Lenovo: More Than Just PCs

Lenovo is the world's largest PC manufacturer and a leading provider of smartphones, enterprise infrastructure, and technology services. Known for its operational excellence, global supply chain, and broad portfolio of trusted brands, the company combines scale with a diversified business model spanning devices, infrastructure, and solutions and services. As artificial intelligence reshapes the technology industry, Lenovo aims to strengthen its leadership in PCs while expanding its higher margin infrastructure and services businesses to drive long term growth. The question remains: Does this global technology leader deserve a spot in your portfolio?

This is not financial advice. I am not a financial advisor, and I publish these analyses to document my own research and share my thoughts with readers and followers. If you are considering investing in any of the companies or ideas discussed, you should always do your own research and, if necessary, consult a qualified financial professional. All investing involves risk, and you may lose some or all of the money you invest.

For full disclosure, I do not own shares in Lenovo at the time of writing this analysis. I publicly share my investment portfolio, including all of my current holdings and changes I make over time. If you are interested in seeing what I currently invest in and learning how you can follow or copy my portfolio, you can read more here.

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The Business

Lenovo was founded in 1984 in Beijing and has grown into the world's largest personal computer manufacturer and one of the largest technology companies globally. Today, the company operates with dual headquarters in Beijing and Morrisville, North Carolina, operational headquarters in Hong Kong, and serves customers in more than 180 markets. Over the past four decades, Lenovo has evolved from a PC company into a diversified technology provider that combines intelligent devices, enterprise infrastructure, and IT services. Its operations are organized into three business segments. The Intelligent Devices Group includes personal computers, tablets, smartphones, workstations, and smart devices sold under well-known brands such as ThinkPad, ThinkBook, IdeaPad, Yoga, Legion, and Motorola. This remains Lenovo's largest business and has consistently maintained the leading global position in PC shipments. The Infrastructure Solutions Group provides enterprise customers with servers, storage systems, edge computing, high performance computing, and software-defined infrastructure that support modern data centers and AI workloads. The Solutions and Services Group offers consulting, managed services, cloud solutions, cybersecurity, device management, and digital workplace services. This business has become an increasingly important part of Lenovo's strategy because it generates recurring revenue, carries higher margins than hardware, and strengthens customer relationships across the broader portfolio. Lenovo is currently undergoing another major transformation as artificial intelligence reshapes the technology industry. Rather than viewing AI as a standalone product, the company aims to integrate AI across its entire ecosystem through what it calls its Hybrid AI strategy. This strategy combines AI-enabled personal devices with enterprise infrastructure and industry-specific AI solutions, allowing customers to deploy AI wherever it makes the most sense, whether on individual devices, at the edge, within private data centers, or in the cloud. Lenovo believes that this combination of devices, infrastructure, software, and services positions it to benefit from the growing adoption of AI across both consumers and enterprises. Supporting this strategy is Lenovo's global operating model, which combines centralized technology development with regional execution. The company leverages research and development capabilities across North America, Europe, Japan, China, and other regions while maintaining local sales, marketing, manufacturing, and service organizations that can adapt products and solutions to individual markets. This balance between global scale and local flexibility allows Lenovo to respond quickly to changing customer needs while maintaining operational efficiency across its worldwide business. Lenovo's competitive moat is primarily built on its operational excellence, vertically integrated global supply chain, scale, and deep customer relationships. Unlike many technology companies that rely heavily on outsourced manufacturing, Lenovo controls much of the value chain from product design and demand forecasting to procurement, manufacturing, logistics, sales, and after-sales services. This end-to-end integration provides greater visibility across operations, allowing the company to respond rapidly to changes in demand, supply shortages, tariffs, and geopolitical disruptions while maintaining tight control over costs. One of Lenovo's most important competitive advantages is its unique ODM+ manufacturing model, which combines company-owned production facilities with carefully selected manufacturing partners across more than 30 sites in over 10 countries. This flexible manufacturing footprint allows Lenovo to shift production between regions, shorten delivery times, reduce transportation costs, and mitigate supply chain disruptions without becoming overly dependent on any single country. At the same time, the company continues to benefit from China's highly efficient manufacturing ecosystem while expanding production capacity in markets such as Mexico, Vietnam, India, Brazil, Hungary, and the United States. Combined with one of the world's largest technology procurement operations, Lenovo benefits from significant purchasing power and long-standing relationships with key suppliers of processors, graphics chips, memory, and other critical components. These relationships help secure supply during periods of industry shortages while supporting competitive costs and improving profitability. Lenovo's scale also reinforces its competitive position. As the global leader in PCs and a growing player in enterprise infrastructure and services, the company benefits from significant economies of scale across research and development, procurement, manufacturing, distribution, and marketing. This scale enables Lenovo to invest heavily in innovation while spreading fixed costs across a very large revenue base. The company consistently ranks among the world's leading supply chains and has been recognized by Gartner as one of the strongest global supply chain operators across all industries. Lenovo's extensive installed base also strengthens customer relationships, particularly among enterprise clients that rely on the company across multiple technology categories. Businesses that purchase ThinkPad laptops, AI servers, storage systems, cybersecurity services, and managed IT solutions from a single provider often benefit from simplified procurement, unified support, and integrated technology solutions, making Lenovo a more valuable long-term partner. Finally, Lenovo's ongoing transition toward higher-margin services and AI solutions further strengthens its competitive position. While the PC business remains cyclical and highly competitive, the growing contribution from recurring services, enterprise infrastructure, and AI-enabled solutions increases customer retention and reduces reliance on hardware sales alone. Although Lenovo does not possess the ecosystem lock-in of companies such as Apple or Microsoft, its combination of operational excellence, manufacturing flexibility, procurement scale, diversified product portfolio, and global customer reach creates structural advantages that are difficult for many competitors to replicate. These capabilities position Lenovo to continue gaining market share while supporting long-term profitability as demand for AI infrastructure, enterprise technology, and intelligent devices continues to expand.

