Good morning and good evening. Welcome to Lenovo's Q3 earnings 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 turn it over to Yuanqing.
Hello, everyone, and a happy Lunar New Year. I know you most likely have questions on our recent M&A deals. Before we go there, I want to talk about our outstanding performance last quarter. This last quarter, Lenovo delivered both record revenue and record profit. Our revenue surpassed $10 billion for the first time, at nearly $11 billion. Even better, our net profit reached $265 million, up 30% year-on-year. We continue delivering our promise of improving our profitability. Our strong performance is the direct result of our clear strategy and consistent execution. We are focused on protecting our core PC business while aggressively attacking growth in PC Plus areas, including tablets, smartphones, servers, and storage.
For PCs, in a very tough market environment, we not only protected our number one position with a record share of 18.5% but also, at the same time, our PC operation profit grew by 27% year-on-year. Even more impressive, our strong PC results were driven by balanced performance worldwide, strengthening both volume and profit. In China, we improved our operation margin by one more point to reach 7.1% from 5.8% a year ago. In EMEA, we gained four points of market share year-on-year. In Asia Pacific, we regained the number one position in the region, and in Americas, we were the fastest-growing company at 31 points premier to the market. While we continue to successfully protect our PC business, our attacking PC Plus business also had a very strong quarter.
Our tablet sales volume was up more than 325% year-on-year to a record of almost 3.4 million units with 4.3% worldwide market share. [inaudible] had strong growth, with EMEA leading the way, growing almost 4.5x Year-on-year. Our star product, the Yoga Tablet, was particularly popular among customers worldwide. Our smartphone business continues to grow globally. Our worldwide smartphone sales volume grew almost 50% year-on-year, driven by hyper growth in Asia Pacific and in EMEA. Outside of China, for the first time, we sold 2 million smartphones. Overall, we sold nearly 14 million, maintaining our strong position at number four worldwide. We will build on this momentum and capture the 4G opportunity, especially in China, with our newest products. Even more, last month, we announced two deals aligned with our long-term strategy that will significantly increase our PC Plus business.
We know these are absolutely the right investment to secure our future. Our plan is clear, and we are now building the foundation of growth for the next decade. First, we announced the idea to acquire IBM's x86 server business. This deal would immediately make Lenovo the number three player in this area globally and would make us the leader in key growth markets around the world. We will fully leverage our strength in supply chain to bring down the costs and are confident we can turn the server business into a more profitable business than PCs. This will definitely help improve our overall profitability. We also will draw on our strong channel relationships to drive hyper growth, particularly in China, where demand for server is still very strong. Meanwhile, our planned acquisition of Motorola Mobility creates a perfect fit with our global growth strategy in smartphones.
With this agreement, we will become a much stronger number three smartphone company in the world, and already we are mapping out a thorough integration and turnaround plan. I'm confident that from day one after closing, we will be able to realize the synergies that are tangible and substantial, as well as introduce new products to the market. We believe that we not only can achieve significant savings from lower material costs but also can reduce E/R with our global scale. At the same time, under the iconic Motorola brand, we will definitely introduce richer and more innovative products. Those products will not only serve customers in North America and Latin America but also will be reintroduced back to China and other emerging markets, where we believe customers will embrace Motorola once again.
For both of these deals, our top priority now is to work through the regulatory process and obtain approvals. We have a good understanding of this process, and we will be open and transparent with all regulatory agencies around the world. We have a very strong track record in our other M&A activities, and we welcome the process as an important next step. In fact, we have reshaped our organization to accelerate the integration process. Once this deal is closed, we have created four business groups. The PC Business Group, we are focused on protecting our leadership and the profitability in PCs. The Enterprise Business Group will drive our growth in servers and storage. Our Mobile Business Group is in charge of continuing to grow our smartphone and tablet businesses aggressively.
