Good morning, good evening. Welcome to Lenovo's Q3 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, and our CFO, Mr. Wong Wai Ming. We will first start with our management presentation. After that, we will take your questions. Now let me hand it over to Yuanqing.
Hello, everyone. I hope your new year is off to a good start. This is a resetting quarter for Lenovo. Many people, including myself, were curious to know whether our core business is remaining strong, and even more, whether our acquired businesses dragging our overall performance significantly behind. To be honest, this quarter's results are relatively complex. Even I spend more time than before to understand it. I hope everyone here can be more patient when trying to understand. But after I fully understood it, I feel more confident than ever for the Lenovo's future. Our performance shows that not only we set the right strategy, choose the right acquisition targets, but also execute it effectively and drive our overall business forward to hit our pre-set targets. Our core business, PCs, despite the unfavorable market conditions, maintained its leading position and significantly improved profitability.
Even more, our two newly acquired businesses have shown great momentum in the first quarter of integration. We have already started to see the synergies built into our plan start to deliver savings. This will become even more significant next year. This quarter, our revenue grew 31% year-on-year. When you take out the M&A expenses such as intangible assets and interest expenses, our PTI was $348 million, up 8% year-on-year. Lenovo is now a far more balanced and diversified business. PC now accounts for only 65% of our overall business. Mobile now at 24%, and enterprise at 9%. The strong results from our new businesses make us even more confident that these two businesses will be our strong growth engines.
For PCs, although last quarter's market growth shifted from China emerging market to U.S. mature markets, we still kept our leadership position with a record 20% worldwide market share, and significantly improved our profitability by 2 points year-on-year. Despite the challenges in Brazil, we achieved profit growth in all other regions, particularly EMEA. Next, we will grasp the industry consolidation opportunity, and we will expand more aggressively in the U.S. and Asia Pacific consumer markets to gain even more market share. Back in fiscal year 2012, we committed to improve profitability by one point in three years with our core business. We are fully confident that we can achieve this target. For mobile, we have challenges in China as the market shifts from carriers to open market, and online sales continue to disrupt the market landscape and the business model. But our acquisition of Motorola proves our insights.
Last quarter, Motorola not only doubled its sales volume from a year ago, sold over 10 million units in a quarter for the first time, but also improved profitability at a better-than-expected speed. Just last week, we announced Moto's comeback to China. It will significantly enhance Motorola's overall performance. Even more important, Motorola will help us to become a true global player. Overall, we are already the number three smartphone company in the world. Last quarter, of our almost 25 million units sold, almost 60% of our volume come from outside China. Not only Motorola already covers over 50 countries, but the Lenovo brand has expanded into many European, Asian, and American markets as well. Just a few weeks ago, we launched our phone business in Turkey, which becomes the 67th country selling Lenovo smartphones.
Definitely, China is still the most important smartphone market in the world, and we will keep fighting at full force. We will significantly expand our online business while speeding up the transformation of our traditional offline business. The first online smartphone, Lemon, receives very positive market response. We also established the internet model-based company, ShenQi, to fight the competitors head-to-head. At the same time, we will fully leverage Moto's China comeback to enhance our competitiveness in mid and high-end segments to further grow our business. In tablets, we continue to grow share worldwide with EMEA leading the way. Our new Yoga tablet launch definitely created excitement in the market. In enterprise, although System x was affected by the acquisition and the market shift, our original ThinkServer business is very strong. Grew 60% year-on-year, and partially made up the gap.
Now, we are number three worldwide and number one in China. We have and will continue to quickly integrate our new global teams, build confidence in the market and with customers. At the same time, we fully leverage the synergies and Lenovo's efficiency in supply, in R&D, and in channels to enhance System x's competitiveness to achieve stability and future growth target. We are confident that we will have a $5 billion business with a decent margin in one year. Our ecosystem business also continued to grow. Lenovo Store continues to go strong at 30 million daily downloads. Our most popular app, SHAREit, surpassed 200 million users this quarter. In addition, our business transformation is strengthening our entire business. From interactive product development to digital marketing, social media marketing, and fans marketing. From expanding online sales and promoting channel O2O transformation to build engagement service through community forums.
