Ge Long Hui·2025-05-22 07:37Core Viewpoint - Lenovo Group reported a seemingly contradictory financial performance for Q4 of the fiscal year 2024/2025, with revenue increasing by 23% year-on-year to $17 billion, a record high, while net profit plummeted by 64% to $0.9 billion, raising market concerns. However, this profit fluctuation is attributed to "technical adjustments" under accounting standards, not reflecting the company's actual operational quality [1]. Financial Performance Analysis - The significant variable causing the net profit fluctuation is the issuance of three-year warrants in January 2025, which must be measured at fair value according to Hong Kong accounting standards, impacting the current profit and loss statement negatively by $1.18 billion [2]. - The impact of this fair value change is characterized by two aspects: it is a non-cash adjustment that does not affect actual cash flow, and its volatility is uncontrollable, influenced by stock prices, interest rates, and volatility, unrelated to actual business operations [3]. Example of Accounting Treatment - An illustrative example is provided where a hypothetical company issues warrants, leading to a situation where an increase in stock price results in a corresponding increase in the fair value of the warrants, thus creating a paper loss that does not affect cash flow but reduces reported net profit [4][5][6]. Non-HKFRS Metrics - To mitigate the impact of financial instrument valuation fluctuations, Lenovo emphasized its non-HKFRS net profit, which, after excluding the impact of warrants, increased by 25% year-on-year to $2.78 billion, with an annual growth rate of 36%. This approach aligns with practices in the tech industry, where companies often disclose adjusted metrics to reflect operational realities more accurately [7][8]. Business Performance Resilience - Excluding the aforementioned financial adjustments, Lenovo's core business performance shows strong resilience, with all main business segments achieving double-digit revenue growth in Q4, totaling $17 billion (approximately 123.5 billion RMB), a 23% year-on-year increase [9]. - The Intelligent Devices Group (IDG) reported revenue of 85.93 billion RMB, a 13% increase, with a PC market share of 23.8%. The Infrastructure Solutions Group (ISG) saw a revenue increase of 63% to nearly 30 billion RMB, while the Solutions and Services Group (SSG) achieved over 15.6 billion RMB in revenue, an 18% increase, with a record operating profit margin of 23% [9][10]. Strategic Insights - The collective double-digit growth across three business segments validates the effectiveness of Lenovo's "devices + infrastructure + services" synergy and its hybrid AI strategy. This growth is particularly notable against a backdrop of cautious global IT spending, indicating that Lenovo's investments in AI servers and hybrid cloud solutions are beginning to yield results [10].