Our Ecosystem Cloud Service Business Group will continue to drive monetization as well as applications and software for the best user experience. Our new structure will go into effect on April 1st to drive even more efficiency, growth, and innovation across all our business lines. Looking ahead, we are confident that our existing business will grow as we have committed to our shareholders. We are also confident that our newly acquired businesses will give us a solid foundation to build new pillars for long-term sustainable growth. Thank you very much. Now, let me turn 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. We continue to have strong growth in both sales and profit with margin expansion in quarter three. We recorded growth in all our key businesses, PC, smartphone, and tablet. Strong growth in our smartphone and tablet businesses have added an important new source of sustainable growth for the group, and MIDH business now accounts for 16% of group's turnover, compared to 15% in quarter two and 11% a year ago. Group sales grew 15% year-on-year to around $10.8 billion. Revenue derived from our PC and related business was up 10% year-on-year to $8.7 billion, driven by both shipment growth and increase in ASP. Sales in our mobile internet business were up 73% year-on-year to $1.7 billion. Gross profit was about $1.4 billion, up 15% year-on-year.
Gross profit margin dipped slightly to 12.6% from 12.7% last year and 12.9% in quarter two. The small decline were largely due to the increased mix of the fast-growing consumer business and also the impact from a temporary interruption in the supply of casing component for our premium commercial products during the quarter. Operating expenses increased 9% year-on-year to $1 billion in quarter three. This includes the increase from adding new businesses, i.e. CCE and the EMC joint venture, which we only started the integration in quarter four last year. We have also started our efficiency improvement program earlier in this fiscal year with reducing resource in our PC business while redeploying the resources in our high-growth PC Plus business. This resulted in a $30 million severance expense incurred in quarter three.
During the quarter, we recorded $22 million of profit from the liquidation of an available-for-sale of financial assets in quarter three. In addition to the effects from better scaling and strengthened expense control, the E/R ratio thus improved from 10.1% last year and 10% last quarter to 9.5% in quarter three. Operating profit was $334 million, up 37% year-on-year. Increase in other non-operating expense was mainly due to a higher financing cost from additional financing and increased factoring cost. Pre-tax income was $321 million, up 30% year-on-year, being the first time for it to surpass the $300 million level. PTI margin continued to improve year-on-year and quarter to quarter. Effective tax rate for quarter three was around 17%. Profit attributable to equity holders was $265 million, up 30% year-on-year. Again, this is also a record high level for the group.
Basic EPS improved to $0.0256 from $0.0199 last year. Next chart, please. Our balance sheet in quarter three remains healthy. Non-current assets were about $4.7 billion, which was similar to last quarter two. Current assets were about $14.8 billion against $13.3 billion in quarter two, mainly due to the increase in cash and receivables, which is in line with our business growth. Inventories were relatively stable under tight control even we continue to increase in-house manufacturing in China and Brazil, together with consolidation of our acquisition of CCE in quarter four. Net current assets were around $61 million at the end of December against net liability at the end of September. The non-current liabilities were at around $1.9 billion. Let's go through the cash and working capital in the next chart.
We continue to leverage our strong cash position to support our strategic business expansion into consumer business, mobile device business, and enhancing our capability through increasing in-house manufacturing mix. Adoption of this strategy impacted on our cash conversion cycle trend. As a result, the cash conversion cycle has come down to -2 days in Q3 against -5 days last year. We recorded our operating cash inflow of around $1 billion versus outflow of $189 million in last quarter two, and $889 million in quarter three last year. The cash flow derived from operations remaining very healthy in quarter three. With the two acquisitions we announced, I want to highlight our cash position for your reference. We have net cash reserve of around $3 billion, and together with the undrawn facility around $1.7 billion, we have a total around $4.7 billion usable cash on hand.
We have to pay a total of around $2.7 billion upon closing of the two deals, and $1.5 billion three years after closing of the Motorola Mobility transaction. We still have around $2 billion usable cash after the closing. We contemplate both acquisitions will operate on a negative cash conversion cycle business model and do not require significant capital investment in short term. Together with the cash flow from operations, we have very healthy cash resource to continue to fund the growth of our existing business. We are confident that with expected growth in our core business and healthy cash flow from operations, even with the potential short-term financial impact arising from our investment in the two transactions, we do not expect any change in our dividend policy. Next chart, please.
