Good morning, good evening. Welcome to Lenovo's Q1 result webcast. This is Gary Ng, VP in investor relations at Lenovo. Before we start, let me introduce our management team with us today. We have our Chairman and CEO, Mr. Yang Yuanqing, our Corporate President and COO, Mr. Gianfranco Lanci, and our CFO, Mr. Wong Wai Ming. We will start first with our management presentation. After that, we will take your questions. Now, let me turn it over to Yang Yuanqing.
Hello, everyone. Thank you for joining us today. During our last earnings release in May, I talked about our three-wave strategy. We will maintain the leading profitability and the market position of the first wave, PC business, in order to fuel the growth of the second wave, mobile and the data center businesses. At the same time, we will invest in the third wave of Device + Cloud and the Infrastructure + Cloud to capture next-generation opportunities brought by new technologies like artificial intelligence for long-term success. Last quarter, while the PC, smartphone, and server markets all showed very slow growth, our overall performance was stable. We sustained our revenue year-on-year at $10 billion U.S. dollars. Although we are at a net loss, our operational pre-tax income improved $110 million U.S. dollars quarter-to-quarter. To me, this result is still far from ideal.
However, if you ask whether I am satisfied with the execution of our management team, my answer would be a firm yes. Not only satisfied, I am now even more confident in the direction of our strategy and our execution. I believe you would also agree if you look into the details of our reports. We have made solid progress in every front. In fact, I believe Lenovo has entered a new phase of growth, and we should see sustained improvement in the following quarters or even years. In PC business, in order to preserve profitability, we dropped some low-margin deals, such as a Chromebook deal, which helped improve our average selling price by 7% year-on-year. Our total revenue year-on-year was stable. Despite the increase in component cost, we maintained the industry-leading profit margin of 4.2%.
This defensive battle of PC business has not been easy, but we were able to provide the resources and the time for the new businesses to build a solid foundation. Our mobile business keeps improving. In the past year, we continued to build competitiveness in our global branding, product portfolio, channel, and organization. Strong growth continues in Latin America with a 15 points premium to the market. We also made progress in the channels of mature markets. Western Europe achieved breakthrough growth of 137% year-on-year. In the U.S., we have launched the new flagship products with all four major carriers, and we will no doubt see stronger results very soon. As a result, our revenue outgrew the market year-on-year, according to IDC data. Our margins improved 2.2 points year-on-year.
Going forward, we will refine our business model in emerging markets, especially key markets in Asia Pacific. We are definitely on track to deliver our commitment to break even in the second half of this fiscal year. In our data center business, our execution is also gaining traction. Starting from second half of last year, we restructured our data center business to give independent end-to-end accountability. We acquired many new talents, including dedicated sales force and experienced leaders. In June, we had a successful launch of our most comprehensive data center product lines in our history. In fact, we are already shipping new products with the next generation Intel platform in large volume. Lenovo is recognized as an industry leader in customer satisfaction, reliability, and performance by TBR, ITIC, and various industry benchmarks.
Now that we have better handle of the business operation, for the first time since the acquisition of System x, server revenue year-on-year grew in the two largest data center markets, North America and EMEA, by more than 12% each and outgrew the IDC market forecast by almost 17 and 19 points respectively. In the future, we will continue to refine our hyperscale business model and invest in network and storage attach, as well as new areas such as software-defined and 5G. We are confident that this business will continue to improve and start contributing profit in two years. In the third wave, we also made good progress. Last month, at our annual flagship event, the Lenovo Tech World in Shanghai, we shared our vision in artificial intelligence and the showcase progress in Device + C loud, Infrastructure + C loud.
Innovative products were demonstrated, including Smart Cast, the next generation of smart assistant. SmartVest, the health monitoring s mart wear. Desk AR. The AR glasses to assist industrial maintenance. And the Smart Services, the AI-powered customer service chatbot, as well as industry vertical solutions for manufacturing, healthcare, and municipal operation. The feedback has been exceedingly positive. Beyond executing our three-wave strategy, we also made progress in our customer-centric transformation. We created a set of quantitative metrics to measure our progress and to take guided actions. Last quarter, the number of registered Lenovo ID users reached 225 million, up 15% year-on-year. Out of which, number of monthly active users reached 90 million. The revenue from repurchase by the registered user increased 12% quarter-to-quarter, and our total non-device revenue reached $400 million and is still growing.