Management

Yang Yuanqing serves as the Chairman and CEO of Lenovo, roles he has held since 2005 and 2009 respectively, after joining the company in 1989 and becoming an executive director in 1997. With more than three decades of experience in the information and communications technology industry, Yang Yuanqing has played a central role in transforming Lenovo from a regional PC manufacturer into one of the world's largest technology companies with operations spanning intelligent devices, enterprise infrastructure, and digital services. His long tenure gives him a deep understanding of the company's culture, operations, and long-term strategic direction. Under Yang Yuanqing's leadership, Lenovo expanded well beyond its core PC business into smartphones, servers, storage systems, enterprise infrastructure, and digital services. He led the company through several transformative acquisitions, including the purchase of IBM's Personal Computing Division in 2005, IBM's x86 server business in 2014, and Motorola Mobility later that same year. These acquisitions significantly broadened Lenovo's technology portfolio, strengthened its presence in developed markets, and provided access to globally recognized brands, enterprise customers, and advanced research and development capabilities. Beyond acquisitions, Yang Yuanqing has been the driving force behind Lenovo's long-term transformation from a hardware manufacturer into a diversified technology company. He introduced the company's Intelligent Transformation strategy, which aims to combine intelligent devices, enterprise infrastructure, and digital services into an integrated ecosystem increasingly powered by artificial intelligence. More recently, Lenovo has expanded this vision through its Hybrid AI strategy, positioning the company to deliver AI solutions across personal devices, edge computing, private infrastructure, and the cloud. Rather than viewing AI as a single product category, Yang Yuanqing has emphasized making artificial intelligence accessible to both consumers and enterprises through Lenovo's broad technology portfolio. One of Yang Yuanqing's greatest achievements has been building Lenovo into one of the most operationally efficient technology companies in the world. Throughout his tenure, the company has consistently gained market share while navigating financial crises, component shortages, geopolitical tensions, tariffs, and rapidly changing technology cycles. Lenovo's globally diversified manufacturing footprint, highly integrated supply chain, and end to end operating model have become defining competitive advantages under his leadership. These capabilities have enabled the company to maintain profitability, respond quickly to changing market conditions, and continue investing for long-term growth even during periods of industry disruption. In addition to his work at Lenovo, Yang Yuanqing serves as an independent director of Baidu and previously served as an independent director of Taikang Insurance Group. He holds a Master's degree in Computer Science from the University of Science and Technology of China and a Bachelor's degree in Computer Science and Engineering from Shanghai Jiao Tong University. Throughout his career, Yang Yuanqing has built a reputation as a disciplined and long-term oriented leader with a strong focus on operational excellence, customer centric innovation, and continuous transformation. Rather than relying on a single successful business, he has repeatedly repositioned Lenovo to capture new technology trends while preserving the operational discipline that has long differentiated the company. Given his exceptional track record of executing complex strategic transformations and building one of the world's most resilient technology supply chains, I believe Yang Yuanqing is well positioned to lead Lenovo through the next phase of growth driven by artificial intelligence, enterprise infrastructure, and recurring services.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Lenovo has generated consistently healthy returns on invested capital over the past decade despite operating in one of the most competitive areas of the technology industry. After remaining below 10% in fiscal years 2017 and 2018, ROIC increased above my preferred threshold in fiscal year 2019 and has remained comfortably above 10% ever since. The company reached a peak ROIC of 28.2% in fiscal year 2022 before gradually declining to 13.6% in fiscal year 2026. While this represents a meaningful decline from the peak, Lenovo continues to generate healthy returns on the capital invested in the business, which suggests that the company is still creating value for shareholders. Several structural characteristics explain why Lenovo has been able to achieve consistently attractive returns on invested capital. First, the company benefits from exceptional operational efficiency. Lenovo controls much of its value chain, from product design and procurement to manufacturing, logistics, and after sales services. Its unique ODM+ manufacturing model combines company owned production facilities with strategic manufacturing partners, allowing Lenovo to produce efficiently while maintaining flexibility across more than 30 manufacturing sites worldwide. This integrated operating model helps the company keep costs under control while responding quickly to changes in demand and supply conditions. Second, Lenovo benefits from enormous