We continue to do well in all geographies in Q3 for both our PC and mobile device business under our PC Plus strategy. Our balanced geographic exposure, especially market outside China, including Americas, EMEA, and Asia Pacific, continue to help contribute to our top-line growth. We continue to record share gains across geographies, products, and customer segments. Result of the initial expansion of our smartphone and tablet business in market outside China were also encouraging. China. We continue to outperform in the China PC market despite its decline, and further strengthen our number one position with a record high market share. Our PC Plus strategy continued to work well, and both our smartphone and tablet business continued to post strong unit shipment growth. Total revenue from China was roughly flat year-on-year. Our overall margin in China was up 0.8 points year-on-year, and 0.1 points quarter-on-quarter to 5.4%.
This reflected the successful execution of our protect-and-attack strategy to protect China PC profit through tighter control on pricing and expense control, which resulted in improving PC margin while continuously attacking to mobile device markets. We will continue to invest in the PC Plus area and in LTE 4G products to position ourself well for the growth opportunities. We remain confident that our PC Plus strategy is fully operational in China and can continue to drive growth in China. Asia Pacific. Revenue was up 22% year-on-year to about $1.6 billion in Asia Pacific, while operating profit reached $25 million in quarter three. We continue to perform well in Japan and maintain our leadership position. The depreciation of Japanese yen has negatively impacted sales in the region.
Our drive in smartphone and tablet in this region has been encouraging, and our smartphone shipments reached over 1 million units for the first time in the region. Our operating margin was up 0.4 points to 1.5% year-on-year under the strong progress in the PC Plus area. EMEA. We continue to have very encouraging results in EMEA with record high market share. Revenue grew 25% year-on-year to about $2.9 billion. Strong growth in emerging markets and consumer business contributed to the strong growth in the region. Our mobile device business, especially tablet business in Europe, has also recorded strong growth momentum. As a result, our operating margin was up 0.2 points to 1.8% year-on-year. Americas. We continue to achieve strong growth in the American regions. Our unit shipments grew 28% against the market decline of around 3%. Revenue was up 36% year-on-year.
We continue to benefit from strong growth in both commercial and consumer businesses in North America that resulted in our market gain of 1.2 points to 10.2%. We continue to deliver strong growth in Brazil. Our integration of CCE has been on track, helping us achieve a record high market share in Brazil in quarter three, where unit shipment increased by 3.8 x year-on-year. We continue our investment in the fast-growing Brazil and Latin America businesses. Coupled with competition in PC business in the region and the impact from a temporary interruption in the supply of casing component for our premium commercial products to our North American business, the operating margin of our Americas region, and thus resulted in a decline. We expect the margin in this region will recover in the next few quarters. Next chart, please.
We continue to outperform the worldwide market across PC, smartphone, and tablet, driven by our solid PC Plus transformation and strategy execution. Notebook shipments and sales were up 9% and 11% year-on-year respectively. Unit shipments and sales in our desktop business were up 9% and up 12% year-on-year. Our MIDH business continued to show strong performance, up 73% year-on-year in sales led by the smartphone and tablet business, which fueled the strong growth of the group. We will continue to invest in innovation and broaden our product portfolio to enhance our competitiveness and services to our customers. Looking ahead, we remain confident our existing business will continue to outperform the market across our key products under the solid execution of our PC Plus strategy with margin expansion.
We will continue to invest in our core PC business to lead in multi-mode computing, accelerate our smartphone worldwide expansion, and invest to prepare for LTE in China, and breakthrough in tablets. We will continue to build our enterprise product portfolio and invest in ecosystems as well as innovation across the board. We will stay focused on our efficiency improvement initiatives and growth opportunities of our existing business. We are confident the trend in the growth of our existing business that we have shown in the past several quarters will continue to deliver the improvement in profitability. The two acquisitions, that is, the IBM low-end server business and Motorola Mobility, will further strengthen our competitiveness upon closing to position us well our next phase of growth over time. The two transactions are subject to regulatory approvals, and we would update the market on our progress going forward.
We have started to prepare our post-merger management process in order to ensure a smooth transition after closings. Thank you very much. Now we can take your question.