All of this solid progress in execution leads me to believe that although our performance is not yet ideal, we are approaching the turning point. As the two new engines gain speed, sustainable results will soon follow. We also believe the fiscal year 2017 will be a year of growth for Lenovo. Now, let me turn it to our CFO, Wai Ming. Wai Ming, please.
Thank you, Yuanqing. I will take you through Lenovo's financial and operational performance in Q1 fiscal year 2018. Next chart, please. For Q1 financial year 2018, revenue was $10 billion, approximately flat year-on-year, even though markets remained challenging. Gross profit declined 11% year-on-year, impacted largely by component supply constraint with cost increases across various products. This issue has a relatively bigger impact on us due to our larger exposure in commercial segment in our PC and data center businesses, as customer usually have long-term fixed price contracts. Operating expenses increased 6% to $1.4 billion, mainly due to the inclusion of gain on property disposal of $129 million booked in the same period last year that resulted in lower expenses. Excluding the gain, expenses remained largely flat year-on-year.
As Yuanqing mentioned, our focus on strategy execution resulted in an operational improvement quarter-on-quarter in Q1 financial year 2018. Profit before non-cash M&A accounting charges was $5 million, an improvement of $110 million from Q4 last year. The improvement was mainly due to the improvement of our DCG and MBG businesses during the quarter. DCG resumed its revenue momentum, especially in North America and EMEA, while improving its margin performance quarter-to-quarter. Our mobile business continues its year-on-year revenue growth for the second consecutive quarter, with profitability improvement both year-on-year and quarter-to-quarter. Meanwhile, our PCSD business continued its stable revenue performance and maintained industry-leading profitability despite the market decline. Next chart, please. Cash flow from operations for the Q1 financial 2018 was an outflow of $577 million against an inflow of $8 million in the previous years.
The changes are mainly due to a reduction of profitability year-on-year, as well as an increase in holding components inventory in Q1. The change of net cash position was largely due to the increase of working capital for our action to increase the component inventory level during the quarter. The decrease in bank deposits and cash was mainly due to the repayment of the Google promissory note during the quarter. Our net debt at the end of Q1, fiscal year 2018, was $1.3 billion against $1.2 billion in the previous year. We continue to see improvement in our cash conversion cycle. In Q1, it was negative 15 days, an improvement of 15 days year-on-year. Next chart, please. The industry-wide increase in key component cost impacted various businesses in Q1, although we have taken actions to mitigate the impacts.
During the quarter, the market remained challenging due to negative year-on-year growth, especially an approximately 10% drop in China and the industry-wide component cost hike. The group continued to focus on protecting revenue and profit. In the PC plus tablet market, Lenovo remained as a top player with share gains in Asia Pacific and EMEA regions. Revenue in Q1 remained flat year-on-year and increased 5% quarter-to-quarter at $7 billion. We continue to focus on protecting revenue and profit performance by driving better product mix, which resulted in improvement in the average selling price. Pre-tax income was $291 million, and profitability maintained at industry leading level of PTI margin at 4.2%. Next slide, please. The group continues its strong sales momentum in markets outside of China in Q1. We recorded strong business growth in Latin America and in Western Europe.
Our innovative products like Moto Z and Moto Mods achieved its target of 3 million units in the first 12 months since launch. We launched the second generation Moto Z2 during the quarter, while the mainstream product portfolio continued to deliver strong shipments contribution. With the strong momentum from Latin America and Western Europe, our revenue grew year-on-year for the second consecutive quarter at $1.7 billion. PTI margin also improved more than 2 percentage points, both year-on-year and quarter-on-quarter, thanks to a better product mix from the market outside China and the losses narrowed in China. PTI margin improved even though we made more marketing investment in the quarter. Next slide, please. Our transformation action continued to work well in data center business in quarter one, and showed signs of stabilization, especially in North America and EMEA.
We continue to record double-digit growth in our global account businesses and are the fastest-growing high-performance computer provider globally. We gained traction in the HPC at ISC 2017 in Germany and are currently worldwide number two and China number one on the TOP500 customers. We recently installed the largest supercomputer in the world on next-generation Intel platform at Barcelona Supercomputing Center. The group also launched the largest product portfolio in its history, with comprehensive offerings to address a wider range of market opportunities. The new ThinkSystem have the most world record benchmark in the industry, which is a testament to the excellence in our product performance and quality. Revenue from Data Center Group improved 14% quarter-on-quarter to $971 million. We begin to see positive impacts from our transformation actions, especially in America and EMEA, which for the first time show positive year-to-year growth in revenue since the acquisition.
