Hello, everyone. I am Yang Yuanqing, CEO of Lenovo. Thank you for joining us. I will start with an update on our key business and strategic items. Next, our CFO, Wong Wai Ming, will share the financial highlights. Then our Chairman, Liu, will finish with some remarks. Later, our COO, Rory Read, will join us to take your questions. Next slide. Last quarter, we continued to achieve great results across the world, with all of our geos outgrowing the market. For the fourth straight quarter, Lenovo is the fastest-growing major PC company. We grew at 33% year-to-year, more than three times the market rate. This strong growth led to another historic high in Lenovo's worldwide market share of 10.4%, up 1.8 points year-to-year. Our profitability also improved significantly with a PTI of $102 million, an improvement of $37 million year-to-year.
This is the first time we exceeded $100 million since the economic downturn. Improvements come in all geos, and particularly, I want to highlight our mature markets started contributing to our profitability. While strong growth in all geos was a primary factor in improving our profitability, the refinement of our lean cost structure also made key contributions. Our E2R ratio reached yet another record level since the acquisition, at 8.4%, a drop of 1.1 points year-to-year. In terms of volume, revenue, profitability, and E2R, we have achieved outstanding performance last quarter. Next slide. These results demonstrate that we have the right strategy and strong execution. Our strategy provides focus, protects our leadership in China, and a mature relationship to drive profitability. We attack the emerging markets and global transactional sales to speed up growth. Last quarter, all of our geos' performance showed the effectiveness of our dual engines.
Our China business is our profit engine, as is our Think and Relationship business. Meanwhile, our Idea and Transactional business, our emerging market, are our growth engine. Depending on the focus of the particular market, we use these two engines to complement each other and drive balanced growth. Our results last quarter show that our execution is effective. What makes these results different from the past is that all of our geos, not just China, gained share and improved profitability. Just as importantly, we outgrew the market in all product types and customer segments.
This is why although China's growth in Q2 was moderate compared to the first half of the year, overall, we still significantly outgrew the market. Next slide. Let us discuss our China business, which remains very strong. By segmenting China into mature and emerging areas and applying customized tactics, we continued to expand our business in China.
We grew volume by 21%, greatly outpacing the market rate of 12%. This led us to grow our market-leading share to almost 29%, a gain of 2.3 points year-to-year. Lenovo continued to sustain our wide gap with the competition. At the same time, our segment operating profit grew by $56 million year-to-year. Next slide. In rest of emerging markets, growth is our focus. Our attack strategy continues to deliver rapid growth in these regions. By fully leveraging our Idea products and transactional model, we grew shipments by 65% year-to-year, more than three times the market rate of 18%. We gained 1.8 points of market share year-to-year to 6.4%. Particularly, we achieved a year-to-year growth in key emerging markets around the world. Russia reached a historic high of 8.3%, up 3.6 points. India also achieved a new record of 9.2%, up 1.9 points.
Brazil and other Latin American countries gained 1.6 points. While maintaining such a strong growth, we also improved the segment operating profit by $3 million year-to-year. For mature markets, the priority is returning to profitability and becoming a profit generator. In the last quarter, we are pleased to see that profitability improved in mature markets significantly, with our segment operating profit of $20 million, an improvement of $35 million year-to-year. In particular, North America's strong improvement in profitability was a key contributor to mature markets' return to profitability. Even more exciting was mature markets' fast growth. Strong performance in both relationship and transactional business lifted shipments by almost 40% year-to-year, 10 times faster than the market rate. This led to our highest-ever market share in mature markets since the acquisition.
This is a solid momentum that we have not seen in the past five years since the acquisition. We gained substantial share in several key mature markets. Germany became the first major mature market country to achieve double-digit market share. We built the foundation for transactional sales there a few years ago, and it is now paying off with strong growth. In Japan, Lenovo was the fastest-growing PC company for the fifth straight quarter. Our market share reached 7%, a gain of two points year-to-year. North America's performance also was outstanding, with volume increasing by 41%. Beyond our core PC business, our new mobile internet business continues to grow. Since its May launch, LePhone has established a strong position in China's high-end internet phone market. The earliest screen supply problem impacted sales, but this issue was relieved in late September after we introduced our replacement model.
LePhone is on track to grow according to plan. We are now increasing our efforts to grow even faster. We will invest more in marketing to drive higher volume in the next few quarters. In addition, we will increase our efforts to drive more applications and content. As an example, two days from now, we will hold our application developer conference in Beijing. We are committed to the mobile internet, and expect continued growth in this space. The balanced growth we are having comes from strong execution of our strategy and our continuous investment in our competitiveness. That's why we will continue to invest to improve our innovation capability. We also will continue to optimize our business model and invest to further improve efficiency. One example is our recent investment in Chengdu.