Thank you. We will now begin the question-and-answer session. If you wish to ask a question, 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. Our first question comes from the line of Steve Zhang of Macquarie. Please go ahead.
Hi, thanks for taking my question. My first question is related to the Motorola Mobility acquisition. You had mentioned that you expect to realize significant synergies by closing of the deal. Can you quantify that a little more, as in, do you expect it to be breakeven or profitable by that time, or do you expect it to have significantly less loss than previous? Does that include any build-out of headcount that you might have to make in order to rebuild that business? Thank you.
Steve, we actually cannot hear clearly your question. Could you repeat that again?
Okay. Can you hear me better now?
Better. Could you
Hello?
Steve go ahead.
Hello?
Please ask the question again, please.
Okay. This is related to the Motorola Mobility business. You had mentioned that you expect to realize significant synergy by closing of the acquisition. I just want to get a little better picture on, do you expect that business to actually break even to be profitable, or do you expect it to show less loss than the business has previously shown? In that figure, do you include any build-out of headcount that you will have to make in order to regrow that business, as you had mentioned before?
Steve, I cannot hear you clearly, but I try to understand your question. You ask about whether we can improve the profitability of Motorola Mobility. Firstly, I would say this acquisition perfectly fit within the Lenovo strategy. We have communicated with you about the Lenovo PC Plus strategy. We want to grow our mobile business as well as the Enterprise Business Group significantly. That will give us another two pillars to Lenovo future growth. With this acquisition, definitely we will speed up our execution of the strategy. We understand. Now Motorola Mobility business is losing money. For sure, in short term, after we close, in short term, it will have some certain negative impact on our performance. But we have identified some synergies as well as cost-saving areas.
That we are very confident from there, after we close the deal, we can improve the business, improve the profitability. Over a couple of quarters, we are confident that we can turn around the business, that we can start the profitable growth in the worldwide smartphone business area. We have started to plan the integration plan. Definitely. From there on, we will start to realize those synergies and the cost-saving areas. We will combine the scale. We are pretty sure that we can significantly reduce the expense to revenue. Also, we have the plan to enrich current Motorola product performance, leveraging the combined teams, the R&D capability. We have another plan to relaunch or reintroduce the Motorola brand back to China and other emerging markets, where people where Motorola brand is still a well-known and well-respected brand.
We believe people will embrace this brand. That will help us to increase the sales and improve the profitability. This is what we can communicate with you today. Thank you.
Great. Thank you. As a follow-up, you had mentioned previously that you wanted to improve the profitability of the MIDH business. It seems like the margins for the MIDH business were down this quarter. Can you give us a little more color on that? Thank you.
Wai Ming will talk to you about that.
Yeah, I think the MIDH profitability actually changed very, very small. I think if you compare with Q3 and Q2, really. I think that we obviously look at the MIDH business. We will continue to be investing at the area where we actually can see significant growth. In particular, I think we actually are very positive about the China smartphone business going forward, because as we recently announced, the LTE and the 4G, and we definitely will increase our spending, I think in really coming out with the product that captures that opportunity. Generally, I think that we are making good progress. I think what Yuanqing mentioned about, I think the small decline is really a very fraction. I think if you look at the scale of the business that we are now in.
Okay. Thank you.
We are planning the transition from 3G to 4G. We definitely needed to clear the current 3G inventory and to prepare the new product of the 4G. It could have a short period of negative impact, but we are definitely confident with our long-term growth of the profitability.
Okay. Thank you very much.
Great. Thank you. Our next question comes from the line of Arthur Hsieh of UBS. Please go ahead. Please try to maximize your volume so that we can hear your question clearly. Thank you.
Sure. Hi, management. This is Arthur from UBS. Can you hear me all right?
Yes.
Great. Just a follow-up. In terms of the overall sales, I think in the material you've disclosed, PC is about 82% of the total sales, and MIDH is about 16%. Could you share the profit breakdown, coming from the PC and MIDH, just to be clear?
For profit breakdown. To be fair, today, PC is still our key profit contributor. Mobile contributes little to our profit. It is still in the development stage or period. The mobile business still has not contributed to our entire company's profitability.