China business remained challenging, and together with the increase in key component costs, we recorded an operating loss of $140 million in the quarter, although we have an improvement in profit margin. Looking ahead, we expect the industry-wide supply constraint and cost increases in key components to continue to bring challenges to the group's short-term business performance. The group will continue to execute its strategy diligently to drive sustainable profitable growth over time. For PCSD, we will focus on protecting its profitability and attack targeted markets and segments to drive long-term growth. The group will continue to improve its supply chain and manufacturing efficiency together with its customer-centric segment structure to launch more innovative products and to address opportunities in the fast-growing segments and vertical markets.
For the mobile business, we will continue building the brand and expanding our business in all geographies, where we leverage our new innovative product portfolio, continue our strong business momentum in Latin America, carrier expansion in mature market, and balance between growth and profit in emerging markets, including China. For data center business, our new ThinkSystem has earned 43 new world record benchmarks, demonstrating our attention to quality and innovation. We have also demonstrated our rapid time to market capability as we already start shipping ThinkSystem servers with the next-generation Intel Xeon Scalable processors. We will continue to implement our transformation strategy, sharpen the focus end-to-end organization, and invest in enhancing sales and channel coverage to drive future business growth. These transformation strategies will require time to be effective. But we remain confident of driving the DCG business through profitable growth over time.
For our third wave strategy, we have recently teamed up with Disney to launch our new augmented reality headset for the new Star Wars experience. We will continue to invest in technology. Indeed, we have already attracted some industry top talents, including Dr. Hans Uszkoreit and Dr. Feiyu Xu, to join Lenovo to help develop our artificial intelligence capability. Despite challenging market conditions in the short term, the group now has reached a turning point with stronger and better customer-focused organization and a more compelling product portfolio across all our businesses, enabling us to address more market opportunities. Together with our competitive cost structure and solid execution, we are confident to continue our quarterly profit improvements. Meanwhile, we will also continue to look for inorganic opportunities to strengthen our market position. We remain confident in our vision and strategy to deliver long-term profitable growth. Thank you.
Now we can take your questions.
Thank you, Wai Ming. We want to accommodate questions from as many people as possible, so please avoid multi-part questions and limit to just two questions at one time. Please state your name and name of company before your questions. All the Q&A will be in English only. Operator, would you please give us your instructions?
Certainly. Ladies and gentlemen, if you wish to ask a question now, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Once again, it's star one for questions. Your first question comes from the line of Arthur Hsieh from UBS. Please go ahead.
Hi, this is Arthur Hsieh from UBS. Thank you for taking my question. Thank you for the solid execution. I just have one question for Wai Ming. Because from both the segment performance and also geographical performance, from the two set of numbers, you had sequential improvement.
Mobile business, you had a better than expected progress. Why is the numbers deteriorated sequentially on the reported basis? I just need your help to reconcile what is missing there.
Right. Arthur, I just want to make sure that I think which are the numbers you are looking at. I think that from an operational point of view, I think we have $5 million, I think, versus $105 million. Are you looking at quarter-to-quarter or are you looking at year-to-year, Arthur?
Quarter-on-quarter.
Quarter-on- quarter, I think the only thing that changed, well, it really should not be, I think, Arthur. If you really look at quarter to quarter, I think if you look at the slide, which is $5 million versus $105 million, which is an improvement $110 million. The other is $69 million, I think, and $15 million, and then you have the, I think, property gains. That adds up really exactly the same in terms of difference.
From the reported number, I think the PTI, it was $15 million in the last quarter, and this quarter is $69 million loss.
Right.
Yeah.
Correct.
If we add up all of these pre-tax income from all regions.
I understand your question, Arthur. I understand your question.
Yeah.
Because I think in Q4, there is a property gain of $218 million, and there is also a restructuring loss of $24 million. That actually was the operational loss that really get down to a pre-tax income.
Right.
If you start off with quarter four last year, if you take out the property gain, add back the restructuring charge, add back the non-cash accounting charges, that actually has an operating loss of $105 million.
Right.
Versus $5 million this quarter. That is what we said, that we actually from quarter-to-quarter, I think the company has improved $110 million operationally.
Right. Got it. All right. Yeah. Thank you. That is my question.
All right. Thank you. Okay. Any other?
Thank you. Your next question comes from the line of Gokul Hariharan from JP Morgan. Please go ahead.
