Good morning, and good evening. Welcome to Lenovo's quarter one earnings webcast. Thanks to everyone for joining us. This is Jenny Lai, Vice President of Investor Relations. Before we start, let me introduce our management team joining the call today. We have Lenovo's Chairman and CEO, Mr. Yang Yuanqing; Co-President and COO, Mr. Gianfranco Lanci; Group CFO, Mr. Wong Wai Ming; President of Data Center Group, Mr. Kirk Skaugen; and President of Motorola, Mr. Sergio Buniac. We will begin with the presentation shortly. And after that, we will open the call for questions. Without further ado, let me turn the call over to Yuanqing. Yuanqing, please.

Hello, everyone. Thank you for joining us today. Last quarter, despite the global geopolitical uncertainties, we kicked off a new year with a strong performance. We continue to drive both top line and bottom line growth. Our global revenue grew year-on-year for eight consecutive quarters and reached USD 12.5 billion. Our pretax income was USD 240 million, and the net income was USD 162 million, both more than doubled year-on-year. This quarter's solid result started with our Intelligent Device Group. Our PC and Smart Device business delivered an exceptional quarter, continuing double-digit revenue growth while achieving the highest fiscal first quarter profit and further improved our industry-leading profitability. With Americas and Asia Pacific achieving 20% and 40% year-on-year growth in revenue, respectively, all four geographies delivered over $2 billion revenue, demonstrating the geographic balance and sustainability of our business. In PCs, our volume outgrew our already recovering market by over 13 points to reach our all-time recorded share of 24.9%, a clear number one position. This means one out of every four PCs built in the world is a Lenovo product. Also, PC revenue grew over 14% year-on-year. PC unit grew 18% year-on-year. These strong results are driven by innovation, our customer-centric product portfolio and continuing focus on operational excellence. This strategy enables us to significantly outgrow the market across the high-growth and the premium categories, including Workstation, Thin and Light, Visuals, Gaming PCs and Chromebook. Looking forward, we are confident that we will continue to drive premium-to-market growth and industry-leading profitability. We will achieve this by not only focusing on high growth in the premium categories but also continuing to drive innovation in the Smart IoT area, smartifying PC like the world's first portable PC and 5G PC we announced last quarter, developing new smart devices for homes and offices and capturing the greater opportunity in commercial IoT. Our Mobile business delivered another profitable quarter and improved pretax income year-on-year by USD 100 million for the fourth consecutive quarter. In North America, our volume outgrew the market by more than 37 points, and the pretax income margin improved over 14 points year-on-year. In our stronghold, Latin America, our volume has grown with or above the market for 11 quarters. Going forward, our Mobile business will continue to maintain profitability and seek opportunities to drive profitable growth in new markets with new innovative products. Our Data Center Group continued to improve profit year-on-year, and we gained share in worldwide server volume. Meanwhile, our revenue declined because a few larger cloud computing customers reduced their purchase due to excessive capacity built in the past quarters, and declining commodity component price drives lower server average unit revenue. While the server business slowed, storage networking continued to show clear growth. In the first quarter, our storage revenue grew more than 80% year-on-year, and the software-defined infrastructure continued to grow at a double-digit rate year-on-year. This shows our strategy to extend the full stack data center portfolio breadth is correct, and our previous investment has started to drive tangible results. Meanwhile, in high-performance computing, we extended our number one position in Top 500 Supercomputer list to 173 systems across 20 markets and continue to support the scientific research and the applications around the world. For example, over the past the year, 15 countries, including Canada, Korea, Malaysia, already use our solution in weather forecasting and climate research. Moving forward, we will continue executing our strategy to drive software-defined infrastructure, storage, networking, service and solution-led sales and strengthen in-house design and manufacturing capability for hyperscale. We will also further improve route to market and operational excellence to achieve premium-to-market growth while improving profitability. In driving Intelligent Transformation, we established a clear dashboard to monitor the progress and are on track to achieve the goals we have set at the beginning of the year. Driven by the newly established Data Intelligent Business Group, or DIBG, Smart Vertical revenue quadrupled year-on-year last quarter. Our Software & Services revenue also grew 23% year-on-year, which is almost 5x as fast as our overall revenue growth, reaching USD 732 million. We believe that anything, once pursued, takes time. But our strong first quarter performance driven by the right strategy and persistent execution shows that we are moving beyond the last three years' success and we're well on our way to reaching even greater heights. Thank you. Now let me turn it over to our CFO, Wai Ming. Wai Ming, please.