This site will house manufacturing, research and development, and sales operations, thereby expanding our innovation and improving our efficiency. In addition, we will invest in branding to increase our brand recognition around the world. We believe this investment will improve our long-term competitiveness and build a stronger foundation for future growth. Next slide, Looking forward, we see both challenges and opportunities in the global economy and the industry. In terms of challenges, the global economy is still recovering, and compared to the rapid gains of the first half, the worldwide PC market is growing slower. Even the China market growth has moderated. However, there are also many opportunities. Commercial replacement demand is growing strong in mature markets. Emerging markets continue their rapid growth. Furthermore, we believe the mobile internet space will fuel strong growth for years to come. Our balanced growth means we are well-positioned to capitalize on these opportunities.
We will invest in key priorities to drive future growth. We are confident that we will maintain our strong momentum and deliver long-lasting returns to our shareholders. Thank you. I will turn the meeting over to Wai Ming. Wai Ming, please.
Thank you, Yuanqing. I will take you through Lenovo financial and operational performance for the fiscal second quarter. Next chart, please. Yuanqing just shared with you that we have another strong quarter with balanced growth across geographies, customer, and product segments brought by the solid execution of our strategy. Group sales in quarter two were at $5.76 billion, up about 41% year-to-year. PC sales were up 36% year-to-year to $5.54 billion. Sales from the mobile business in quarter two were at $217 million, up 58% year-to-year, if we compare this to its own performance last year prior to acquisition. This is also the second quarter we recorded a full quarter contribution for our mobile business. Gross profit was at $593 million, up 37% year-to-year.
Gross margin was 10.3% in quarter two, compared to 10.6% in quarter two last fiscal year, but slightly up from 10.2% last quarter. The drop in gross margin year-to-year was primarily due to change in our business mix. The quarter-to-quarter improvement is a result of falling key component prices, as well as our strategy in growing ahead of the market to gain share. Operating expenses increased 24% year-to-year to $485 million. This figure has included our mobile operation expense that we did not have in the last year results. Apart from this, increase in expense was largely from increased promotional and advertising activities and employee benefit cost. As increase in expenses was smaller than our sales growth, the operating expense to revenue ratio continued to trend down to 8.4% in quarter two, which is another historic low level for us.
The scaling effect helped mitigate decline in the gross margin year-to-year. Operating profit was up more than 1.5 times year-to-year, with the operating margin improved to 1.9%. We have a net financial cost of $5 million, comprising the interest rate differential between deposit and interest rate and factoring cost. Pre-tax income was $103 million, up roughly 2.4 times year-to-year if excluding restructuring cost. Pre-tax income margin improved to 1.8%. Please note that we had in last year a one-off share disposal gain of $38 million recorded under other income category. The group taxation was $25 million, and the effective tax rate was around 25%. We expect the effective rate to stay within 25%-30% in the short term before our operating margins show a significant improvement. Accordingly, we reported a net profit of $77 million for the quarter, up 45% year-to-year.
Basic EPS improved to $ 0.81 cents from $ 0.59 cents last year. The board of directors in today's meeting declared an interim dividend of 2.6 Hong Kong cents per share. Now, let's take a look at the balance sheet in the next chart. Our balance sheet in quarter two remains strong. The non-current assets were around $2.7 billion as at the end of September 2010, which was similar to our last fiscal year-end at March 31st, 2010. Current assets were around $8.3 billion, against $6.2 billion at last year-end, due to an increase in receivable which was in line with the increase in our sales. Current liabilities were at $8.4 billion, against $6.4 billion at the last year-end. The increase was largely due to the increase of our payables, resulting from an increase in sales and our outsourcing to ODMs.
As a result, our net current liability was at $82 million in quarter two, compared to $183 million at the end of March. Let's go through the cash and working capital in the next chart. Net cash reserves continued to improve to $2.3 billion against $1.8 billion last year, largely due to increase in sales revenue and good cash conversion cycle performance. Our working capital management performance remains strong. Days of inventory increased five days year-to-year to 19 days. Days of receivable increased 7 days to 28 days year-to-year. The increase is largely due to our continued expansion into the emerging market, particularly consumer products, through our transaction model, which tends to have longer credit periods and higher level of inventory. We have also increased ocean shipment to reduce cost, which also contributed to a higher inventory level.
Meanwhile, we have included the mobile operation, which was not in last year's results. Typically, it has a lower receivable level compared to PC. Days payable also increased 8 days to 73 days year-to-year, largely due to increase in our outsourcing to ODMs. Net, the cash conversion cycle in quarter two was negative 26 days, against a negative 30 days last year, or a negative 23 days last quarter. Next chart, please. This chart summarizes the performance by geography. We have excluded restructuring charges and one-off items from the operating profits and margin so that you can better assess our operating results. China accounts for approximately 46% of gross sales. Sales in China were up 32% year-to-year to $2.6 billion, or 5% quarter-to-quarter. PC sales were $2.4 billion, up 21% year-to-year.
