higher network attach, higher storage attach, higher services attach, and higher configurations per server are all on track to help improve profitability over time. Thanks, Laura. We are going to take the last question as limited time. Please raise your last question for the interest of time. Next question comes from the line of Thompson Wu from Credit Suisse. Please go ahead. Hi. Thanks for taking my question. Apologies if this has been asked, I had to get on the call a little bit late. This pertains to the data center business and kind of the tariffs that you're seeing. From our understanding, there appears to be some impact on certain motherboards that are sitting and residing within servers. How are you and your suppliers kind of adjusting for this impact? The second question is, because of these tariffs, has there been any direct impact to the business with orders being pulled in or deployments of new data centers being pushed out? Yeah, this is Kirk. I think one of the advantages of Lenovo is we're now ranked number 5 in tech across our supply chain, and Gartner has us ranked number 26 of all companies worldwide. Our supply chain, I think, is world-class and helping us earn business. I think other players have had more difficulty handling these issues than Lenovo has. We have factories in U.S. Mexico, China, Brazil, Hungary, and India. We're able to very aggressively move things to meet the customer demand and are helping customers through this transition. I think we've actually gained share through this transition by helping customers manage through the tariff impact. But we've seen relatively little impact to our business, and obviously, our profitability continues to improve. I think if anything, we think this is a benefit to Lenovo versus our competition. Yeah. By the way, if you look into our detailed performance, you can find. Actually, our North American business grew pretty strong. Actually, we grew all three businesses strongly in North America. PC, we grew by 25%. Probably, we are the fastest-growing player in the market. Mobile business, as I said before, we grew 50% year-on-year by volume for five consecutive quarters already. And also DCG business grew almost triple digits, right? Triple digits in North America for the sixth consecutive quarter. We don't see significant impact on our business. I believe Lenovo is still a partner, so in the market. Thanks, Thompson. Hugh Wu, can I have a follow-up question? Yes. Is there time? Okay. Yes, please. Yeah. Looking through the slides, I think on the outlook slide, there's some talk about launching hardware as a service for the DCG business. Can you give us a little bit more color, kind of what the strategy and thought process behind this? Sure. I think what our customers are saying is that the current offerings in the data center market are almost glorified leasing models. Lenovo has developed IP to do a true OPEX metering service that where you'll only pay for what you use. That includes dynamic rev models for going up and down on your capacity. We are on track to the commitments we made at Tech World to launch these as-a-service offerings across our server storage products by the end of our fiscal year, and you'll see those announcements soon. We're already seeing strong demand from the market for that kind of capability. This is much more than what we think we're hearing from the market is basically just glorified leasing models because we'll be able to meter up and meter down on demand. Yeah, but we are developing a Device as a Service business, not just in our PCG, in our PC business as well. Gianfranco, you want to add? No. We started with that, it is already more than nine months ago, and we are starting to see very good growth. In terms of pipeline, it is more than almost $1.5 billion. In terms of growth, I think it is almost double quarter after quarter. But again, it is more than Device as a Service, it is really solution as a service, much more than Device as a Service. Thank you everyone for your participation in today's call. If you have any further questions, please feel free to contact me or our IR representative directly. This webcast replay and conference call replay will be available in the next couple of hours. Thank you again for joining us today. Thank you. Ladies and gentlemen, that does conclude our conference call today. Thank you for your participation. You may now disconnect your line.