I just want to make sure that you understand. I think when we call PC Plus, when we say PC Plus, we actually have the tablet and smartphone. We obviously cannot break down the tablet and the PC. The tablet overall is obviously profitable. I think what Yuanqing just said is the smartphone, and we can actually look at our breakdown. We do have a breakdown, I think in China. Again, the lion's share of our smartphone business currently is China. I can sort of give you the high levels of tablet is obviously profitable as well.
Right. But, would you say MIDH is less than 10% of the--
[inaudible]
Sorry, a lot of music. I do not know why. It is the music before the call started. Can you hear me?
Arthur, can you hear me?
Yes.
I think everybody is on the call at the same time at the moment. Arthur, maybe you should sing. Did you hear that?
Arthur, can you hear us?
Hello. Yeah. Are you with me?
Yes . We are.
Okay. Now it's okay.
Arthur, are you there?
All right. One moment. We will open the line again.
Okay. Yep.
Sorry for the technical fault. For everyone, if you'd like to ask a question, please press star one on your telephone keypad and wait for your name to be announced. Thank you. We will now reopen the line for Arthur Hsieh of UBS. Please go ahead. Thank you.
Yeah. Thank you for the music.
Arthur, are you there with us still?
Yes.
Yeah, I'm back. Can you hear me?
Sure.
Thank you. The reason why I asked the MIDH profit contribution is because I think the management emphasized it is still in the investment stage as you try to build out the overall business in this tablet and the smartphone. I am just wondering, how do you expect this Motorola business to help? Because yourself, before the acquisition, was in the investment stage, and Motorola itself is running at really high operating expense ratio. What are the areas that you have assumed previously before you do the deal? You must have very good confidence after you have done a lot of simulations. What could be the assumptions that you think there is a lot of room that you can remove the cost? Or it is mainly coming from the increase in sales? Thank you.
I would say probably today, China is the most competitive market for the smartphone. You can see among the top 10 players, so many come from China. Even from the Lenovo smartphone business. I think, although we already developed a couple of emerging markets, our margin, our profitability in those markets feel better than in China. That can help to explain. While we have not made good money in China. Also, in the past, we mainly sell to the carrier. We cannot address the high-end or premier price band in China. Now we have the plan to address the open market as well as the premier price band. I believe with the launch of our new smartphone brand, the Vibe X and the Vibe Z, we can gradually improve our profitability in China. That is our current plan.
With the Motorola deal, that definitely gave us the entrance to U.S., Latin America, and the other mature markets. Not only it gave us the brand we need, it gave us the much better IP position, which we need. It gave us very strong carrier relationship, which we need. It gave us a very good talent pool, which we need. That's what Motorola deal can bring us. Meanwhile, Lenovo, we have a much more efficient operation platform, much more efficient manufacturing facility. We combine the two advantages together. We are definitely confident we can improve the profitability with the Motorola business. We actually have identified many synergies under cost savings. In the material cost, in the manufacturing cost, supply chain cost, in the service area, many areas.
I believe we have opportunity to reduce the current cost of Motorola.
Yeah, I think maybe I'll give you some financial perspective. I think Motorola currently is about over $4 billion. I think combined with our smartphone business literally is at least double up. Then you can actually see the cost synergy coming out from, I think combining the two operations. I think the scale is at least reach 100%. The second piece of information that you should bear in mind when you look at the Motorola numbers is, Motorola, after the ownership of [inaudible], I think they obviously restructured the company, in terms of launching new product, which is the Moto X, which is the high-end, as well as Moto G, which is the entry. They only have, I think the Moto X probably about six months, and Moto G for about three months.
I think we really should take that in mind when, I think you understand what Yuanqing said is, I think profitability primarily comes out of improvement of margin, which obviously cost plays a very important. And improving efficiency, I think is also directly related to an increase in doing business. And what Yuanqing also said is, I think we obviously can leverage the competitive advantage of a bigger portfolio, which obviously will help for them to have more product in more countries. And bear in mind that I think last year or, I think they only have two brands, or two products, Moto X and Moto G. I think combined with that, we are confident that I think within a period of time that we definitely will be able to see the financial performance.