scale. As the world's largest PC manufacturer and an increasingly important provider of enterprise infrastructure, the company purchases vast quantities of components from suppliers, giving it significant purchasing power and favorable procurement terms. These economies of scale extend across manufacturing, distribution, research and development, and marketing, allowing Lenovo to spread fixed costs across a very large revenue base. Scale also enables the company to continue investing in innovation while maintaining healthy profitability. Third, Lenovo has built one of the strongest supply chains in the global technology industry. Management frequently highlights its ability to secure critical components, shift production between regions, and navigate supply disruptions more effectively than competitors. This supply chain resilience became particularly evident during the pandemic, when Lenovo continued gaining market share despite widespread component shortages. The company's operational excellence has consistently translated into solid profitability despite intense pricing competition across much of the hardware industry. The exceptionally high ROIC achieved between fiscal years 2021 and 2023 was driven by a unique combination of factors. Demand for personal computers surged during the pandemic as businesses, schools, and consumers invested heavily in remote work and digital learning. At the same time, supply constraints across the industry allowed manufacturers to maintain stronger pricing and healthier margins than under normal market conditions. Lenovo benefited from both unusually strong demand and its ability to execute better than many competitors, resulting in record profitability and exceptionally high returns on invested capital. The decline in ROIC since fiscal year 2022 appears to reflect a return to more normal business conditions rather than a weakening of the business. Following the pandemic, global PC demand returned to more typical levels while many businesses delayed parts of their technology spending because of economic uncertainty. At the same time, Lenovo has invested heavily in expanding its Infrastructure Solutions Group, Solutions and Services Group, and Hybrid AI strategy. These investments take time to generate meaningful profits, which has temporarily lowered ROIC. Tariffs, geopolitical uncertainty, and a more competitive pricing environment have also weighed on profitability in recent years. Looking ahead, there are reasons to believe ROIC could improve gradually over time. The structural advantages that have supported Lenovo's returns remain firmly in place, including its global scale, operational excellence, highly efficient supply chain, and diversified business model. More importantly, the company's mix of business is gradually shifting toward higher margin activities such as enterprise infrastructure, recurring services, and AI solutions. If these businesses continue to grow faster than the traditional PC segment, Lenovo should benefit from improving profitability while making better use of the operations and infrastructure it has already built. Although ROIC is unlikely to return to the unusually high levels seen during the pandemic, I believe Lenovo has the characteristics needed to continue generating attractive returns on invested capital and gradually improve from current levels as its investments in AI and services mature.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Lenovo's equity has generally grown over the past decade, although there have been a few years where it declined before recovering strongly. After increasing in fiscal years 2017 and 2018, equity declined for three consecutive years before rebounding sharply in fiscal year 2022. Since then, equity has continued to grow and reached its highest level in fiscal year 2026. Overall, this suggests that Lenovo has continued to build shareholder value over the long term despite periods of short-term volatility. Several factors help explain these movements. The declines between fiscal years 2019 and 2021 were largely driven by lower retained earnings, and foreign currency movements. During this period, Lenovo was also navigating trade tensions between the United States and China, component shortages, and the early stages of the pandemic, all of which created uncertainty and put pressure on profitability. While the business remained profitable, these factors limited the company's ability to grow equity during those years. The sharp increase in fiscal year 2022 was primarily driven by record profitability as demand for personal computers and enterprise technology surged during and after the pandemic. Lenovo benefited from strong earnings across its business while also experiencing favorable foreign currency movements that increased the reported value of parts of its global operations. Since then, equity has continued to grow as the company has remained consistently profitable. Looking ahead, I believe Lenovo is well positioned to continue growing its equity over time, although the pace is unlikely to be as strong as it was during the unusually favorable conditions of fiscal year 2022. The company continues to generate healthy profits while expanding higher margin businesses such as enterprise infrastructure, services, and AI solutions. These businesses should support earnings growth over the long term, allowing Lenovo to continue adding to shareholders' equity. At the same time, dividend payments, share repurchases, foreign currency movements, and periods of weaker technology spending may occasionally cause equity growth to slow or even decline in individual years. Overall, I expect Lenovo's equity to continue trending higher over the long term as long as the company maintains its profitability and disciplined capital allocation.