We have recorded $217 million sales from our mobile business, which was not in the last year results. Lenovo feature phone business continued to do well and has a market share of 4.7% at the end of September, being number one local brand in the China market. Operating profit was up 59% year-to-year to $151 million, and operating margin was up 5.7% from 4.8% year-to-year and up from 5.5% quarter-to-quarter. Operating margin for PC business was 6.1%, up from 4.8% last year and 5.9% last quarter. As Yang Yuanqing shared with you, our Lephone sales in quarter two was affected by the display screen shortage. With the issue now resolved, we will therefore invest to accelerate the sales growth, and our expenses in China will likely to increase in quarter three. Emerging markets, excluding China, accounted for approximately 18% of the gross sales.
Lenovo continues to show strong unit shipment growth and share gains across the board in this region. Sales were up 77% year-to-year or up 31% quarter-to-quarter. Financial performance continued to improve, and operating loss reduced by $3 million year-to-year, and $8 million quarter-to-quarter. We will continue to invest in this region to drive shipment growth and market share to close to 10% in key markets to establish optimal market position and sustainable profit in the future. Mature markets accounted for approximately 36% of gross sales. We also recorded strong growth and share gain in all major markets in the region. Sales were up 38% year-to-year or up 13% quarter-to-quarter. All markets in the region recorded operating profit except in Western Europe, but it has reduced its operating loss quarter-to-quarter.
With the continuing improvement of our business in the mature market, we are pleased to report that the mature market returned to profit in quarter two, the first time after the financial crisis at the end of 2008. The region recorded $20 million operating profit for the quarter with an operating margin of 1%. Next chart, please. This chart summarizes the performance by product segments. Lenovo continued to demonstrate strong growth momentum through our winning product portfolio. Unit shipments grew 38% and sales were up 40% year-to-year. It accounted for around 60% of our sales. Our worldwide market share increased 1.9 points year-to-year to 10.5%, remain the fourth largest notebook player in the world. At the quarter close, Lenovo announced it has sold its 60 million ThinkPad, a milestone achievement for an iconic product. Desktop also performed well in quarter two.
Unit shipments and sale in our desktop were up 26% and 27% year-to-year respectively, and is accounted for approximately 33% of our sales. Our market share in worldwide desktop market increased by 1.8 points to 10.2% and remained third largest desktop player in the world. Our all-in-one products and our SMB-targeted desktop continue to see good growth momentum. Finally, mobile products also show strong growth during the quarter. If compared to its performance last year, unit shipments were up 41% and sales up 38% year-to-year. Lenovo mobile feature phone business continued to show strong shipment growth at 36% year-to-year and remained the third largest mobile player in China. Further to our cooperation with China Unicom in May this year, we have teamed up recently with China Telecom to further broaden our distribution cooperation in China.
This will help speed up our platform sales in the next few quarters. Next chart, please. I want to give you an update of our share repurchase, which began in June this year. Lenovo repurchased 55 million shares in quarter two for a consideration of approximately $31 million. We have repurchased a total of 89 million in the past two quarters for a consideration of approximately $30 million. The average price paid for share is around 4.35 Hong Kong dollar. Review share repurchase as one way to enhance shareholders' return. This also demonstrate management confidence in the company's prospects. Before I end my presentation, I want to give you more color on the market outlook. We remain optimistic with the worldwide PC market outlook in spite of macro challenges.
China market will continue to show moderate growth in Q3, and it will likely continue to grow faster than the worldwide PC market. The corporate replacement demand, which has already shown strong growth momentum in the past quarter, will continue to pick up, especially in mature markets and in particular, global accounts. Growth momentum in the emerging markets will likely continue as we execute our share growth strategy. As the pricing of key components such as memory chips has come down from recent peak levels, we expect the gross margin to show gradual improvement. As we will continue to execute our attack strategy to drive growth in consumer and in emerging markets, we believe the scaling impact from the high volume growth will help improve our operating margin.
In addition, we will continue to invest in R&D, branding, and global supply chain, such as our new operation center in Chengdu. This will bring a sustainable future growth, although our total expense will increase in the short term. However, we will continue to manage our expense-to-revenue ratio well and enjoy the scaling benefits. With a healthy balance sheet, we will continue to be prudent in our cash management to create shareholders value and look for M&A opportunities within the PC industry to accelerate our growth. We are confident that with our well-defined strategy and action plan in place, Lenovo will continue to improve its performance and profitability this year. Now, let me turn to Chairman Liu.
Next is the translation of Chairman Liu's remark. For this quarter, the management again delivered an excellent quarterly report card to the board. No matter if it is the growth of shipment volume, new market share earned, control on cost, or stabilization of average unit price, the substantial increase of pre-tax income, the report card is encouraging and satisfying in every way. The highlight is the balanced development of our business. In line with the attack strategy developed by the management, our China mature markets and emerging markets have been growing fast equally. I remember that during the worldwide financial crisis, Lenovo had big financial losses. One explanation provided to the board was that at that point, markets outside of China outgrew China market by one percentage point, and a high proportion of our business was in China. Therefore, we had big losses.