Every part of our business model is changing by leveraging the internet. Our product developers are engaging customers each day to enhance our customer-centric innovation capability. Just last month, at the Consumer Electronics Show, we won a record 77 awards for our broad range of products and apps. Looking forward, our three business engines will all run at full speed. We will deliver top-line growth as well as profitability improvement to make our shareholders and customers proud. Thank you, everyone. Wish everyone a great year of sheep. Now, let me turn this call to our CFO, Wai Ming.
Thank you, Yuanqing. I will take you through Lenovo's financial and operational performance in quarter three. Next chart, please. This is the first time we have included a full quarter of System x and two months of Motorola performance in our Q3 results. Our group revenue increased 31% year-to-year to $14.1 billion. The group PTI before non-cash M&A-related accounting charges was $348 million, up 8% against last year. The non-cash accounting charges related to the two M&A transactions were $74 million, which include intangible asset amortization, imputed interest expense of the three-year promissory note issue as part of the Motorola transaction, and others. Group PTI was $274 million, and group net income was $253 million, down 15% and 5% year-on-year respectively. Group net income before non-cash M&A-related accounting charges was $327 million, up 23% year-on-year during the quarter.
In addition to the non-cash accounting charges, we have also incurred approximately $18 million in M&A-related cash expenses in Q3, comprises of $13 million loan interest expense, $40 million severance expense, and a $10 million post-merger management expense. They are actually included in the $348 million in PTI before non-cash M&A-related accounting charges. We have provided a bridge reconciling different financial figures in the chart after the financial summary page. We deliver solid performance with growth drivers from our new businesses, and we continue to be on track for our commitment to drive sustainable profitability improvements. Next chart, please. This slide gives you a more detailed view of our financial performance for the quarter. As mentioned in the previous slide, our group revenue, gross profit, and adjusted PTI improved year-on-year, driven by solid growth of our core PC business and the two acquired businesses.
Gross profit increased 54% year-on-year, with margin improving to 14.9%. Operating expenses increased by 72% to around $1.8 billion. The increase in sales and E/R ratio in Q3 is mainly driven by the two new M&As. We recorded net other non-operating expenses of $51 million, which mainly included the interest expense of $16 million accrued for the $1.5 billion five-year note we issued in early May. Factoring cost of $16 million, as well as $7 million of the two-month imputed interest expense for the promissory note related to the Motorola transaction. PTI was reported $274 million. The effective tax rate for Q3 was 6.3%. This is lower than last year, largely due to the tax benefit associated with the newly acquired businesses. Profit for the period was $257 million, and profit attributable to equity holders was $253 million.
The difference between the two profit lines was due to our joint venture partners sharing gain in relation to the Compal joint venture recorded in Q3. Basic EPS was $0.0232 compared to $0.0256 last year. Next chart, please. In this chart, we have provided a bridge to reconcile different financial figures that I mentioned earlier to give you an overview on how these figures are calculated. Next chart, please. Our balance sheet remains strong and includes System x and Motorola. The key difference compared to the quarter that ended in September is largely due to the inclusion of the two transaction close in quarter three and our normal business activities.
The non-current assets were about $11.4 billion, and current assets were about $17.8 billion as of 31st December, 2014, where net current liabilities of around $1.3 billion at the end of December, the non-current liabilities was around $5.9 billion. Let's go through the cash and working capital on the next charts. Our cash position remained very healthy. As of the end of December, we had net cash of around $1.3 billion. The quarter-on-quarter decrease of our bank deposits and cash was mainly due to the payment of cash consideration of about $2.3 billion for the acquisition of System x and Motorola in quarter three. We also drew down a loan amounting to $600 million from our existing loan facilities in December 2014, which resulted in our increase of total bank borrowing levels.