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Lenovo's free cash flow has been relatively volatile over the past decade, reflecting both the cyclical nature of the technology hardware industry and the company's global supply chain. While the business has consistently generated healthy profits, the amount of cash left after investments has varied significantly from year to year. Free cash flow was negative in fiscal year 2018 before recovering strongly over the following years, reaching a record level in fiscal year 2023. It then declined sharply in fiscal years 2024 and 2025 before rebounding to one of the strongest levels in the company's history in fiscal year 2026. One reason for this volatility is that Lenovo operates in a high volume hardware business. The company must continuously manage large inventories, purchase significant amounts of components, and provide credit to customers around the world. As a result, relatively small changes in inventory levels or customer payments can have a meaningful impact on free cash flow even when profitability remains relatively stable. This means that free cash flow can fluctuate much more than earnings from one year to the next. The negative free cash flow in fiscal year 2018 was primarily driven by weaker profitability and more cash becoming tied up in the day to day running of the business. During that period Lenovo was integrating previous acquisitions, expanding its enterprise business, and operating in a highly competitive PC market with lower margins. Combined with higher inventory levels and other operational demands, this temporarily pushed free cash flow below zero. The strong improvement between fiscal years 2021 and 2023 was supported by unusually favorable market conditions. Demand for personal computers increased significantly during the pandemic as businesses, schools, and consumers invested in remote work and digital learning. Lenovo also benefited from its industry leading supply chain, allowing it to secure components and continue delivering products while many competitors struggled with shortages. Strong profitability together with efficient cash management resulted in record free cash flow during this period. Free cash flow weakened again in fiscal years 2024 and 2025 as demand for personal computers normalized and enterprise customers became more cautious with technology spending. More cash was also tied up in inventory and customer payments, reducing the amount of cash generated despite the business remaining profitable. The sharp recovery in fiscal year 2026 reflects stronger operating performance together with improved cash conversion as less cash was tied up in the day to day running of the business. This demonstrates that Lenovo remains capable of generating substantial amounts of cash when market conditions improve. Lenovo's free cash flow margin has historically been relatively modest compared to many software or service companies, which is not surprising given the nature of its business. Most of Lenovo's revenue still comes from selling hardware, where margins are naturally lower than in software or consulting. Manufacturing, sourcing components, and managing a global supply chain also require significant amounts of capital. As a result, Lenovo is unlikely to achieve the free cash flow margins seen at asset light technology companies. Looking ahead, I believe Lenovo's free cash flow and free cash flow margin can gradually improve, although both are likely to remain somewhat volatile. Management expects profitability to benefit from operating efficiency, greater scale, and a larger contribution from higher margin businesses such as infrastructure, services, and AI solutions. As these businesses become a larger part of Lenovo's revenue, they should help improve cash generation because they typically require less capital than selling hardware alone. At the same time, Lenovo continues to invest in expanding its Infrastructure Solutions Group to capture growing demand for AI infrastructure, which will require additional capital spending in the coming years. While these investments may temporarily reduce free cash flow, they are intended to support future growth and higher profitability. Lenovo uses its free cash flow in several ways. First, the company reinvests in the business by expanding manufacturing capacity, investing in research and development, growing its infrastructure and services businesses, and developing new AI products and solutions. Second, Lenovo has a long history of returning cash to shareholders through dividends. Management recently approved the highest dividend in the company's history and has returned billions of dollars to shareholders through dividends over the past five years. In addition, management has indicated that share repurchases may also be used when appropriate while maintaining sufficient flexibility to invest in future growth opportunities. The free cash flow yield suggests that Lenovo may be trading at an attractive valuation. However, we will revisit valuation later in the analysis.