Thank you, Yuanqing. I will take you through Lenovo financial and operational performance in Q1 fiscal year 2020. Next chart, please. Let me first share with you the financial highlights. Our Q1 results again demonstrated that we have built a resilient growth engine that is firing on multiple cylinders. We delivered profitable improvements across all businesses, strong margins, stellar earnings per share growth and continued market share gain. Group revenue was $12.5 billion, up 5% year-on-year. PCSD has another great quarter with double-digit revenue growth and set a new record in global PC market share. Our transformation actions continue to show accelerated results. During the first quarter, the Software & Services revenue grew double-digit year-on-year, making up almost 6% of group revenue at an exciting margin profile. Our big data and AI-powered Smart Vertical solution business also quadrupled compared to the same quarter in last year. Gross profit in Q1 increased by 26% year-on-year, and gross profit margin expanded 2.7 percentage points to 16.4%, thanks to sales mix improvement. Operating expenses increased by 18% to $1.7 billion and the E/R ratio was 13.6%, up 1.4 percentage point year-on-year due to more aggressive product promotion and the new model launches as well as employee bonus in rewarding performance improvements. Group PTI was $240 million, more than double year-on-year. The PTI improvement was consistent across all business group. PCSD further expanded its industry-leading profitability, while MBG and DCG also improved their bottom line. Net profit attributable to equity holders was $162 million, improved from $77 million in the same quarter of last year. Basic earnings per share came in at USD 0.0137, up from USD 0.00065 (sic) USD 0.0065 last year. Next chart, please. In Q1, our cash used in operation improved quarter-to-quarter but decreased year-on-year to an outflow of $142 million, which was lower than $336 million in net cash generated from operation a year ago, mainly due to the temporary impact from the transition program of AR factory. With the completion of our transition program, AR will be back to normal and improving next quarter. Our inventory days improved six days year-to-year, thanks to better inventory management in reducing the component inventory across all business groups. Next chart, please. Our Intelligent Device business group, which include PC and Smart Device business group and Mobile Business Group, had another great quarter with revenue up 8% to $11.2 billion. The stellar performance of PCSD was supported by the continued commercial refresh demand and our strength in the high-growth and premium segments. PTI margin of IDG expanded significantly by 1.6 percentage points year-on-year to 4.7%. There was also a notable year-on-year profit improvement over $200 million being delivered by IDG. Next chart, please. In Q1, our PCSD business group has executed extremely well with strong market share gain across nearly all geographical areas. Its revenue was $9.6 billion, up 12% year-on-year, driven by the solid commercial orders and strong momentum across the premium and high-growth segments. We continue our double-digit revenue improvement in Workstation, Thin and Light, Gaming and Visual business. Furthermore, PCSD set a new record on its global market share. And again, its revenue grew at premium to market. The premium growth to the market reached 13 percentage point in the quarter, representing its highest level in more than five years. The business group pretax income was $524 million and PTI margin expanded 0.5 percentage points to 5.4% on mix improvement and higher services attach rate. Next chart, please. For the fourth consecutive quarter, the Mobile Business Group has delivered more than $100 million year-on-year improvement in its PTI. We are pleased to report robust market share gain in core markets. In North America, MBG premium-to-market growth reached 37 percentage points in the fiscal quarter, benefiting from the successful expansion of its distribution network and success in new products. Latin America remained the business stronghold with continued profit expansion. MBG revenue was $1.5 billion, down 9% year-on-year due to our prioritization of core markets. Despite the weaker top line, the focus on profitable market, cost efficiency and improved portfolio contributed to a significant year-on-year PTI margin expansion by 6.3 percentage points. Next chart, please. The broader data center sector was widely reported to be suffering from excessive inventory on hyperscale and the commodity price decline. Our Data Center business in Q1 wasn't able to be immune from the sector slowdown, and its revenue was $1.4 billion, down 17% year-on-year. However, our strategic direction and continued investment to grow the business with higher margin and position as a full stack industry leader remain intact. Sales from storage, service deferred revenue and SDI all increased high double digit year-on-year in this fiscal quarter. As a result, DCG has further narrowed down its pretax loss by $11 million year-on-year, and it was its eighth consecutive quarter of PTI improvement despite the industry-wide challenge and revenue growth. Next chart, please. Looking ahead, macro risk remains a key challenge for global technology sector. Volatility has intensified to one of its highest level in recent history due to continued trade negotiation and geopolitical power tensions. We will leverage our extensive experience in managing a multitude of macro risk to drive growth and thrive as a business. Our goal is to lead in Intelligent Transformation era and drive service and software to become a key profit contributor in the long term. On the group level, we aim to deliver premium to the market growth on top line, and we remain confident to deliver profitable growth for the long term. On PCSD, we target to secure our industry-leading profitability and premium-to-market revenue growth. We will continue to improve user experience, expand innovative product lineup and grow our service and software business. For Mobile business, we will soon launch more new models with new innovations and will continue to strengthen its competitiveness in its target market. We will hold on to our strategy in sustaining financial health as a priority for the business while looking for potential growth opportunity. For the Data Center business, despite a market pullback, we believe the secular trend of data growth will accelerate the data center demand and the launch of new technology and services, including 5G and edge computing. DCG will continue to build its capabilities and position as a full stack industry leader while continuing to drive its growth in SDI, storage and networking, services and solution-led sales. In hyperscale, the group will further strengthen its in-house design and manufacturing capabilities and build a profitable business model. We aim to further improve our profitability and grow our premium to the market as we expect demand to recover in the second half of the fiscal year. The group continued to invest across the Smart Infrastructure, Smart IoT and Smart Verticals to accelerate our transformation and to sharpen the group's core competence. These investments should strengthen Lenovo capability as a competitive end-to-end solution provider in the era of Intelligent Transformation. Thank you. Now we can take your questions.