If we add back cash consideration paid for the two M&A transactions, our net cash position in Q3 is even better year-on-year and quarter-on-quarter. We continue to do well in managing our working capital. The cash conversion cycle quarter three was negative two days, flat year-on-year, and against negative five days last quarter. The cash conversion cycle of our core business continued to see gradual improvements. The newly acquired businesses had a slightly positive working capital in the first quarter of integration, and we expect this to improve over time. We have recorded net cash generated from operation of $738 million in quarter three against $1 billion the same quarter last year. The year-on-year, quarter-on-quarter changes are mainly due to the change in net working capital. Our cash flow from operations remain healthy for supporting our drive for future growth. Next chart, please.
This slide shows the revenue mix of our business by business group and geography. We now have a much more diversified and balanced business portfolio to drive sustainable growth. From a business group perspective, our PC business now account for about 65% of our total revenue, compared to 81% the same quarter last year. The higher contribution from faster-growing new businesses, including mobile and enterprise, which accounted for about 24% and 9% of our total revenue respectively. From a geographic perspective, businesses outside China accounted for about 71% of our total revenue, compared to about 63% last year. Next chart, please. As Yuanqing mentioned earlier, our overall business is much more diversified. We want to give you more color on the business group performance. For our PC business group, despite challenges in Brazil, we achieved profit growth with share gain in all geographies, particularly in EMEA.
Our PC revenue increased 5% year-on-year to $9.2 billion, with a record high pre-tax income of $494 million and pre-tax margin of 5.4%, which is up 2 points year-on-year. While we kept our leadership position with a record 20% worldwide PC market share, we will grasp the industry consolidation opportunity and expand more aggressively in the U.S. and Asia Pacific consumer markets to gain even more market share. Mobile Business Group includes Lenovo mobile business that consists of phone, tablets, and TV businesses, and two months of Motorola's business. The revenue of this business group increased 109% year-on-year to $3.4 billion, driven by the strong growth of Motorola business. Our mobile PTI recorded a loss of $89 million and pre-tax margin was -2.6%.
Motorola performance continued to gain momentum and its shipment even more than double year-on-year in Q3, while market growth is 28% year-on-year. In addition, Moto operation result was positively impacted by having over 80% of its volume sold in the last two months of the quarter, while monthly expense do not generally have significant variation within the quarter. This positive impact on financial result in Q3 will not repeat in Q4. Our smartphone business in China continued to be challenging as carrier subsidies were cut, driving shipments through carrier channel down nearly 30% while internet sales took off. Both factors disrupted the market, and this affected negatively our phone business in China. With the addition of Motorola to the smartphone portfolio, it enhances our overall markets coverage and create a much more balanced mobile business on a global basis.
Moto back to China will also address the high-end segment opportunities and hence improve the overall profitability. As we enter into the full quarter, which is 4Q financial year 2015, which is typically a low season for Lenovo and Motorola. Both businesses will have a low seasonality. Sales will usually be down 20%-30% quarter-to-quarter. As a result, margin typically will be low. We remain confident we will turn around the Motorola business within four to six quarters from close. As in tablet, our new Yoga tablet launch definitely created excitement in the market. In Q3, we continued to outgrow the market with EMEA leading the way. Our worldwide tablet shipments were up 9% year-on-year, being the worldwide number three, and the fastest-growing vendor among the top five, while our market share continued to expand.
Revenue of the Enterprise Business Group showed an increase of 6.9x year-on-year to $1.2 billion, which includes a full quarter of System x business. Our ThinkServer business was very strong, but System x business continued to record decline during the first quarter of integration. PTI of the combined server and storage business recorded a loss of $42 million, and pre-tax margin is -3.4%. We fully leverage the synergies and Lenovo efficiency in supply chain, R&D, and channel to enhance System x competitiveness to achieve stability and future growth targets. At the same time, we will improve its efficiency and ensure its cost structure is competitive. In Q3, we announced a voluntary buyout program to rightsize the workforce. Our commitment in EBG to drive $5 million sales revenue with the margin better than our PC business remains the same. Next chart, please.