Debt

Another important aspect to consider is debt. It is crucial to assess whether a business has a manageable level of debt that can be repaid within three years, calculated by dividing total long-term debt by earnings. Upon analyzing Lenovo’s financials, it is clear that the company currently has 2,2 years of earnings in debt, which is below the three-year threshold. Lenovo continues to generate solid profits and healthy cash flow, giving the company the financial flexibility to invest in future growth while maintaining a manageable debt level. Management has also taken a disciplined approach to capital allocation by balancing investments in areas such as AI, infrastructure, and services with regular dividend payments. Overall, I believe Lenovo's debt level is comfortable and does not raise any concerns.

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Risks

Macroeconomic factors are a risk for Lenovo because the company's business is closely tied to global economic activity and corporate technology spending. Unlike essential products, many of Lenovo's devices can continue to be used for several years, allowing both consumers and businesses to delay purchases during periods of economic uncertainty. When consumer confidence weakens or unemployment rises, households often postpone upgrading laptops, tablets, smartphones, and gaming devices. At the same time, businesses frequently reduce or delay spending on employee computers, servers, storage systems, and other IT infrastructure as they become more cautious about large investments. Because Lenovo serves both consumers and enterprises, economic slowdowns can reduce demand across much of its business. The commercial market is particularly important because a large share of Lenovo's revenue comes from corporate customers. During periods of uncertainty, companies often extend the replacement cycle for employee devices and delay data center upgrades in an effort to reduce costs. While these purchases are rarely cancelled permanently, they can be postponed for several quarters, creating periods of weaker revenue growth and profitability. Inflation and higher interest rates can create additional challenges. Higher inflation increases Lenovo's costs for components, manufacturing, transportation, and labor, while higher interest rates reduce consumers' purchasing power and make businesses more selective about new technology investments. Since Lenovo operates in a competitive industry with relatively modest margins, it cannot always pass these higher costs on to customers without affecting demand. Currency movements also represent an important macroeconomic risk. Lenovo generates revenue and incurs costs in many different currencies, meaning fluctuations in exchange rates can affect both reported revenue and earnings. Finally, although artificial intelligence represents one of Lenovo's largest long-term growth opportunities, enterprise AI projects often require significant investment. During periods of economic uncertainty, companies may choose to postpone these investments, slowing the growth of Lenovo's infrastructure, services, and AI businesses. As a result, changes in economic conditions can influence both demand for Lenovo's traditional hardware products and the pace at which its higher-growth businesses expand.