Yeah. Hi. Thanks for taking my questions. First question, could you talk a little bit more about the strategy around the mobile turnaround in second half? Do we need revenue growth on a year-over-year basis or volume growth in second half to get to that mobile turnaround? Or is it mainly coming from gross margin improvement and OpEx cuts? The second one is, in the data center business, given that most of the growth seems to be coming from hyperscale and enterprise seems to be declining based on what Intel has been saying, could you talk a little bit about what is the hyperscale strategy for Lenovo and what is the mix of hyperscale right now, and where do you expect that to go, let us say, once this transformation is completed?
Yes. Thank you, Hari, for the question. On MBG, we definitely expect we will increase our revenue quarter-over-quarter and year-over-year. Actually, I think the current quarter, definitely second half as well. Because first, now we are very strong in Latin America. Last quarter, we see more than 50% year-on-year growth in Latin America, in both top line and the bottom line. Also, in the past, we had only one partner in U.S., which was Verizon. But this year, we have ranged our multiple products in all four carriers in U.S. We believe we will see a significant year-on-year revenue growth in North America since current quarter, because we just started the expansion. We just started selling all four carriers in U.S. Third, since a couple of quarters ago, we have successfully expanded into Western Europe.
Actually last quarter, you can see the triple-digit growth in Western Europe. We believe this trend will continue. That's why I believe our top line will keep growing. The even better thing is in all these three areas, Latin America, North America, and Western Europe, they are more profitable geographies. We have a better chance to not just grow the share, grow the volume, but also to improve the profitability. Actually, our challenge is not in this geography. It's in India, Asia-Pacific. Definitely we can grow our share there. But I don't think it's easy to make money. Actually, in those geographies, our decision is we must balance the growth and the profitability. If we cannot improve the profitability, we will mitigate the loss. We will not drive the growth there.
That's our strategy, how to ensure we can break even in the second half. But actually, if we can make money. Actually, it's relying on the revenue or volume growth as well. But I think the first three geographies. Regarding the data center business, as you can see from our report, we have made good progress in North America and EMEA. These two markets actually represent more than 60% of the total data center market. That's a very encouraging improvement. We grew our revenue 12% year-on-year in each of these two geographies. Also we improved margin as well in these two geographies quarter-to-quarter. Definitely, now the biggest issue is hyperscale. Particularly hyperscale business in China. We definitely can do more business with the IPDC player. But I don't think with our current business model, we can make money.
Actually, we lost a lot of money in that business. Actually, last quarter, we tried to mitigate the loss. We gave up a lot of deal in the hyperscale area. But now we are fixing this issue. We try to build a more competitive hyperscale business. We should do more in-house development and in-house manufacturing in that space. We must build the customer relation capability to support our customers better. That's what we are doing. Over time, definitely I believe we can build the competitive business model in the hyperscale to compete with those Chinese players. That's my comment on the data center business. But generally speaking, now we can handle this data center business better than two years ago. We have accumulated more experience. I think this is still the good direction, good strategy we should pursue.
But we still need some time to build the foundation. We give this business two years to be turned around. Actually, if you compare DCG with the MBG's issue emerged in the year before last year. We used almost two years. We said six quarters to fix the issue. Now I am very confident. We can turn around this business in the second half of the year. For the DCG business, the issue emerged last year. Definitely, management has deep dived into the business. After we found the issue, now North America and EMEA can see the positive momentum. I think mainly because of two reasons. The first is we have built the new organization, the dedicated end-to-end organization to take charge of the PC business, rather than we share the resources with PC.
Also we have hired many sales force in key countries or geography. That is the first reason. The second reason is our product is still strong. We have the best technology. For example, we are the first company to launch the latest generation of Intel chip-based product. Also our product reputation has always been strong. Our reliability, quality are always number one in the industry based on some surveys. I talked at the opening. That definitely gave us a lot of confidence. We built a strong foundation here, and then we will not just turn around the business, but we will drive the growth. Thank you.
Thank you. Your next question comes from the line of Thompson Wu from Credit Suisse. Please ask your question.
Hi. Thanks. Good morning. Thanks for taking my question. I just have two focused really on the data center business. Can you talk a little bit about the results that you are seeing in North America and EMEA? I think you are seeing very strong quarter-on-quarter growth. You have been adding a lot of account managers. Can you maybe just share the types of customers you are winning, the types of accounts? Are these Fortune 500? Is this a product of channel expansion, direct sales force? Just a little bit more color around the types of accounts and wins you are seeing in North America and EMEA. That is my first question. The second, if I may, is just about the new Purley platform. Certainly seems like you guys are ahead of your peers with volume shipment already. That is a little bit contrary to what we are hearing with some of your peers.