Our geographic exposure is also very balanced to support our future growth. Our business now have a more diversified product portfolio with higher mix of non-PC business in each of the geos. As such, we have modified the presentation in the chart slightly from this quarter onwards to reveal our performance in each geography from an overall perspective. Total revenue from China geography was slightly up year-on-year. Profit was up 7% year-on-year. Our overall margin was up 0.3% points year-on-year. Our PC business continued to perform well despite market decline and achieve a record market share of 38.2% while holding up its margin well. Even though competition in China's smartphone market is very keen, and the market is no longer seeing hypergrowth, as we mentioned earlier, it is still the most important smartphone market in the world. We are fighting back in China with plans Yuanqing mentioned earlier.
For enterprise business, combining our existing business and System x, Lenovo has become the largest server maker in China. Integration of System x so far has been smooth. We will continue the integration work to ensure the planned synergies can be delivered. in Q3, AP revenue was up 7% year-on-year to achieve $1.7 billion in Asia Pacific. Profit was up 271% year-on-year. Our overall operating margin improved substantially by 3.9 points year-on-year to 5.4%. We strategically protected Japan PC leadership despite a declining Japan PC market while improving margin to achieve record-high operating profit for the quarter. At the same time, we attacked India PC market with shipment growth as well as overall operating margin improvement. Therefore, our PC business continued to gain share and achieve record-high market share at 16.1%. During the quarter, the two newly acquired business also helped the overall top-line growth of the AP region.
Motorola performed very well in the region, especially in India, which helped the strong growth of the combined smartphone shipment of Asia Pacific region. For enterprise, we continued to leverage Lenovo channel expertise and supply chain efficiency to accelerate the enterprise business in the region. EMEA revenue was up 40% year-to-year to about $4 billion. Profit was up 135% year-on-year. Our overall margin improved by 1.2 points year-on-year to 3%. Our PC and mobile business continued to record strong momentum before Motorola and System x. Our PC business continued to gain share and achieve record-high market share at 19.6%, driven mainly by the consumer business in Western Europe and Middle East and Africa.
In smartphone, we recorded strong growth in EMEA, driven by the momentum both from Motorola and Lenovo, thanks to the strong shipment performance from Lenovo brand in the Eastern Europe and Middle East and Africa regions. On enterprise business, we will be more aggressive in attacking growth in the region's enterprise segment. Americas revenue was up 88% year-on-year to about $4.3 billion, largely due to the adding of System x and Motorola business. We recorded a loss of $22 million in the region, largely due to the challenges in Brazil and ramping up of newly acquired businesses. For PC, we continued to deliver solid growth in PC business in North America region, driven by the balanced growth in both consumer and commercial businesses. PC unit shipment in North America increased 6% year-on-year, with margin improvement year-on-year.
With the contribution of strong shipment performance from Motorola, our smartphone shipment grew substantially in AG this quarter. For enterprise, we are preparing our foundation to attack and capture more enterprise customers in future. However, our performance in Brazil is still impacted by the weak market environment affected by the local macroeconomic issues that resulted in weak demand and high inventory in the industry. Currency fluctuation also negatively impacted both Lenovo and Motorola performance despite the strong revenue momentum. We have been refining our business strategy in PC and actions are in place to stabilize the Brazil business. Proactive actions taken to improve our performance include simplifying product portfolio, improving operational controls, and improving supply chain efficiency, and a new local leadership is in place to execute our strategy.