Okay. Thank you.
Okay. Is that okay?
Yeah.
Okay. Next question, please.
Great. Thank you. Our next question comes from the line of Kirk Yang of Barclays. Please go ahead.
Barclays. Thank you for taking my questions. My question is also on the upcoming IBM and Motorola acquisition. I think on the previous conference call, you mentioned that it might take about two quarters to close the deal. Can I double-check if that is still true? If so, do you expect to report any type of one-time charges like restructuring, amortization, write-off, in the quarter after?
Kirk, we obviously work with the regulators, and we obviously, I think we will try to close the deal after getting all the regulatory approval. I think the timeframe is really based on, I think the laid-out timetable, and we obviously cooperate intimately with the operators and that is making decision. Now, in terms of accounting write-offs, there obviously will be some, I think, one-time charges, I think in the beginning, when we have this over, but at this point in time, I do not necessarily see that there is any write-off. I think you probably have in mind is about whether there is any write-off of goodwill or someone that there is I think based on the financials that you look at, I think there is not any.
Sure. If there is no write-off, do you expect to take any type of restructuring charges, for example, to manage the excess people?
We do not have the restructuring left. As you know, Motorola has already cut their headcount from [inaudible] to today's 3,500. All those people are actually treasure to Lenovo. Most are R&D and engineering talent. Not only we have no plan to have the further restructure, but also, we will consider how to leverage this talent to grow our business in the mature market. You know, currently, Motorola only does business in U.S. and Latin America. We have very limited business in other geographies or regions. We plan to expand to more regions in the country, including China, including other emerging markets. In China, Motorola is still a well-respected brand. We have received many positive feedback on that. They want to see Motorola brand and products to be reintroduced or relaunched in those markets.
That's the Motorola side. The IBM side is very similar. With those 7,500 people,
Sure
I think it will help us significantly improve our R&D capability. We have the opportunity to provide the full range of the server products to the market.
Sure.
We have high expectations, particularly in the China market and other emerging markets. Definitely in mature markets,
Sure
with the more efficient operation platform of Lenovo, we have confidence to improve the profitability.
Okay. Yeah, thank you, Mr. Yang. That's very helpful. Thank you.
Thank you.
Next question, please.
Great. Thank you. Our next question comes from the line of Jenny Lai of HSBC. Please go ahead.
Thanks. Hi, Yuanqing and Wai Ming. Thanks for taking my questions. I have two questions. The first one is on your smartphone business in China. When I look at your reported numbers, it seems like the average selling price is trending down further in the quarter. This is probably one of your lowest ASP being reported ever. Could you give us more highlights? Is this a factor that you were clearing your inventory, and how should we expect the future ASP trend?
Yes. Thank you, Jenny. I talked about the China smartphone before. One aspect is we need to clear the inventory on the 3G product to prepare the 4G, the booming part. That is one reason. Another reason is, today, we sell most smartphones through the carrier. That definitely drives the ASP down. Now we have the plan to sell more through the open market. With the launch of the new product of Vibe X and Vibe Z , we try to sell more premier products to the market. If we can sell more premier products, if we can sell more to the open market, that will help us to improve the ASP as well as the profitability. That is how I believe.
All right. Understood. Thanks a lot. My second question is regarding to your Motorola acquisition, just a follow-up to the previous questions that other guys asked. Basically, on your page eight of presentation, you highlighted four potential improvement you will be seeing, including cost savings, reducing E/R ratio, innovative product, and emerging markets. Now, you are also saying that immediately after you closing the deal, you should be able to realize a lot of synergy. Could you tell us, in terms of the four factors you are looking at on your page eight, which one will be contributing the most in terms of your synergy saving immediately after you closing the deal?
Definitely the material purchase will be the first area. We can save money. We are seeing a lot of synergies there. I believe with a global scale and a larger scale with the Lenovo procurement capability, we can help Motorola to save money in material. The probably next step is how we can save money in the supply chain. Today, actually, the Motorola GP margin is still very good. More than [inaudible] . Each one is to expense-to- revenue is way behind. That is why they will lose $1 billion. With the combined scale, with the more efficient operation platform of Lenovo, definitely, we are very confident that we can significantly reduce the expense to them. That will help us to improve the profitability quickly. That is what I can share with you.