Thank you, Wai Ming. Now we will open the line for questions, and discussion will be in English only. [Operator Instructions]. Operator, please give us your instructions.

[Operator Instructions]. Our first question comes from the line of Gokul Hariharan from JPMorgan.

Congrats on the good results. I have two questions. First of all, on the new 10% tariffs that have been proposed by President Trump. Could we remind investors and ask about the preparedness of the three major business groups, PC, DCG and Mobile business group, in terms of how prepared Lenovo is in terms of moving supply chains to other locations other than China, specifically for the U.S. market? And when do we expect most of that supply chain relocation to be completed? That's part one. Second question I had is on Data Center business group. I think because of the industry weakness, we have seen growth slip to negative territory for the last couple of quarters. When do we expect growth to come back to positive territory for DCG? And specifically for hyperscale, what does the outlook look like? Do we expect to break into any more of the big four hyperscale customers in addition to the one customer that we have in the next -- into CPU design cycle?

Thank you, Gokul. So I'll answer the first question, and our President of DCG will answer the second question. Our view, I would say, our last quarter performance today, there has been negligible -- material impact on our business and our results. Our last quarter result has showed we continue to fighting these headwinds. And also, we have built up efficiencies to offset the U.S. -- the tariff increase. So that means we're paying year-to-year, so we have less impact in our business. Meanwhile, I wish you know, Lenovo has a globally diverse manufacturing footprint. We reside in multiple locations around the world, which give us a lot of flexibility compared with our key competitors in that atmosphere. Meanwhile, we remain committed to China as part of that strategy. So in fact, we recently decided to invest more than USD 300 million in new smart manufacturing facility in Shenzhen, Southern China. So that we are not -- that will not be changed. So that's the answer to your first question. So the second question, please. Kirk, please.

Gokul, it's Kirk. So first, we should look at the business in terms of the hyperscale customers and the nonhyperscale customers. In nonhyperscale, I want to note that we did grow in units year-on-year this quarter as Lenovo. And we expect in the existing quarter, we'll grow even faster in units year-on-year. So we expect from a unit perspective, we are growing our position by probably 1 or 2 relative to our competition year-on-year given that unit growth. In nonhyperscale, what we mentioned is a few of our hyperscale customers grew extensively in the last part of last year. We expect those customers to be coming back in the fourth quarter calendar of this year. But more exciting for us is the diversification we have as we're growing into the next wave of customers. So we expect three new hyperscale customers to be in Lenovo's Top 10 customer list very shortly, in addition to seeing the recovery in the fourth quarter calendar of this quarter.