Looking ahead, we are confident that the group business will continue to outperform the market across our key products to drive profitability growth and margin expansion. We are building a solid foundation for transforming us into a truly global and diversified company with three group of businesses. We will continue to leverage Motorola to accelerate our phone expansion and enhance our MBG performance, and to take actions to stabilize the EBG business and optimize its expenses structure to improve its operating efficiency. We now have a much broader product portfolio, and we will continue to leverage our extensive channel network already established in the past several years to drive future growth. We are devoted to driving growth and outperform from scaling and operating efficiency enhancement, and in turn, enhancing our profitability over time. Thank you. Now, we can take your questions.
T Thank you, Wai Ming. Let us now proceed to questions. We want to accommodate questions from as many people as possible, so please avoid multi-part questions and limit to just two questions at a time. Please state your name and name of company before your question. All the Q&A will be in English only. Operator, would you please give us your instructions?
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. If you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. The first question comes from the line of Gokul Hariharan of JPMorgan. Please ask your question.
Yeah. Hi. Good morning, guys, and congrats on a great quarter. I have a couple of questions. First of all, on the Motorola side, looks like the profitability is getting a bit better, and the volume momentum is also quite strong. Could you outline what is the strategy for Motorola, especially on the cost side of things, since you mentioned that you have some actions over the next 12 months to get the business back to breakeven? Could you outline what exactly those actions are likely to be? Thank you. I have a follow-up as well.
Okay. Thank you. Motorola performance last quarter improved. This is the right acquisition. On North America. North America, last quarter, they grew their volume by more than 100%. The first time reached the 10 million volume worldwide. Actually, it is 10.6 million. They significantly improved their profitability. That gives us more confidence so we can turn around this business in another three to five quarters, as we promised. Now we understand these things better. Actually, Motorola has much better gross margin than the Lenovo smartphone, or even the Lenovo PC. Unfortunately, today, their E/R ratio is much higher than Lenovo smartphone and Lenovo PC. That is why it can give us more confidence that it gives us a better profit in the future.
We definitely will, are fully leveraging Lenovo, more efficient operational platform. Particularly in the supply chain. We are very confident we can help them to reduce the material cost. Actually, by now, we have identified probably $0.5 billion. Material cost of finish. Over the next 12 years. Over the 12 months, sorry. Over the next 12 months. That is one thing. Definitely, we can further help them to reduce the E/R. Through the better manufacturing cost and other operational costs. That will be our strategy. We will. By the way, we will maintain Motorola as an independent brand and organization so that they can keep this strong momentum. Actually, Motorola keeps a strong presence in North America and Latin America. Recently, we have seen the first step of success in India.
Over the past 10 months, actually, we sold 3 million units in India through online channel. We have become a very decent player in that market. Another important action is we bring Motorola back to China. We launched that last week. Actually, we will start a shipment a couple days later. That helps Lenovo to strengthen our product portfolio in the middle to the high end in China. We have got a lot of positive feedback on Motorola products in China. Actually, within just one week, now we have already received 1 million so-called reserved orders from the consumers. But definitely, not 100% will be converted to the real sales. But it's a very strong momentum. Definitely we have counted on Motorola to help us strengthen our smartphone position in China as well.
Okay. Thank you very much. Just to clarify, Yuanqing, $500 million of cost synergies over the next 12 months, right? That's what you're expecting with Motorola?
Yeah. $400 million - $500 million. Yeah, around that range.
Okay. Thank you very much. Just one more question on the PC margin side. The PC margin was much higher than what we have seen in the recent quarters, probably 1 percentage points - 2 percentage points higher than what we have seen. Could you explain a little bit more, especially in Asia Pacific, what drove this big change, given that you also had some currency-related issues? Also, how much of it is a sustainable kind of margin level? Are we going to be at that 5% kind of pretax margin for PC going forward? Thanks. Thank you very much and nice quarter.