For this quarter, China saw more moderate growth, only outgrowing markets outside of it by two percentage points. But this time, the result for Lenovo was totally different. The reason is simple. The management got an accurate understanding of external environments, developed the protect and attack strategy with the right approach, balancing different geos and business lines, and finally executed the strategy with determination, which led to satisfying outcome. There are three facts which the board feels very satisfied with but are invisible in this report card. First, the management has decided to increase investment in R&D and brand building to get prepared for future transformations in the industry. The board thought this decision was right and visionary and has offered full support for the budget. I believe the right decision by the board will bear fruit in the future.
This year, when I gave a presentation to some investors about Lenovo's history, I made it clear on behalf of the board that we would not pursue hyper-growth of profits and sharp rise of stock prices in the short term. Instead, we would move forward with firm and steady steps. We have to take a long-term view and understand that this is a marathon, not a sprint. The management is implementing the board's decision in a decisive and innovative way with concrete actions. We are satisfied about this. Secondly, we are satisfied with the way the top leadership team, LEC, led by CEO Yang Yuanqing, has been working and operating. They are working in the correct and efficient way with good rapport. This leadership body has been in existence for one year and nine months, operating and functioning very successfully.
The work mode of the leadership team is a key for Lenovo's success. Thirdly, Lenovo's culture of meeting commitments, taking ownership, and putting people first is being embraced and fully adopted by the whole staff. In the beginning of this year, I attended the kickoffs of our major geographies. My feeling was that our employees started to have confidence in this company. Recently, I visited Europe again and attended four roundtable sessions with the employees there. I think we can say our employees all around the world have started to love this company. Some Chinese journalists who traveled together with me were surprised by one observation. There was no Chinese on our West Europe leadership team, but employees there were talking about the same things, such as the company's strategy and culture, in the same way as their counterparts in China.
It shows that Lenovo, as a global company, has embarked on the right track. Finally, I want to say, a company's performance sometimes could fluctuate due to impacts from external environments. Despite that, this company has a solid leadership team who treat themselves as owners of the company. If they have the right approach of developing strategies complemented by the staff who love the company, plus strong corporate culture, this company will be sustainable and enduring. Lenovo is marching towards that direction. Thank you.
Thank you. This is Gary, VP in the investor relations at Lenovo. Let's now proceed to questions. In this Q&A session, we have, again, our CEO, Yuanqing, CFO, Wai Ming, as well as the COO, Rory Read with us. 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 say your name and the name of your company before your questions. All the Q&As will be in English only. Operator, would you please give us your instruction?
Thank you. Ladies and gentlemen, if you wish to ask a question, please press star followed by 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. Your first question comes from Pranav Sharma of Daiwa Capital. Please ask your question.
Hi. Good afternoon, gentlemen. A very good quarter. I would like to know a little bit about your tablet PC strategy and what is going on there, and when you are likely to launch this product, and what type of expectation you have for next couple of quarters from or next year for this product.
I think what we are seeing in this space is an introduction of some really exciting innovation. What we are seeing with LePhone and the whole mobile internet space is really an entry into what is going to be an important segment. Where we saw the netbook phenomena a couple of years ago, that has already begun to fade. This mobile internet space is going to expand. Our netbook, no, I mean, our pad solution around LePad will be introduced first here in China early in the next quarter.
What is exciting about that, I think, is that we are building off of our number one share position in China, where we have a power brand. This allows us to enter into the market with the support and strength of our channel and around our business partners who are tailoring specific solutions around the mobile internet for both LePhone and for LePad.
I think the pad technology that we will see introduced will first come in China at the beginning of next year, and then shortly after into the second quarter around the rest of the world. Our focus here is really to take advantage of the Android mobile operating system and leverage what we believe is crucial an excellent customer experence.
If we introduced LePad or LePhone earlier, we believe that we have an experience that was not robust enough for our customers' expectation. We think in the timing that we put in place, we can deliver an excellent customer experience, combined with our channel reach and our brand positioning here in China that will leverage the base that we have created around LePhone to give that customer experience that we know that will match the expectation of those customers. That is around the timeframe that we will introduce it.
Any expectation of the number of shipment on the first one year of the launch on this product?
No. What we are trying to do here in this space, just like LePhone, is to build a strong base in China, drive for double-digit share here, get scale, and then begin to bring it across the planet. By leveraging our significant brand position here in China and the ecosystem that we have tailored specifically to the mobile internet, that will give us the basis in which to build that foundation and then expand across the planet. It is again, build that scale and then expand across there. We think we are just at the beginning of this technology, and over the next two or three years, this space will continue to grow.