The next question comes from the line of Abel Lee from Bank of America.

Congrats for good results. Can I ask for PC market share? Now you are global number one, and where's the additional shares you can gain from? And therefore, second one is still on hyperscale. What's the current progress? That expectation seems your client base now it's not very big. What's your plan going forward?

Gianfranco, you answer the first question. You answer the first question.

Okay. So I think when we look at market share, I think we can see that there's very good opportunities in some geos, and the fact that we are number one globally but we are not yet the number one in all the geos. Same with other segments, we are number one in consumer, we are number one in commercial. But when we look at commercial and we split between large business and SMB, we are by far number one on very large business or enterprise. We are not yet number one in SMB. [Technical Difficulty].

Gianfranco, we cannot hear you clearly.

All right. We'll check on Kirk first.

Sure. This is Kirk. With respect to hyperscale, previously, we've stated that we have design wins and business in 6 of the Top 10 hyperscalers. Roughly speaking, that represents about 60% of the total available market of the public cloud providers, which I think we're excited that, again, as I said earlier, three of those six customers will enter our top 10 customer list as we grow new design wins in the marketplace. And a couple of our existing customers that built extensively, we expect to recover by the end of this calendar year and start growing again significantly. We're seeing those early signs. In addition, we've added this year a new extended sales force to cover the next wave of hyperscalers. And we won several new designs within that next wave, again, which represents about 40% of the total market. That was an area that we previously were not focused on because we were working on earning the business of the top 10. So we expect significant growth, and that's the next wave over the next several quarters. Thank you.

So Gianfranco?

Operator, could you try to unmute Gianfranco Lanci's line, please?

The next question comes from the line of Howard Kao from Morgan Stanley.

Congratulations on the quarter. So the first question I had was the follow-on on Data Center business. You mentioned that you're expecting demand to recover in the fourth quarter of the calendar year this year from hyperscale customers. And regarding your new business and this demand recovery, is this mostly driven by existing Data Center business or new data center builds from your perspective? And a follow-up on that is you are expecting design wins and projects going forward with medium hyperscale entering your top 10 customer list. Do you think that's more of a function of share gain or just overall demand increasing in the coming quarters?

So for the hyperscale, again, I think we are building capacity internally to build our own motherboards as well as do system and rack-level integration, and we're doing that globally in factories around the world. That new business model is helping us deliver better economics to both us and our customers, which is resulting in those design wins. So we're clearly, with our strategy of ODM plus, earning business that previously had gone to the ODMs that's moving now to Lenovo. And in the nonhyperscale space, we continue to see hybrid cloud proliferating, and we're supporting all the major hybrid cloud providers. We made an announcement with Google this quarter for the first time on Google Anthos. We've got support for Nutanix, for Azure HCI and for VMware. So all of those, we continue to see growth on as customers choose to do private cloud or hybrid cloud installation as opposed to on-prem. As a result, we had again ninth consecutive quarter of software-defined double-digit growth rates, and we think that will continue in the future. We view ourselves as legacy free. So we can move very closely with our partners to software-defined infrastructure for that hybrid cloud. Thank you.

Thank you. So Gianfranco is online again, so could you please finish your answer to the last question.

Yes, yes, yes. Right. So as I said, I don't know when you lost me. But let me talk about we are number one globally. We have almost 25% market share. But when we look at it from a geographic point of view, we are number one in some geo but not yet in other geo. So we still see good opportunity in terms of geographical growth in some geo. And also one other good example, consumer and commercial, we are number one in consumer. We are number one in commercial. But when you look at the commercial and you split it between large enterprise or very large enterprise and SMB, we are by far number one in large enterprise or very large enterprise. We are not number one in SMB yet. And we also continue to see a very good momentum when we look at the upgrade to Windows 10, the Windows 10 transition. I think that we will continue to see Windows 10 transition until the end of the year and probably on that next year, next calendar year. And last but not least, when you look at our growth in terms of premium segment, Workstation, Gaming, Thin and Light, Visual, we have seen more opportunities last quarter, growth between 30% to 40%. And we still see very good opportunity in terms of growth there. So growth, for sure, we will continue to see in the next coming quarters despite the very high market share already achieved.

