How AI Is Reviving the PC: Lenovo’s Record $26.9B Quarter

26.9 billion dollars, the best revenue quarter in Lenovo's history. That's up 43% from a year ago. Now, there are a lot of impressive numbers in Lenovo's latest earnings, but here's the one that really jumped out at me. [music] More than a third of that blockbuster revenue is now tied to AI. And not just to servers, either. Phones, [music] tablets, PCs, all of it from the computing giant. So, what does that mean for consumers versus enterprises? Well, to break it all down, I welcomed Ryan McCurdy, [music] senior vice president and president of Lenovo North America, to the show. We covered how AI data [music] centers are soaking up so much memory that the price of a laptop is up now as much [music] as 60%. We cover how Lenovo is bobbing and weaving through shifting tariffs and chip scarcity with its vast supply chain footprint. And of course, we get the inside scoop on running the tech behind a World Cup watched by 5 billion people. This is After Earnings. Let's get [music] into it. >> Ryan, it was a very strong quarter for the Americas. Can you just paint the picture for us and describe a little bit how large a part of Lenovo's business North America represents today? And how the growth that you've seen in the Americas compares with the company's overall growth in recent periods? >> Yeah, thanks so much for having me. So, overall, you kind of put it in perspective, globally, best best quarter in company history, 26.9 billion. That was up 43% year-over-year. Um, still over a billion dollars of adjusted net income. So, you look at that, uh, all four business units grew double digits. AI-related revenue, uh, ramped up to 35% of the company. Uh, that's up 60% year-over-year, uh, across PCs, servers, services. So, all product lines. So, you kind of put that in perspective for North America, where we grew about 63% and we're representing about 29% of the total business for the Americas. So, good quarter overall for the company, record quarter, and then the Americas as a very large portion of that result. >> Can you talk a little bit, Ryan, about where it is that you're seeing the most growth? There's a lot of conversation about quote AI-related revenue. What does that actually mean in terms of specific products that Lenovo is producing? >> Yeah, good question. So, when you go across the product portfolio, we call it pocket to cloud from smartphone to tablet to PC to servers, cloud, and services, we saw AI-related revenue ramp across all of those business units. So, in the in the PC segment, we grew 27% number one in PCs globally at 24% share. Our lead versus number two widened to five plus points. And we became the the top AI PC producer based on third-party reporting. ISG Infrastructure Group grew just about 100% year-over-year with 9.1% margin. So, that was a record. We're now at number two globally in X86 servers. And then in the SSG business, our services business, there's a 21st consecutive quarter of double-digit growth. But maybe call out that 2% of that growth came from our managed services and solutions portion. So, really across the board when you think about the flip phone category, tablets grew 80%, AI PC share hit 25%, True Scale, which is our as-a-service for infrastructure, grew 35%. So, really kind of a great story from an AI-related revenue across the board. >> And can you break down, Ryan, a little bit more for the infrastructure side of the business? Can you talk to us about the end markets that you're seeing the most demand from? >> [snorts] >> Yeah, so really just no slowdown in the demand. So really we spent a lot of time over the last year talking to customers and partners about the inflationary environment and really really there's no there's not a lot of conversations these days about demand. It's really about capacity and the ability to deliver it. When we see the token demand skyrocketing, we see that the you know the very early days of this AI super cycle really we're seeing it across the board. We're seeing growth both in our CSP business which includes our largest hyperscalers as well as the neo clouds, but we're also seeing it in our enterprise and small medium business. We saw both of those uh business units grow extremely fast at a similar growth rate. So really there it's not really a question about demand across the the end markets about the ability to fulfill that demand. And I think the story or one of the really great stories of the Lenovo success over the last few quarters has been the execution of our supply chain as we've kind of turned industry-wide constraints into an opportunity to take share across multiple business units. So we're now ranked number five by Gartner in top supply chains. And this has kind of been an evolving story over the last decade when we debuted on the Gartner list pre-COVID at number 15 and really moved ourselves up the stack around COVID time frame from 15 to nine to eight. And then I can think in this current constraint environment really showing the Lenovo scale operating in 180 markets and just how important having businesses that buy components some common suppliers across smartphone, PC, tablet, and data center has been a big advantage for Lenovo, and it's kind of translated to these business results. >> And you've said demand's been strong across the board, Ryan, but I'm very curious, and I know people are eager to hear. Break down, if you don't mind, what you're seeing the difference between, for example, healthcare as your ultimate end market versus manufacturing as your ultimate end market versus retail. What are you seeing in terms of differences either in size or timing of demand depending on the actual industrial end use? >> Yeah, I'd say there's there's probably not a lot of differentiation today. The way that we see the the differentiation from a Lenovo perspective is the largest hyperscalers, the neo clouds, and then the enterprise business. And we're seeing the growth rates be pretty similar, near 100% year-over-year. But what we're seeing is that the