But here in the initial phases, it is most important that we match the customer experience with a tailored solution that delivers to their expectation. That is what we are doing by matching up to the Android operating system deliveries in this timeframe.
Okay. Thank you.
Thank you. Your next questions come from Arthur Xu of UBS. Please ask your question.
Hi. Thank you. Congratulations to the excellent results. This is Arthur from UBS. I got two questions for you. The first question is about your China strategy. It seems to me, even though you said it is protect, but it seems to me it is more like an attack because China is even bigger than the emerging market. You just mentioned you are going to invest in Chengdu, in Sichuan, but I believe Lenovo already has a leading edge in the tier 4 to tier 6 cities. Could you elaborate more in terms of the need to invest more in the inland region? What do you mean that you wanted to do more there, especially given that you are already leading among the competitors? That is the first question.
Yes. I very like your saying. Actually, we think the best defense is attack. Absolutely. When we define protect, we mean we want to protect the leadership position and our profit pool. I think we executed this strategy very well. Actually, we split our China cities by mature cities and emerging cities. For those mature cities, we want to protect our market share. Actually, for those emerging cities, like tier 4 to tier 6 cities. Actually, we are developing the market. We are nurturing the market so that we could become the pioneer to develop the market, so to have the high market share than our competition. This is exactly our strategy in China. That is why we not only can protect our leadership position, protect our profitability, but also we can further improve, further gain market share and improve the profitability.
In terms of the western regions strategy, certainly. One aspect is we need to develop the market. But on the other side, we should fully leverage the low labor cost to give us a more competitive position. That is why we announced that we will build a new factory in Chengdu. That would not just be a manufacturing facility. We also want to build our R&D center there, to fully leverage the talents in that area, so to build a stronger competitive position.
Arthur, I would like to add to that. These results are really all about balance, and the name of the game here is growth. By adding 2.3 points of market share in China, building on our number one position, you can see we are rapidly expanding in all segments and all regions across the planet.
By introducing the new plant capability in Chengdu, it gives us a competitive advantage. It opens up the west region with more effective and better.
We need to add capacity because it is our plan to continue and our objective to continue to grow faster than the market. This quarter, we delivered three times the market rate growth at over 30% on a market of 10. It clearly shows protect and attack strategy is working. By adding that capacity in Chengdu, we can reach better supply chain solutions that allows us to react to customer needs more effectively and giving us better cost position and giving us an enduring competitive advantage. That is what we are after there, and that is what we are delivering.
Thank you. The next question is about the mature market. Actually, in this quarter, in terms of profit improvement, mature market has the biggest absolute dollar amount of profit improvement. Just wanted to check, among the different countries in the mature markets, what could be the biggest potential upside in the coming quarters? Because apparently, the potential there is quite significant. Thank you.
Well, when we look at the mature market, what is exciting about the mature market results is for sure around the turnaround in profitability and the increased profitability. Look at the growth rate. We are seeing almost 40% growth rate across the mature market, almost 10 times faster than the marketplace. What is great about those results is we see it consistently across the consumer, the SMB, as well as the commercial segments. This has given us a foundation in order to expand. We have set a new level of market share in the mature market. We have seen market share gains in virtually all our regions across mature, and the profit is driven by our focus to gradually improve our profit quarter on quarter on quarter. How are we driving that? We have been focused on our mix management. We have seen strong performance out of our Think Group.
Our Think products are being leveraged in the corporate refresh that we continue to see move forward and actually accelerate. Our acceptance and our commercial notebook share has continued to gain and acquire new customers. We also see a favorable component environment that allows us to deliver very good value on our highly innovative, high-quality product that the mature market craves. I think our focus is to continue to grow significantly faster in this marketplace across all regions, and to leverage this corporate refresh to allow us to use that momentum there to make inroads in the consumer and the SMB segments as well. Our results are focused on balance, and these results today are balanced, demonstrating that protect and attack truly working.
Thanks, Rory. Just one follow-up, if I may. What we have heard so far from the different industry players is that in U.S., it's a market that seems to be relatively weaker, Western Europe seems to be doing okay. But for Lenovo, we have seen a different kind of result. It seems that Western Europe remain in the loss, but North America is the biggest contributor to the overall earnings improvement. So why would you say why is the result so different in terms of the different geography within the mature markets?
I don't think the results are significantly different. What I think they are is very balanced. Every one of those regions saw a quarter-to-quarter improvement in their profitability. What we saw is very strong growth rates. That growth rate across each segment has given us the base to move forward and build on it. The fact that we're seeing almost 40% growth rate on a market of 4% says, I think we're meeting the customer needs in an effective way by delivering that high-quality, innovative product at a great value. I think when the customer speaks, you need to listen to them, and that's what we're trying to do. Also, I'd highlight, we focused very significantly on building a deep relationship with our channel partners across mature. It's really an important factor in these results. Our partners, in fact, want us to win.