What has allowed you to deliver volume shipment on Purley ahead of your other competitors in this space?
So you.
Yeah. So Thompson, I think he's winning. Generally, I think we definitely been doing, I think, traditional. Well, I think for the last one or two quarters, we actually been doing very well in our global accounts, giving the sort of growth. I think the other is really the, I would say, the large customers as well as SMB, I think, which is obviously the area that I think with increasing workforce, we are going to increase the coverage. So I would say generally, I think the dedicated workforce I think that we built up over time begin to see the result. As you know, I think enterprise business, you don't necessarily deploy the sales force and then see the result immediately because you obviously need to sell, I think, sell the solution.
I would say global accounts have been doing well even in the last few quarters, I think, which we actually call out. I think that we begin to see the result is, I think, is general, I would say, enterprise customers. There is no specific, I think, industry or category that we particularly excel, but generally, I think it's really the result of deployment of the resources.
And in terms of product or do you want me to take that?
Yeah, take a look.
Purley, yeah.
Purley, yeah.
We are definitely leading in the industry, not just to launch the product, but to ship the product.
Yeah. Thompson, maybe one of the, I think we obviously believe that we have been doing well ahead of our competitors. I think as far as we know, I think we actually have nearly 48 products, which obviously is the, I think, highest volume. I think that also been confirmed by, I think, the supplier that we obviously have the largest portfolio. So we begin to ship, and then hopefully that we will see the result. I think when you ship, you obviously have a testing, and then I think the real business will come in, hopefully, I think reflecting the Q3. That is the reason why we believe that, I think with all the transformation work that we have been doing, I think over the last six months, I think doing dedicated accounts, listening customers, getting the products now, I think the new platform actually now become available.
This is where we are going to, I think, demonstrate our capabilities serving our customers, and hopefully that will reflect in the numbers, continue to grow in both the mature market, North America, as well as, I think in EMEA.
Yeah. While we improved well in North America and EMEA, another reason is, some of our competitors are very weak.
Relatively weak.
Particular edge company. We are definitely gaining customers and the share from that. I think we have not just the better product, more reliable product, stronger customer satisfaction. But also, we have the better cost structure than that. I think that will be very similar to our PC business. We will fully leverage our better product and better cost structure to win market share in U.S. and EMEA.
Thank you.
Okay. Thanks, guys. Good progress in data center.
Thank you.
Thank you.
Thank you. Your next question comes from the line of Wei Chen from Goldman Sachs. Please ask your question.
Okay. Thank you. Hi, Yuanqing, Wai Ming, and Gary. Thanks for taking the question. Just want to continue to follow on question around DCG. I think you have done quite well stepping up your product offerings, and you also mentioned you just did the largest product portfolio launch in history. Can you share with us which product you are most excited about and could make the most meaningful difference in your sales for the next few quarters? That is my first question.
You talk about the DCG, right?
DCG. DCG, yeah.
DCG. Data center.
Yes.
Yes. Data center. So definitely now we have a stronger data center infrastructure product. So definitely many x86 server products. As I said, in June, in New York, we had a successful product launch focusing on Intel Purley-based products. We launched more than 20 models in that area. So definitely, we are strengthening our hyperscale products and the business model. That's another. Also we are strengthening our storage and networking products. If we can have more attached on the storage and the networking, and if we can attach more service to our server products. So definitely, not only we can increase the revenue, but also we can improve the profitability. Those are very important. Also, we will further invest in our future technology. We will invest in the software-defined product. We will invest in the 5G area.
That's the area we are focusing on.
Got it.
I think in terms of product, we obviously launched the ThinkSystem. I think we also have, you may know that we actually have two brands, ThinkSystem and ThinkAgile, which is really software-defined. We obviously, as Yuanqing said earlier, I think question on this, we obviously have the best product. I think the service as confirmed by independent research agency. As well, we obviously have the best in class in cost. There are some technical terms that you compare the superiority of our product, which obviously I can share with you.
Yes. By the way, I forgot to mention our high-performance computer. Actually, that's probably the strongest area in our data center portfolio. Actually, among TOP500 supercomputers, Lenovo, we have close to 90 units. That's the strongest there. We own the leadership position.