size of the different markets is That's where you see the differentiation. So, when you think of our business into the hyperscaler, the neo clouds, it's a much larger piece of the business than the enterprise. What's kind of the newest development here in this latest quarter that we've announced is the energy and the enthusiasm and the ramp and the growth rates in the enterprise business. So, we're seeing a lot of uh the demand for all of those vertical sectors that you highlighted, but they're on a smaller base versus the hyperscale and the neo clouds that have been kind of ramping this kind of training side, if you will, for the last few years. And now we're really into the inference side, which is we're seeing, you know, across all segments of the business. >> Can you talk a little bit more about some of the the AI customer deployments, Ryan? And talk about how many of your customers at this point, maybe not the hyperscalers, but on the enterprise side, have moved beyond pilots to going full throttle, they're all in in adopting the AI tools that you've made available to them? >> Yeah, I think there's probably a two sides of the coin here on the rate and pace of the adoption. One is just the constraints that exist in the industry, right? The ability to go and fully embrace is is challenging given you know, the bottlenecks that are in the business, whether that's power, whether that's the chips, the memory, storage. So, there's there's quite a bit of constraints that would that would not allow you the cost that we've seen over the last few years as far as the inflation and the cost of AI has increased. But, what we've seen most recently is that you know, there has to be an offload for this explosion of token usage, right? It's a large um hyperscaler announced recently the amount of uh amount of tokens that they're using. And I think the the number was um you know, off the top of my head, was in the three over three quadrillion tokens in May. And this is one large hyperscaler. And the way to put that in perspective is a quadrillion for your listeners is a thousand billions and that is up that is up uh over the the last year, it's it's up 300% over the last two years and up 10% over the last year. So, what we're seeing is that customers are looking for a way to unlock the intelligence. So, if you think of that in the terms of token usage, they're thinking about how to give their employees more access to this intelligence, but also think of a way of offloading the cost. And when you think about moving to on-device or on-prem economics, you're essentially looking at putting the model on the device or on the premise, and you can you can reach very large models, 7 to 13 billion parameters running on-device with 80 to 90% of the frontier quality, and really at marginal cost, just the cost of the device or cost of electricity. So, we're seeing more and more uh customers look at how to offload this cost of giving kind of the general uh improvement intelligence to their workforce, and that's creating a lot of demand in itself. >> So, let's talk about another aspect of cost here, which is memory. Ryan, it is not a conversation that can be had without reference to the cost of memory, um even to the point where it it feels as though it's moved beyond price, and it's actually become about access to volume. Samsung and SK Hynix have said AI chip demand is so strong that there are real trade-offs being made at the moment with regards to supplying chips and supply uh to service consumer end markets versus serving enterprise end markets. At Lenovo, are you finding there are supply constraints when it comes to memory specifically? Are you having to make trade-offs as to where you allocate your memory components, again, depending on whether it's a consumer-facing or enterprise-facing product at your end? >> Yeah, of course. I think uh you know, these last few years there's been a lot of a lot of trade-offs and a lot of considerations be made, but I will say when you look at our our results in the market, I think it shows that our supply chain and our relationships and our access to getting these products, and as I mentioned earlier, kind of moving from uh you know, the cost and the demand really to who can deliver and when can it be delivered. So, uh you know, we're managing across both the PC, the phone, uh and the data center, but I will say that the uh sensitivity to the cost uh is something that has not slowed down the infrastructure side. And it's absolutely slowed down uh you know, the the device side. So, when you think about, you know, 40, 50, 60% increase in devices, uh you know, that has an impact on price sensitive parts of the market and obviously consumer would be the one you know, that you'd kind of call out to be most price sensitive and you could look at small medium business, public sector, into, you know, corporate and large large enterprise. There's a different sensitivity in each one of those depending on the criticality of the uh purchase, but uh if you just look at uh IDC's forecast, they've they've reduced their forecast for the overall size of the PC market, and that's just directly correlated to this inflationary demand that we've had uh over the last, you know, 12, 24 months. Uh uh of of of basically uh inputs to the PC and the phone and the tablet, and that that's basically had an impact on the market. So, there's a little bit of uh the answer to your question is it's it's self-correcting uh because we have to pass those costs through uh as we get them passed on us, and a lot of the conversation is just the ability to get access to uh to the products, to the components, and and and and be able to deliver uh faster than our competitors. >> With a team of banking experts specializing in your industry, KeyBank is always ready to take your call. And what's better? They relish [music] a good challenge, a business challenge, a complex challenge, the kind that seems to change all the time, the kind that's so nuanced no one else [music] could possibly understand. In fact, KeyBank