So by the way, we will continue to find opportunity through innovation. So actually, last quarter, we launched the first portable PCs, portable laptop and first 5G PCs. So we think that will drive the growth in the future.

The next question comes from the line of Sebastian Hou from CLSA.

I have two questions, mainly regarding your Data Center business. Look, maybe it's not about the business itself but more from the industry trend. The first question I'd like to get your insight in, so how do you see the software-defined infrastructure, the more adoption for container, multicloud, serverless computing will impact Lenovo Data Center business, particularly in your compute and storage? And what's Lenovo product position on this trend? This is my first question.

Yes. So this is Kirk. On software-defined infrastructure, again, we had nine consecutive quarters of double-digit growth. We think we're growing significant market share. If you look at an analysis by IDC, they initially showed Lenovo was the fastest-growing OEM in hybrid cloud, if you look at both public and on-prem cloud. Again, we think we have a very diverse set of partnerships with Nutanix, with Google, with VMware and with Microsoft that are enabling us to be customer-centric and deliver the best solution based on the customer needs. So I think we will continue. Our goal is to continue to grow at double the market, at 100% premium to market in software defined. But I think it will continue to be a strong growth area for us. Obviously, if you look at software-defined storage and things like that, we publicly said now we're growing at 80%. So depending on which genre you look at, that could be a very, very significant premium to market. With the relationship we have now with NetApp, we're covering over 92% of the storage market, where a year ago, we were only covering 15%. So I think you're going to see us now not only as the third-largest storage company in China but one of the fastest-growing, if not the fastest-growing, storage company in the world taking share in that area as well. You had a second question?

Just one follow-up on that is that I think the reason to go for software-defined infrastructure is to simplify the complexity for customers. They are dealing with the IT infrastructures and also trying to optimize the computing and storage capacity utilization rate. So that seems to me a potential negative because the utilization rate of the hardware infrastructure will likely to be -- was not optimized but going to get more optimized. But I know that Lenovo has good products here to grow this business. But how do you see the balance here? Is it net positive due to the industry and to Lenovo still?

Yes. I was at a previous company, Intel, for 24 years. I remember people telling me that when virtualization first became popular that you're going to have 5 or 10 or 20 virtual machines, and therefore, hardware growth would be low. I think if you look at the last decade, as you move to virtualization, it was only an accelerator even with higher utilization of servers. And I think, certainly, private cloud is enabling better utilization. But I think it's also slowing a bit of the adoption going to public cloud because you now have some better economics with the security of keeping your data in the country or on-prem. So I think it's going to be good for the industry. I think containers will be good for the industry, just like virtualization drove an upgrade cycle. I was just with a customer tonight, 11-year-old infrastructure. It's an aging infrastructure out there. They're going to move to modern technology, and Lenovo's the best person to support that modern technology.

Next question comes from the line of Xianyi Liao from Fubon Securities.

I think I want to -- first question for Kirk. I know that AMD already announced Lenovo had launched several solution for AMD. I just want to consult, Kirk, what do you think about for EPYC in data center? And from your side, are you seeing any of the progress for AMD? What do you think about AMD at this moment? So that's my first question.

Yes. So I think we were strong supporters at the AMD launch. It's our Chief Operating Officer on stage. We're seeing AMD demand. We've built two new premium one-socket servers. We launched 18 new world records. So in our Intel architecture, we have roughly doubled the number of world record workloads as any other company in the world. We intend to keep that leadership position on AMD. Specifically, we think it's workload-driven. So we're seeing demand, for example, on, public safety for city surveillance and then things that need excellent I/O. One difference of Lenovo's products is we did deliver purpose-built servers for this new architecture. So we're not just doing a drop-in to the old I/O architecture. So we fully support all the new frequencies, all the new wattages and PCI 8th Gen Core, where some of our competitors have to support older technology, which is the drop-in. So we think we have the world's best AMD solutions. And yes, we're seeing demand.