They're seeing a different and exciting Lenovo that's significantly gaining share, and that's the basis for that partnership to expand.
So actually, it is obvious. So in mature market, commercial segment is stronger than consumer segment. So we benefited from that. We benefited from the commercial customers replacement cycle. So from a consumer segment point of view, actually, we had nothing before. Now, actually, we are growing faster than our competition. So that is why from both sides, we can get the benefit. We are stronger than our competition.
Thank you very much.
Okay, next question, please.
Thank you. Your next question comes from Joseph Ho of Daiwa Capital. Please ask your question.
Hey. Hi. Congratulations to the results. A question on the mobile business. Can you give some colors on the profitability or maybe the losses of the mobile business, feature phones and LePhones on a combined basis. I just wonder, are we going to see a business unit that will come from losses and gradually into profitability in the next three quarters?
Joseph, this is Wai Ming. I think the Lenovo mobile business comprises of two parts. One on the mobile internet. This is in the early stage, and you obviously would not expect a sort of profitable. I think in the early stage, we will continue to invest, build up the momentum due to the target market share. But on the conventional feature phone business, I think we are doing very well. I think we have been growing very fast. And profitability actually increased year-to-year.
On a combined basis-
I think we can give you. The last quarter, we almost sold 3 million feature phone plus internet phone. It is the highest number in Lenovo mobile phone history.
Features.
In Lenovo mobile history, around $200 million revenue.
Over $200 million, yeah.
They contributed a couple of million.
Yeah. Positive.
Positive PTI to company. In terms of internet phone, we sold around 120 units. Increased a little bit than the last quarter because we were still in the shortage of the screen. We developed a replacement model. We launched the model in the end of September. Since October, I think, we have no supply shortage issues. Now we are trying our best to increase the sales in terms of the internet phone. We still think we have a certain advantage in this area in China. We are confident that we can keep growing the shares in the market.
Joseph, we saw a record quarter in terms of our growth rates on shipments at 41%, and we're approaching 5% market share. These are obviously, at 41%, a record quarter.
Yeah. Sorry, just to make sure I get it correctly. For the new phone, it's 120,000 units for the September quarter. Am I correct?
Yeah. Correct.
Okay. Just a final question. With your Chengdu new operation, can you give us some update on your latest CapEx for the current fiscal year?
Well, the total project will be about $100 million in total. That includes, I think, the entire project, but that probably will be among ourself together with partners, I think over a period of one or two years.
Okay. For the current fiscal year, the CapEx, will there be any upward revision?
Well, there will not be any significant change in the current fiscal year. Well, because we only are another three months or four months away before we close the current fiscal year.
Okay. Thank you.
Thank you. Your next questions come from Don Singh of Standard Chartered. Please ask your question.
Hi, gentlemen. Congratulations on very good set of results. I have two questions. First question, if I look at your Q1 presentation versus the current one, where you flagged out your China market share. We have seen Dell actually gaining market share quite aggressively. In fact, a lot more than you or HP has lost, whereas you have only gained 10 basis points. Would you be able to comment on that competition and on the competitor? Are you sensing further threat since it seems like their momentum seems to be quite strong? That's my first question. Second question is on the operating margin. Just want to sort of get a benefit from you and how much lower can you go in terms of your E/R ratio? Perhaps if you can guide by line. Thank you.
Actually, we gained 2.3 points of market share in China. I think compared to any of our competitors, this is the highest gain. This is the highest gain in China market. The second place.
Sorry, Yuanqing. Actually, I should clarify because in your quarter one numbers, I mean, the chart came from IDC. It flags out that you had 28.7% as of quarter one, and you have now 28.8%, whereas Dell had 8.2% then and is now 9.1%. It seems like Dell's momentum is gaining. They have the momentum there it seems to me.
What you are looking at is quarter-to-quarter, and we are looking at a year-to-year number.
Yeah.
We are at nearly 29 points of market share. The next competitor is under double digit and single digit levels.
What we've done is year-to-year increased our market share by 2.3 points, which is the fastest of each region. Think about it, the key though, in terms of that focus, is around breaking up the China geography into a mature section and an emerging section. In the larger cities, a mature strategy of protecting and growing that segment, and then across the tier 3, 4, 5, 6 level cities, leveraging our very strong distribution and channel base to continue to attack and gain market share there. I think we're seeing good performance. What we see year- after- year or quarter- after- quarter is changes in who's number two, The number two usually bounces around from several players.
Our focus is to continue to deliver high quality, highly innovative products at a great value, and do it in a distribution model with deep partner channel relationships that allows us to react and deliver more effectively, faster time to market than our competition. If I add in 2.3 points year-over-year, I think that says that protect and attack strategy is clearly working. Now, on your second question, you wanted to talk about E/R. Our E/R trends have been trending down significantly over the past six-plus quarters, and that reflects our very strong focus on growth and our scale that we've improved. We have a maniacal and detailed focus to manage our expense. We want to manage that expense to allow us to deliver these highly innovative quality products at a great value.