says, "Bring it on." And they go even further by staying ahead of trends. KeyBank has answers before you even know you need them. Business challenge accepted. Learn more at key.com/b2b. That's key.com/b2b. Let's look a bit more about supply chain more broadly, Ryan, cuz you're in this incredibly unique position. I say this, I'm sitting right now with my Lenovo laptop in front of me, and I'm looking at the sticker on the bottom left-hand corner, which is an Intel sticker. Can you talk to us about how Lenovo, particularly in the Americas, may or may not be partnering with Intel as Intel seeks to try and build out its fabrication capabilities in the US and is actively looking for more anchor clients in that process? >> Yeah, I think it's a huge piece of our value proposition here at Lenovo. In addition to our scale, which I think is unique and unprecedented in our peer set, where we have an enormous uh smartphone business, we have the number one PC business, and an enormous uh data center business, all which is trending to over a hundred billion dollars in revenue this year is what we signaled at earnings. That uh creates a lot of uh purchasing power, uh but there's also a huge relation relational aspect to it. We've had these partnerships across these lines of business for a long time. If you were in uh at CES in Las Vegas at Tech World with us in January, uh it was a who's who on stage uh from Nvidia to AMD to Intel to Qualcomm to Microsoft. And when you look at that, uh our ability to uh develop products across that uh list of partners is one of the things that unlocks the capacity for us, and then obviously the scale, it you know, doing business in a hundred and eighty markets. One of the exciting things for me, uh personally here in North America, is we, you know, if you look at our overall factory network, we have thirty plus factories in eleven different markets, uh and we just got to open and double down on our US-based manufacturing in Whitsett, North Carolina, uh where we opened that factory recently, uh so we can build closer to our US customers. And this is kind of the story that we tell but also the ones that our customers and partners can experience, which is we have this global local model. We have this enormous footprint globally that allows us to access these relationships and these and and these components at scale and then we can deliver them in in countries at a way that's you're able to turn those into revenue and deliveries for customers in a in a frankly an unprecedented I've been doing it for 26 years and it's really unprecedented set of constraints across the supply chain. >> You know, your CEO mentioned navigating quote ever-changing tariffs as a proof point of Lenovo's resilience. Ryan, I think last time we spoke you were in the thick of it. You know, we'd seen a new tariff regime come into place in the United States. How real has the repatriation of manufacturing to the US been from your perspective as a result of the new the new tariff regime? >> Well, I think what's real is that we're constantly adjusting. The the the truth of the business is it's just so dynamic. We've moved manufacturing around the globe to to service what our customers want and what they want is access to products in a timely manner. And so that's why we have the 30 locations in 11 countries. I think when YY spoke of the the tariff resiliency, I think it's a commentary on how we're managing through what's a really dynamic environment and I think our earnings suggest that we managed it better than our competitors. So you know, one of the things in business that it's easier to do business when things are predictable and things are stable. But I also think you know, one of the advantages when things are dynamic is your ability to react read and react and service customers and partners better than others. And I think that's kind of been evident in our results. Um we have uh opened the server manufacturing here in North Carolina. We've been headquartered here for 20 years. It's kind of a natural partnership. Some of our US customers desire that um and it's the same story we would tell in Europe and Asia uh for different lines of business based on what the customers and partners want. And I think it's a huge advantage and it's why we've moved to number five in the supply chain rankings. >> So, we've talked a bit about Intel doing more in the United States. Can you talk to us more about this memory issue though, Ryan? Again, you're in such a unique position. Memory is predominantly manufactured in South Korea. Um do you see some of that moving to the US? >> Well, I'll let the uh I'll let the the memory manufacturers talk about their future capacity. What I What I do know is that uh memory manufacturers are making uh decisions about where to put their uh limited capacity and we're seeing high band high bandwidth memory take up a large portion of the bits that they have available to make uh and we're seeing uh you know, that the the memory manufacturers make decisions about uh you know, training versus inference and infrastructure versus PCs. I think So So I think they're going to continue to want to add capacity when you look at the the the limits that are in the you know, the overall AI super cycle, you know, a lot of it's around power um but there's also uh a lot of the demand is in the chips that have been constrained. I think we've been able to navigate it. Um I will not say that it's uh you know, at complete equilibrium, but we've been able to get the products that we need for our phones and for our tablets and PCs and data centers. So, I think the memory uh suppliers are going to you know, continue to make decisions based on uh investment that they think they can pay off based on how long the demand will last. So, I'll let them comment on that. I I know that we're, you know, in a unique position because we actually buy the different types of memory and uh storage from from all of them. >> Let's talk a bit about what you've been doing here in your backyard, Ron, in terms of raising awareness of