Okay. So do you think that, I'm not sure, for the next 2 or 3 years, both the two change for AMD in the server, this is very important especially profit growth? So do you think that India-dominated server station will be broken or something? That is my -- interesting in the future. So what do you think about this one?

Well, I think competition is good for the consumer. And with our workload, it will be a more competitive market than it was in the past. Having said that, we also had Yuanqing and the CEO of Intel and of the new global HPC Alliance running to be able to lead with hyperscale cloud computing not just for a few large supercomputers but also, we call it, exascale everywhere so that even smaller customers can benefit from our more global technology. So I think we have strong collaborations with not just Intel, not just AMD. But we're also supporting Ampere on ARM, and we're also a great supporter of GPUs with NVIDIA. And we're seeing demand now in our heterogeneous computing environment across all of those architectures.

Okay. My last question is for Gianfranco Lanci. I think it's created some kind of delayed [indiscernible] December. But I think this is just temporary. So as I'm wondering on the next year, probably the smartphone and PC demand will be sluggish because everything that are imported to America will be up to 10%, 20%. So what do you think are initiatives for Lenovo, especially Lenovo, most of the marketing in China. And I think the U.S. market is also very important for you. But I think this type of delay [indiscernible] demand for customers. But after that, I believe they will increase the import tax. So I'm not sure Lenovo right now have any sort of estimated results for next year. So that's my last question.

Thank you. So as I said, so the trade war, so it's not good for the entire society. It's not good for the entire management of the company. So we wish China and the U.S. can resolve this and reach an agreement as soon as quarter four. But even with the worst scenario, I think the Lenovo businesses are in a better positioned than our competition because we actually have a globally diverse manufacturing footprint with multiple manufacturing facilities around the world. So we should have a lot of flexibility compared with our key competitors. Actually, most of our key competitors do their in-house manufacturing by themselves. But we think that, that will give us much more flexibility. We definitely remain committed to China. So we will further invest, buying small manufacturing facility in China. So we're raising the [indiscernible]. So actually, we are even manufacturing in other locations. So we are increased the total cost. So that means we are impacted by the consumption. So that's why we think it will be better for us if we have that agreement.

Thank you, Yuanqing. We are now ready to take the last question. Due to limited time, please raise your last question.

We have follow-up questions from Abel Lee from Bank of America.

Can I have a follow-up question on your Mobile business? Are you going to launch a 5G mobile phone? And Qualcomm and MediaTek, which one you will take as a 5G SoC solution? And then my second question is about memory price. What if memory price recover in next year, is this going to impair your P&L next year -- I mean, profit margin?

So yes, of course, we have plan to launch 5G phones. We were first to market with the 5G phone we launched at the beginning of the year. And as the market matures, we will have some announcements. But today, we have nothing to announce. But I think we will benefit a lot for being first to market in that light. So we learned a lot, the technology, our apps, power management. So we see very good things coming from innovation, including 5G in the near future.

Gianfranco, would you please answer the memory price question?

Yes, Yuanqing. I think memory price, we have been improving this exercise many times, also in the past. Memory price is always relatively unstable. We see memory going up and going down depending on demand. And I think we have been able to show that we can manage the memory pricing both ways. When you look at our results in the last 6 or 8 quarters, on PC, we've always been able to show in that profitability in the range of 5% or even better than 5% when memory was going up or when memory was going down. And so I think we will continue to manage our profitability independently, I would say, from the memory trend. And for the time being, frankly speaking, we see quite a stability in terms of memory. Memory are relatively stable in terms of price, not really going up but also not going down anymore. But as I said, one year ago or 18 months ago, it was exactly the opposite, the trend. And when you look at our financial results, you don't see -- or you cannot see any major impact there from the memory. It's really a matter of execution and operational excellence and how you drive your AUR based on component cost trend.

All right. Thanks, Gianfranco. We thank you very much for joining today's call. If you have any further questions, feel free to contact me directly. The replay of this webcast will be available in the next couple of hours on our Investor Relations website. Thank you again for joining the call for today.

Thank you. Bye, bye.

Ladies and gentlemen, that does conclude the conference for today. Thank you for your participation. You may now disconnect your lines.