I can actually, in final more sort of technical, I have something that I think my colleague showed me that we actually, I think one of our products, I think for ThinkSystem SR950, I think achieve an excellent score. I just sort of read what it means because it is very, very technical. It is beyond my capability. It is 1.3 million QphH at 10,000 GB, which is meaning queries per hour, I think at $0.92 per QphH, I think at 10,000 GB. Apparently, I was told that this is an extremely, very exciting score. I think when the enterprise, I think obviously if I look at it, they all love it. I think I am more than happy to actually get my technical colleague to explain to you what that technology means.
That sounds very exciting.
Very unfortunately. Actually, very unfortunately, our Data Center Group business President
Just left the company.
Yeah. He left the company.
We are happy to
We can have another meeting to discuss with you on the details on our Data Center Group business.
Okay, got it. Wei, we'll cover in for that?
Yeah.
All right.
Can I have one more question?
Okay, please.
Yeah. To follow up on that, you said there's two years to profitability roadmap. Can you give us some initial thoughts on the financial key assumption to get there so we can have a better understanding of the path? Thank you.
You are talking about DCG?
Yeah.
Yeah.
Sorry, I wanted to go on.
The basic assumption is, this business should be a more profitable business than our PC business. B2B business should be a much easier business than B2C business. Definitely, if you want to make this business profitable, you must accumulate the customer base. I believe we need these two years to accumulate our customer base. Definitely, we have inherited from IBM to get some customer base. But definitely, we have lost some, so we need to further acquire some customers. Then after that, given we have the stronger product portfolio. Actually, we have the most trusted, the most reliable brand in this industry. And also we have the good cost structure. I strongly believe we can make better margins in this business if you compare with our PC business. That is the logic. I talked about the two years.
Lenovo management has always been conservative. Definitely we expect we can see the improvement every quarter. Quarter by quarter. Now, I believe in North America and EMEA. You can track the progress every quarter already. And also, I believe Asia. Actually, Asia-Pacific has been our most profitable geographic in the past couple of quarters. That means all rest of the world are okay now. We can have very different gross margin. Or even the gross margin can be improved. Meanwhile, we can see the top line of revenue growth in all these three geographies. The only issue is we need to fix China hyperscale. We need to improve this business. If we want to improve this business, we need to sharpen our business model.
Actually, I don't think our past business model can support this business because our cost is very high. It's way too high. We need to build more in-house development and manufacturing capability. We must build the better customization capability in that space. It needs to take some time, but we are definitely taking action to fix that. That's about our data center business.
Maybe I think very specific to your question, I think we obviously, as Yuanqing said, that we did I think the path to breakeven really comprises of two. One, obviously, we will continue to grow our business. As demonstrated in the current quarter, we begin to see, I think two of the three largest markets, North America, Europe, we already see year-to-year growth. I think we are getting back the momentum. I think the other is really improvement in the gross margin. Because we will focus more on, apart from just selling server, we are selling more storage, more networking as far as services. As a result, we actually will continue to see, I think hopefully that year-to-year, an improvement in gross margin. As a result with the top line, and that's the road to I think breakeven.
We are building up the sales capability by having a more sort of dedicated sales force. Begin to see results in Europe and North America. Then we are taking actions to address the hyperscale issue. We are taking more focus in selling more attached storage, attached networking, attached services. Hence improving in gross profit. Then holding, I think the EBITDA, and actually probably EBITDA will further decrease because of the top-line increase, and hence this is the road to breakeven.
I wish you could give this management a little bit of credit. As I always said, to build a new business, a new growth engine, or to integrate acquisition, it's not that easy. You need to take some time. Actually, we found the issue for our mobile business earlier. Actually, two years ago, we found the problem. Then we took the action to build a stronger organization, to build a stronger leadership team, and to build a stronger product portfolio, brand, et cetera. Now you can see the result. I hope you can share my confidence. We will break even this business in the second half of this fiscal year. The DCG problem popped up, emerged lastly. We quickly addressed the issue to build a new organization, end-to-end, dedicated organization, strengthen the sales force.
With those actions, we have seen the first set of results, financial results, in North America and EMEA. Now, if we want to turn around the entire business, we definitely need to further improve North America and Western Europe. But probably even more important, we need to fix China hyperscale business. But I believe, as long as we know the issue, we can find the solution. We can find the best way to fix that. So I wish you could give us some credit there.
All right. Thank you, Y.Y., and thank you, Wai. Due to time constraint, we will end the call here. Thank you again for your participation in today's call. If you have any further questions, please feel free to contact me or the IR team directly. This webcast replay and conference call replay will be available in the next couple hours. Thank you again for joining us today.
Thank you.
Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.