the Lenovo brand. You were FIFA's official technology partner for the 2026 World Cup. Can you talk to us about how in your seat you measured the return on investment in marketing and advertising during what was, you know, what was an amazing time to get in front of eyeballs. It was also an expensive time to get in front of eyeballs. So, talk to us about the commercial decision there, if you don't mind. >> Yeah, I think it was a perfectly timed uh decision that was made several years ago that uh aligned with uh a uh you know, a really uh amazing World Cup, 104 matches. The size of it is what I I kind of get back to, you know, 48 teams, 16 cities, three countries. Uh we had devices deployed across 25,000 uh locations at the event. We had 600 different sites supported across stadiums, broadcast, base camps, uh Lenovo engineers, hundreds of them on the ground, uh 99.999 uptime. We We did the FIFA AI Pro, which was an amazing way to democratize uh you know, kind of these AI models for the teams to to get real-time intelligence and strategy. Uh we had the 3D player avatars. Uh 87% of fans said it improved the overall uh experience. And, you know, you asked the question about, you know, the return on on marketing. I think, you know, one of the things that's really hard to kind of grasp is what it enormous global event it is. Uh you know, when you think about 125 million people watching the Super Bowl, it's quite impressive and and it seems like the biggest event. And then when you think about 5 billion plus people watching the FIFA World Cup and a billion and a half people watching the final, you realize that it's on a different a different scale. And just to kind of answer the last part of your question is, you know, from an ROI perspective, I think there's a couple things. One, just from a branding perspective, it has significantly lifted the brand awareness. I think when you look at Lenovo as a historical PC company, we've transformed to a services and infrastructure company. I think that's much more understood in the branding. Very powerful this last summer. But when you look at our customers and partners and we hosted thousands of them over the summer, I think one of the key takeaways was less about the brand because they all pretty much know our brand. One of the things they saw is that we had proof that we could execute at scale. When you look at an event this big, it's not hard to talk to large global companies about the different sites they have and the supply chain they have and the operation they have and look at something that needs to operate, you know, perfectly basically on the world's biggest stage, the largest sporting event in the history of mankind. It's very, you know, I guess relatable and a huge proof point for what we can do for other customers. And there's there's this technology that's relevant as well that we're using in a lot of the conversations that we're having with customers now that that that is over. And some of our other partnerships continue tomorrow night. We'll be raising a banner at the Lenovo Center. Who hosts the Lenovo Center is the arena that hosts the Carolina Hurricanes, the Stanley Cup champion Hurricanes. It's so we'll start the repeat the the quest to repeat for the cup tomorrow night. And we have, you know, our our to both get the branding from that partnership and also integrate uh the technology and host customers and partners there and we have uh partnerships with Madison Square Garden and we'll be back at the Sphere for Tech World. So, I think the the common theme through all this is each one of them has unique branding only elements to it, but all of them require a deep technology integration in all that they do both from a fan-facing standpoint also from from an operation standpoint. >> And last one for you, Ryan. I know we're up on time together, but give us the one thing that everyone should be looking out for as we move, unbelievably we're already in the next quarter pretty much. Tell us what folks should be looking out for uh as we head out to the end of this calendar year 2026. >> Yeah, I think the thing I'm most excited about is just these early innings of this AI build-out. When you look at the the I mentioned the token usage earlier, that's got to over three uh quadrillion uh tokens at one large hyperscaler, and you look at the forecast for that to grow um you know, 24x by 2030, the demand for intelligence is there and the models keep getting better. Uh but there's a cost element to that, too, and so there's going to have to be an offload, and I think we're going to both we're going to see a renaissance in the devices as those devices, phone, tablet, PC, uh are able to offload and do two things. One is unlock intelligence so you can actually use it you know, if you don't have to use the the most expensive tokens so you can offload it um and so you can you can let your employees loose uh and you can uh offload the cost of that. I think that's what we're going to be seeing and we're already seeing it pretty much every customer partner conversation is about how to accelerate that so that we can unlock and um you know, we have a constraint in the system. So, this is our opportunity to uh really kind of see the the next knee of the curve in this uh AI uh build-out, which is really exciting and I think fits like right in the bull's-eye of uh, the Lenovo portfolio. >> We'll be staying tuned for more. Ryan McCarty, President of Lenovo North America, come back. Exciting couple of months coming up for you all. >> Thank you. >> I'm Anne Berry. Thank you for tuning into [music] After Earnings, the show that brings you up close and personal with the executives behind the world's most interesting publicly traded companies. If you learned something today, don't forget to like, subscribe, and share with your friends. Now, check out some of our other episodes on YouTube or wherever you get your podcasts, and we've got some other fabulous conversations coming [music] up with CEOs and CFOs who you're going to want to hear from. We'll see you next time.