Yeah. Our PC performance last quarter was pretty strong. Although the market is not favorable to us, China and the emerging market actually was shrinking. U.S. and the mature markets are growing. That's actually a favorite of our competitors, which are based in the U.S. But we performed very well, very strong. Not only we keep our number one position, but also we improved our PTI ratio by 2 points. Now for the first time, we delivered more than 5% PTI, actually 5.4% PTI. That is a 2 point year-on-year improvement. That's an amazing improvement. Why we can deliver that? Mainly because of our strategy. If you still can remember, a couple of years ago, we set a strategy to attack the consumer market, particularly in EMEA.
When we executed that strategy, at the first stage, we lost money. But when we reach a certain percentage of the market share, the profitability will be improved significantly. Actually, like in EMEA. Since this fiscal year, just since this fiscal year, we started to make money from the consumer. But over the past two to three years, we lost money. That significantly helps us to improve the overall profitability in the PC space. With this strategy, I believe more and more regions will gain 10%, 15%, or even 20% market share.
But probably today, if you cannot reach 15% - 20% market share, it's hard to make money, particularly in the consumer space. But we believe more and more regions and countries will reach that target. That will help us to improve the profitability. We are still confident. But definitely last quarter was a fantastic quarter. But we are confident that we can maintain the 5% PTI in the PC space.
Yeah. Gokul—
Okay. Thank you very much. Thanks.
Gokul, it's Wai Ming. I think Yuanqing gave you a perspective of the overall business. I will give you a perspective from a numbers point of view. I think the excellent execution of my colleagues actually enabled a lot of the margin is actually really derived from the scaling benefit, meaning that we continue to grow top line, but we actually are able to manage expenses in a very, very good way. Therefore, I think I think a large part of the improvement is really coming out from the scaling benefits.
Really from a geography perspective, I think literally all regions, I think except Brazil, which we already called out, which we mentioned about the issues. All regions, in fact, actually increased market share as well as profitability. Exactly a worldwide scale. Again, really want to go back to Yuanqing's point is, I think the execution, the scaling benefit, I think building up market share is absolutely critical, and also confirm my view that I think the PC business is actually a very attractive business, and the strong performance actually give us, I think the result that we reported today.
Here I will—
Just wanted to clarify. Is currency a headwind in the last quarter for you guys, or is the margin performance even in spite of the FX headwinds? Because we saw a big margin improvement in both EMEA as well as Asia Pacific, where currencies have been quite volatile.
Okay, Gokul. Let's restrict it to the two questions at a time.
All right. No problem. I'll do the later.
Okay. We talk later. Next question, please.
Thank you. The next question comes from the line of Kirk Yang of Barclays. Please ask your question.
Yeah. Hi, this is Kirk Yang from Barclays. Thank you for taking my question. My question is actually on your enterprise business. I think you mentioned earlier that you still maintain your guidance, to reach about $5 billion with OP margin better than PC, which is above 5%. But for the December quarter, I see that your enterprise business pre-tax margin was actually -3.4%. Maybe can you please give us some colors for the reason for the minus margin, and what is your plan to reverse that into a positive in the near future? Thank you.
Yeah. Thank you, Kirk, for the question. Actually, now the System x business we bought from IBM. The key issue is not on the bottom line, it is on the top line. Actually, the last quarter, their revenue declined by more than 10%. With that decline under the same expenses. Definitely you cannot expect the good PTI. The reason they face the challenge are in twofold. The first thing is their cost competitiveness. IBM always run the business at a very premium level part, not just the product, but also the cost structure. That makes their business not competitive in the market. The second one is actually there is a new business model, which is the ODM, OEMs that directly sell to those internet companies, particularly for the data center part. We call it IPDC market.
Actually this model is disrupting not just IBM, but also HP and Dell as well. Actually you can see their server business are declining as well. That is the reason. But meanwhile, I wish you could see another result. Actually, Lenovo ThinkServer business are growing much faster than that. Actually last quarter we grew by 60% year-on-year. That partially compensates the revenue decline of the System x. But our server business base is very limited. We only sell in very limited countries. But now with the joining of the System x, not only we can have the full product portfolio. In the past, Lenovo's product portfolio only covered the low-end servers. IBM definitely can cover middle to high-end. Now we have the full range of the product portfolio. System x also covers more regions and countries.
