Lenovo restructures ISG unit after quarter driven by AI growth

Lenovo revenues reached a high driven by AI sales, which grew 72 percent year-over-year, enabling double-digit growth for all three of its business units, despite rising memory costs.

Revenues in its third fiscal 2025/26 quarter, ended December 31, were $22 billion, 18 percent higher than a year ago, with a $546 million net profit, down 21 percent from the year-ago $693 million. That was influenced by a $285 million restructuring charge and increased memory costs. Lenovo noted the quarter was marked by strong top-line growth, driven by expanding market leadership in PCs and Smart Devices, record volume and activation in smartphones, and all-time-high revenue from both the Infrastructure Solutions Group (ISG) and Services and Solutions Group (SSG). 

Chairman and CEO Yuanqing Yang said: “Lenovo delivered an outstanding performance across all fronts in the third fiscal quarter, with all main businesses achieving strong double-digit revenue growth and AI becoming a leading growth engine.” 

Lenovo asserted that “despite a challenging operating environment characterized by ongoing tariff uncertainties and rising [memory] component cost due to supply and demand imbalances, the Group has demonstrated exceptional operating resilience, generating solid revenue and profit growth against this macro backdrop.” It said it was a solid quarter in which AI-related revenues represented 32 percent of total group revenue.

Its PC and phone-focused Intelligent Devices Group (IDG) reported revenues of $15.8 billion, up 14 percent, with a 15 percent rise in operating profit, while its servers and storage-focused ISG had a record $5.2 billion in revenues – a 31 percent rise – but an operating loss of $11 million, $21 million better than the previous quarter and down from the year ago quarter’s $1 million profit. SSG saw an 18 percent revenue rise to $2.7 billion.

Lenovo said ISG recorded high double-digit growth year-over-year for its AI server business, which has a $15.5 billion order pipeline and deployment of Nvidia GB300 NVL72 design rack-scale systems. ISG expanded its customer base, bringing Cloud Service Provider (CSP) revenue to a record high. Neptune liquid-cooling revenue grew 300 percent year-over-year, reflecting strong customer adoption.

The ISG unit is being restructured to better capture the multi-year AI training demand and long-term AI inference growth across both CSP and Enterprise and SMB market segments. Lenovo wants to accelerate its "return to sustained and improving profitability, targeting annualized net savings of over $200 million through FY 28/29." It has a realigned cost structure, a streamlined product portfolio, and is "upskilling" its staff, strengthening its sales organization. The restructuring charge also included severance charges. 

ISG is hoping to be profitable next quarter. Ashley Gorakhpurwalla became the head of ISG in November 2024 and may have had a hand in the restructuring.

According to Lenovo, its PC business "strengthened its global leadership position," with a 25.3 percent market share, "marking the second consecutive quarter and as the only vendor surpassing one-quarter of the global PC market in three decades." 

The SSG revenue contribution of Managed Services and Project & Solutions reached 59.9 percent, helped by accelerated TruScale DaaS and IaaS and customer wins. 

Geographically, its four regions did well. 

• China revenues rose 15 percent
• Asia-Pacific (excluding China) revenues rose 8 percent year-over-year
• Americas revenues increased 25 percent
• EMEA revenues were up 20 percent

Lenovo’s outlook centers on advancing its hybrid AI strategy as broader AI adoption fuels growth. It says it is building a global AI superagent (Qira) and smart devices for the personal AI market. The enterprise AI market will see AI inference on-premises, including at the edge, an xIQ technology platform, and an AI Cloud Gigafactory. It says the AI infrastructure market opportunity is expected to triple by 2028, driven by continued hyperscale training buildouts and accelerating inference adoption. 

But memory cost increases lie ahead. Yang said: “This structural imbalance between supply and demand [for memory chips] is not simply a short-term fluctuation. It is likely to have a prolonged impact on the industry throughout this year.” Lenovo, like the other PC, server, and storage companies, has to navigate this memory price volatility throughout the rest of the year.

Despite this, Yang said: “We are still confident to deliver double-digit growth in our PC as well as infrastructure business in the next couple of quarters.”

There was no word on the progress of the Infinidat acquisition.