Right now, though, is the time for us to continue to manage that expense, but also look at three key areas for investment to drive future growth, and to prepare and allow our growth to be enduring. You'll see us make investments in terms of our product set, both in the traditional PC segment as well as the mobile and internet. At the same time, make additional investments in our branding efforts here across China, but in six or seven key countries across the planet. We'll also make investment into our business model to ensure that our business continues to scale with this rapid growth. Considering our volume growth rate is nearly twice that of what it was two years ago. That's our focus in E/R, to gradually improve it slowly quarter on quarter.
While we've had some very significant declines over the past six quarters, we want to manage it here and gradually improve it by enabling us to make those investments that allow us to drive growth not only in the next quarter but the next year and the year after that.
Okay. I will take it that we are still expecting improvement, but gradually, because you wanted to invest further.
Yeah.
Okay. Got you.
We still have a little room to improve the E/R ratio. But we want this company will be an innovative company, will be a well-known and well-respected company. So that we have to invest more on R&D as well as the branding. So maybe that is the answer to your question. Yeah.
Okay. I got it. Thank you very much.
Okay. Next, Don. Next question, please.
Thank you.
Thank you. Your next question comes from Jiong Shao of Macquarie. Please ask your question.
Thank you very much for taking my questions. First, congratulations on a very strong quarter. I have a quick follow-up on your mobile business first, then I have a question. The follow-up on your mobile business is that could you talk about, do you have any kind of target in terms of the percentage of revenue from your mobile business in a year or two years? Could you also talk about your gross margin for your mobile business compared to your overall corporate average? My question is on your Q4 outlook. As you look into the demand outlook in the December quarter and March quarter, and around across the world, how does that compare to typical seasonality in the past? Thank you.
Share of Lenovo. You talk about the share in Lenovo's-
No, he's talking about market growth rate going forward.
No. For the mobile is for, yes, for the mix of your mobile business in your overall revenue. I think last quarter was 3.7%. And how do you see that evolving over the next couple of years and also the margins? That's for the mobile. And then the outlook is for the overall demand. Sorry if I wasn't clear.
Mobile now accounts for Lenovo total business around 3.8%. Certainly, we believe that the growth in mobile, particularly internet phone area, will be higher than the PC growth. So that's our belief. Certainly, the mix will increase.
As it relates to the growth rates moving forward, when you look at the IDC published anticipated growth rate, they are very similar to the growth rates we have seen in the most recent quarter. The worldwide PC growth rates have been moderating from some very rapid growth rates several quarters ago, now in the low double-digit level. We would expect that to potentially continue next year based on IDC's forecast. Our focus is to drive balanced business results with share gains in all our key segments. Our objective is to continue to grow faster than the market. Whether the market grows at a high single digit or low double digit or even mid double digit, our focus is to grow faster than the marketplace.
You can look at IDC to get a sense for where that is going, but we are trying to leverage our protect and attack strategy to deliver balanced results across each segment, consumer, SMB, as well as commercial, to allow us to react more quickly to customer demand to drive faster growth in the market. You saw that this quarter where we delivered three times the market growth rate on a worldwide basis. Thanks.
Well, as to the gross margin, it is pretty much similar to our PC business. Insofar as, obviously, we will expect that gross margin will improve as and when we scale or increase our volume of the business. Operating margin will be very similar, I think, insofar as this quarter is concerned.
Thank you very much.
Okay, next question, please.
Next question comes from Henry King of Goldman Sachs. Please go ahead.
Hi, gentlemen. Congratulations on your good result. I have two questions here. The first one is regarding your China operation, especially in Chengdu, for the operation center as well as the manufacturing base. We also noticed that most of your competitors, including Dell, HP, Acer, or even Asus, they either chose Chengdu or Chongqing to follow up exactly the same thing. In other words, almost everyone duplicated a similar model. Going forward, when everyone follow the similar strategy, how Lenovo could do further in terms of differentiation? I think that will be my first question. The second question is regarding the ASP trend. I noticed that the past quarter the ASP is quite good, actually improved slightly given that the revenue growth is slightly better than the unit growth.
At the same time, we noticed that the key component price actually dropped during the same time. In other words, basically, you did not really pass some cost saving to the consumers or users. I just wondering how this ASP stabilization will be sustainable and what will be the trend for the ASP for the next one or two quarters. Thank you.
It's obvious. We have some difference. I think, Lenovo, we will build ourselves a manufacturing facility in Chengdu. Currently, we still manufacture most of our desktops by ourselves. Our competitors, most of them are using the OEMs or ODMs to manufacture. That's not themselves to build the facility in western part of China. That's the first point. The second point is we can get more benefit than any of our competitor because we have high market share in western region of China. Actually, that help us to save not just the manufacturing cost, but also the logistic cost a lot. That's the difference.