Mm-hmm. Do you mind if I clarify one thing in terms of your response? For the material purchase and the supply chain saving, does that involve changing your suppliers? For example, we noticed that your smartphone design under Lenovo and Moto, they are actually using pretty different solutions. Is that a future trend to integrate the solutions as well?
Yeah, I think, Jenny, I think the product obviously have a different design, but there are, I think, some underlying components which are obviously common. As I mentioned earlier, I think one of the questions raised in the earlier question is, if you really look at the Motorola business, look at our business, I think each of us is really about $4 billion-$5 billion. We basically increase the scale by 100%. That obviously can come much quicker and easier with these low hanging fruit. The other effects come along, I think slowly. I think it would actually give us a lower equality primarily, we will increase, help to, I think bring the Motorola brand, I think to countries that Motorola today does not have business.
Again, we see the same point as when we look at the Motorola financing today, I think Motorola will change the ownership. I think, meaning after Google exactly restructured the company, and they only introduced the Moto X and Moto G, I think for six months to three months. That revenue obviously does not necessarily, in our opinion, I think the true value of the brand in doing the business in different parts of the world. Okay, thanks, Jenny.
Okay, understand. Thanks a lot.
All right. So in terms of time, we will probably take the last question.
Great, thank you. Our last question comes from the line of Grace Chen of Morgan Stanley. Please go ahead.
Thank you. Thank you for taking my call. I remember the management gave a PTI margin target before, which is to grow the PTI margin by 1 percentage point in three years. Obviously, with the Motorola Mobility deal, this target will become quite challenged. This is, I can imagine, is quite a big change to your financial planning. Can you walk us through your strategic thinking behind these decisions, and how would you adjust your PTI margin target after these transactions?
Yes. First, with our current existing business, we are very confident to deliver our commitment. I think we are still on track to improve by at least 1 point of PTI over three years. This should be fifth or sixth quarter. Fifth or sixth quarter. We are still on track. We are still confident to improve the profitability in the PC, in the PTI. Definitely, the Motorola deal and the IBM server deal will have negative impacts in short term after we close the deal. A couple of quarters. But from long-term point of view, definitely, we are confident. Those two businesses will not just help us to grow fast, to grow another two pillars. But also with the largest player, with the more efficient operation platform, we believe we can make very decent money.
The server business is definitely choosing must be the better of profit contributor than PC to our company. Even for the mobile business, we are very confident that when we become the real global player, with the global scale that is product, we have the good opportunity to make money from that side of the world.
Okay. Thank you. My follow-up question is, can you give us more details about how you are going to operate the two smartphone brands, Motorola and Lenovo brand? For example, are you going to market the Motorola brand as its own product line?
We are still working on that. We have not made the final decision, but most likely, we will keep the Motorola brand in the U.S. and other North America and the Latin American countries. Most likely, we can use Motorola by Lenovo, this kind of brand. But in China and the other emerging markets, we probably will launch the Motorola brand. That means we will have the dual brand approach. Just like today, in the PC area, things under Lenovo, the dual brand approach, you can see in the market.
Okay. Just one last question. Can you give us a target for your shipments and margins, if possible, for your Motorola Mobility business in your planning? That will be great. Thank you.
Grace, could you repeat once again the question?
Yes. I'm wondering whether you have set a shipment and margin target, like how many years are you going to plan to turn around the Motorola Mobility business?
We cannot give you the exact timetable. We are very confident we can finally turn around the business in a couple of quarters after we close the deal. Even starting from day one, we can improve the profitability. We can improve it for our current Motorola business that we are developing. We've identified the synergy and the cost-saving. That's our belief. Definitely, in short, in a couple of quarters, it probably will have a negative impact on our top line profitability.
Got it. Thank you very much.
Thank you, Grace. Thank you, everybody, for your participation in the call today. If you have any further questions please feel free to contact the IR team. The transcript today and [inaudible] share price 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