That give us more coverage. They have good brand. They have good technology. They have good customers. But now the only problem is they are not competitive. But efficiency has always been Lenovo's stronghold. We definitely believe how we can help this business to be more competitive with more efficient procurement, manufacturing, logistics, or even in R&D area. We have a lot of room to improve. We have already made the plan. We will take the action quickly to improve the competitiveness, to stabilize the business. Over time, we even should grow the business. That is still our commitment to build a $5 billion business with a better business margin. If we can hit the top line, I do not think the bottom line is a problem, is the issue.
Sure. That makes sense. Yuanqing, thank you very much.
Next question, please.
Thank you. The next question comes from the line of Arthur Hsieh of UBS. Please ask your question.
Hi, thank you for taking my question. I have two questions. First, I am just wondering, in management's mind, what would you consider as a successful relaunch of the Motorola brand in China? The reason why I am asking is because China is the most competitive smartphone market in the world, and looking at [MIBH], even though it is already number one, it was not really profitable. I mean, it was maybe slightly profitable. But with this new investment of Motorola brand marketing in China, potentially this could be further burden in terms of the cost. How important is the relaunch of the China business for Motorola, or actually it is more of a marketing and real profit could more come from the overseas expansion? That is the first question.
Okay. Thank you. I think Motorola back to China is important for both Motorola business and our China smartphone business. We definitely would not sacrifice the profit to expand the market. Actually, we also have the good margin in China. But Motorola will help our China smartphone business because in the past, with the Lenovo brand smartphone, we can only cover low-end product. Actually, we sell more products through carriers. We are very hard to enter into the market above CNY 2,000. But with the Motorola brand, now it is definitely a good chance for us to address the mid to high-end market. Actually, Moto X will sell at about CNY 3,000. Moto G will sell at around CNY 1,200 - CNY 1,500. That is a very good accompaniment. That is why. That will help our China smartphone business.
By the way, we will mainly sell Motorola through the online. That will help through online retailers. That will help us to strengthen our open market coverage and online coverage. That is for China, definitely for Motorola overall business, because we do not sacrifice the GP margin. With the large volume, with the addition of the China volume, definitely that can further help Motorola to improve their profitability. That is why I said that for both China smartphone business and overall Motorola business, this strategy is critical.
That is helpful. Thank you. The second question is about the EMEA business. I think, in terms of the currency, it was very unfavorable in the last quarter, but you still managed to deliver both sales and earnings growth there, even with a slight margin downside. The question is, how much more potential room in terms of the share gain there, and how is the currency outlook potential impact to this business? Is there going to be a further impact to the margins, or potentially you could stabilize around 3%, the kind of OP margin in that region? Thank you. Yeah.
Arthur, sorry. First of all, to answer your question, I think foreign currency not only impacting EMEA, it is really impacting, I think very generally, I think the non-U.S. dollar sort of geographies. I think from a margin perspective, we actually put in place a hedging process for us to protect the overall margin. I actually would want to maybe repeat my answer. I think very generally, in particularly EMEA, I think that we have actually been growing the business I think very significantly, definitely well above the market growth. By building that volume, I think we begin to see the scaling benefits.
My comment earlier today to another question was, I think if you really look at it on a global basis, definitely that covers EMEA. I think we have been actually holding our expenses very nicely, but at the same time, really all the top-line growth, I think both the gross margin actually sort of flow to the bottom line, and that is the main reason why we actually see a 2 percentage growth, I think, in our PC business. Definitely on a translation perspective, because our reporting currency is U.S. dollar, I think that obviously will have an impact. But in terms of margin, we actually have a very good execution cadence. That, I think our margin is actually able to protect us rather than being exposed.