Henry, I wanted to discuss the average unit revenue or ASP. What's pleasant about our focus there is based on our protect and attack strategy, we've really focused on managing this ASP trend. If you look back over the past four or five quarters, I think we've done a very nice job of maintaining a strong ASP performance. How do we do that, and what's been our focus? Well, one, we've been seeing a strong mix up in terms of our Think portion of the business, driven by the corporate refresh cycle that we see continuing around Windows 7. You know that there's been pent-up commercial demand that was driven by the economic downturn. We see this corporate refresh now into its initial phase, but will continue for the next 24 to 30-plus months.
We're seeing a worldwide growth rate in our relationship segment of over 29% versus a market of approximately 14 points. This means we're acquiring new customers, and they're reacting to our strong product portfolio around the ThinkPad and ThinkCentre product set. At the same time, we're seeing good uptake in our options and services components. Warranty, close-to-the-box service activity, as well as key options like batteries, docking stations, et cetera. We're also doing a good job of reacting to market demand changes or market price fluctuations in the transaction space. We're balancing our portfolio across entry, mainstream, and high-end products in the commercial and SMB space. As you know, we've been on that focus to build on that transaction base for many quarters now.
As we've increased our Idea volumes now outside of China to approaching 10 million units, that allows us to have a very good mix, not only Think to Idea, but in Idea, mixing across our entry-level products in the S series and the G series, up into our mainstream and premium products, leveraging U product and Y product and the new Z product. This balanced portfolio is helping to lift our ASP. At the same time, we're seeing a lift in our corporate buying, so a balanced performance. Of course, there's always downward pressure, but our focus is to outpace and outgrow the market by balancing this protect and attack strategy. We are very focused to outperform the market on our ASP trend in the coming quarters. Thank you, Henry.
Thanks, Henry. In view of time, we will probably take the last questions now.
Thank you. The last question comes from Gokul Hariharan of JP Morgan. Please ask your question.
Yeah. Hi. Congratulations on a good result. I had a couple of questions. One is, what is the kind of uptick that you guys are seeing from tablets in the enterprise space when you talk to your enterprise customers? Second, given that even with the big push in the emerging markets, your cash flows position is amazingly strong, is there any move towards increasing the dividend payout for this year that you can announce right now? Or any color on that apart from the share repurchase program itself? Thanks.
All right, Gokul, this is Rory Read. I will take the first one around tablet in the commercial segment. We have had a traditionally strong portfolio around tablet, around the X200 tablet series for several years now. We are at an industry-level leading commercial segment in traditional tablet space. Commercial buyers are interested in the tablet or slate format around the touch scenario, but that is at the very early stages. We are seeing a more traditional Windows-level tablet, which we already deliver around the X200 in commercial. We are monitoring and listening to our customers' demands and interests around that tablet space, but we are only seeing some initial-
A couple of questions. One is, what is the kind of uptick that you guys are seeing from tablets in the enterprise space when you talk to your enterprise customers? Second, given that even with the big push in the emerging markets, your cash flows position is amazingly strong, is there any move towards increasing the dividend payout for this year that you can announce right now? Or any color on that apart from the share repurchase program itself? Thanks.
All right, Gokul, this is Rory Read. I'll take the first one around tablet in the commercial segment. We've had a traditionally strong portfolio around tablet, around the X200 tablet series for several years now. We are at an industry-level leading commercial segment in traditional tablet space. Commercial buyers are interested in the tablet or slate format around the touch scenario, but that's at the very early stages. We're seeing a more traditional Windows-level tablet, which we already deliver around the X200 in commercial. We're monitoring and listening to our customers' demands and interests around that tablet space, but we're only seeing some initial test models in that area. They want the manageability, they want the security, and they want to get consistent data and application activity across it.
Of course, we'll see tablet in the touch format expand over the next several years, but this is very early in the cycle. We believe that it's key to enter into that tablet space, as I mentioned earlier, early next year in China, and then in the second quarter across the rest of the world. Traditional tablet space using the Windows environment, using our ThinkPad X200 series, has been paying dividends for several quarters and will continue to move in that direction. For the second question, I'll pass it to Wai Ming, our CFO.
Well, we actually have a consistent dividend policy paying approximately 30%-40% of the attributable or earnings, normalized earnings. We haven't actually changed that. As and when we grow the company and expand our PTI or expand our profitability, we obviously will pay more dividends. So that, I think, all I want to confirm is we actually have a very consistent dividend policy.
Thank you, everybody, once again, for your participation in today's call. Now, if you have any further questions, please feel free to contact the IR team directly. This webcast replay and conference call replay will be available in the next couple of hours. Thank you again for joining us today.
Thank you.
Thank you.