Why we have performed strongly in EMEA? I think a very important reason is we have a very strong team there. Definitely. Another reason is we set the right strategy, as I mentioned before. Not only we protect our commercial business, improve the profitability there, but we are very aggressive to attack the consumer market. Once we hit a certain percentage of the market share, then that help us to improve the profitability. Actually, last quarter, our EMEA business grow by 24% on the revenue. The profit improvement is even more impressive. Actually year-over-year, we improved by [$800 million]. Now we are close to 4%, 3.8% PTI in EMEA in the PC business. PC plus tablet, I think. PC plus tablet, yeah.
Okay. Thank you, Arthur.
Thank you.
Thank you. Next question. In view of time, probably we will take the last question.
Thank you. The last question comes from the line of Thompson Wu of Credit Suisse. Please ask your question.
Hi. Thank you for taking my question this morning. Just two. The first question really is going back to the PC side of the business. I think, Wai Ming, you had talked about keeping margins, PTI margins for that business about 5%. Can one make the argument that over the long term that if you are successful on the IBM side, you improve profitability there, that actually PC margins can actually rise over time? The reason why you might be maintaining to the 5% is that you are reinvesting that profit to grow other aspects of the business. I think we have seen that before on your China business before. Is that something we can think about also for the PC side?
Yeah. I think the margin, I think, as I said, derives really from two sides. One is obviously controlling the overall expenses so that we see the scaling benefit. Obviously if we continue to grow our market share, which we believe that there are definitely opportunities for us to do that, I think the margin will gradually improve. But I think from a group perspective, a protect and attack, I think PC is our protect and is going to be the profit pool for us, I think, to support the attack of the two new growth drivers, I think currently.
Obviously, I think of the integration. I think PC is going to continue to be important. I do not think that we would deliberately depress I think the sort of PC margin per se. We definitely will, through execution, as I said, I think improve our top line, I think to see the opportunities to continue to grow our market share. As a result, we will provide better profitability. So that will be a very strong base for us to support the growth of the two other drivers.
Yeah. I do not want you to have too high expectation on the PTI ratio. Because if we want to further improve that number, it will probably have less chance to further grow market share. Also, probably our competitors will use that to attack us. We should keep a certain flexibility in that space. We must know how to balance the top-line growth and the PTI ratio.
Okay. Thank you, Yuanqing, for the clarification. Just one more question. I think with just about seasonality into the March quarter, I think Wai Ming had talked about just the Motorola and China businesses being down, I think, between 20%-30% sequentially. Is that how we should think about it as well for the consolidated group? Or factoring in your newly acquired server business as well?
I think, Tom, the comment we had is really talking about the System x business. I think on the EBG, I think ThinkServer and the System x business, I think that it is— sorry, let me make sure that I answer your question correctly. You are asking our view on quarter four?
Q2.
Oh, Q2.
Yeah, sorry, just— correct. Just how investors should be thinking about the seasonality of your business going into the March quarter, factoring in both Motorola and IBM.
Yeah.
Again, just top line.
On the Motorola, I wish you could realize. Actually, last quarter was their peak season, and also we only took two months of their so-called performance, which two months actually are the highest or the best performance months for Motorola. November and December. Definitely for the current quarter, it is a lower season. Probably quarter to quarter, the volume will decline. With that decline, probably that will impact the profitability as well. But that is very normal. Probably for most IT companies, we will face the same situation. Regarding of the—
Well, so—
—System x, you mean.
Tom, you are talking about the group, I think as a whole, I think season to season, probably is around 20%, I think, seasonality on a group perspective.
Okay, great. Thank you very much. Congrats on a nice quarter. Thank you.
All right, thanks, Thompson. Thank you again everybody for your participation in today's call. If you have any further questions, please feel free to contact the IR team directly. The webcast replay and conference call replay will be available in the next couple of hours. Thank you again for joining us today.
Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may all now disconnect.