Laws and regulations are a risk for Lenovo because the company operates in more than 180 markets and must comply with a wide range of legal and regulatory requirements across many different jurisdictions. As Lenovo has expanded from being primarily a PC manufacturer into enterprise infrastructure, cloud solutions, cybersecurity, and artificial intelligence, the number and complexity of regulations affecting its business have increased significantly. The company must comply with laws covering product safety, import and export controls, competition, anti bribery, anti corruption, data privacy, cybersecurity, environmental standards, and artificial intelligence. As governments continue introducing new regulations, Lenovo must constantly adapt its products, operations, and internal processes to remain compliant. Failure to do so could result in financial penalties, legal disputes, reputational damage, or restrictions on selling products in certain markets. Lenovo's position as a Chinese headquartered company creates additional regulatory challenges. Governments in several Western countries have increased their scrutiny of Chinese technology companies because of concerns related to cybersecurity, national security, and data protection. As a result, Lenovo could face stricter procurement rules, additional security reviews, or restrictions on participating in certain government or enterprise contracts. While Lenovo operates as a global company with manufacturing, research, and operations across many countries, changes in political priorities or national security policies could still affect its ability to compete in some markets. Trade regulations also represent an important risk. Lenovo relies on a global supply chain that sources components, manufactures products, and serves customers across multiple regions. Changes to import or export regulations, sanctions, tariffs, or restrictions on advanced technologies could increase costs, disrupt production, or make it more difficult to obtain critical components. These regulations can change quickly, requiring Lenovo to adjust its supply chain, manufacturing footprint, or sourcing strategy at short notice. Privacy and cybersecurity regulations have also become increasingly important as Lenovo expands its software, services, and AI businesses. The company processes large amounts of customer and enterprise data through connected devices and digital services. Regulations such as the European Union's General Data Protection Regulation and China's Personal Information Protection Law impose strict requirements on how personal and business data is collected, stored, transferred, and protected. Any failure to comply could result in significant fines, legal liability, reputational damage, and reduced customer trust. As Lenovo continues expanding its presence in enterprise infrastructure, cloud solutions, and artificial intelligence, compliance with evolving laws and regulations will likely become an increasingly important factor in maintaining customer relationships and supporting future growth.

Competition is a risk for Lenovo because the technology industry is highly competitive and evolves rapidly, with companies constantly competing through innovation, performance, pricing, and customer experience. Unlike many industries where products change gradually, technology companies must continually develop new products and improve existing ones to keep pace with changing customer needs and technological advances. Failure to do so can quickly lead to lost market share, particularly in markets where customers can easily switch between brands when purchasing new devices or upgrading their technology infrastructure. Lenovo operates across several highly competitive markets, including personal computers, smartphones, enterprise infrastructure, and IT services. As a result, the company competes with a broad range of global technology leaders. In personal computers, Lenovo competes with companies such as HP, Dell, Apple, ASUS, and Acer. In smartphones, it faces competition from Apple, Samsung, Xiaomi, OPPO, vivo, and other regional manufacturers. Within enterprise infrastructure, Lenovo competes against companies including Dell Technologies, Hewlett Packard Enterprise, Cisco, Supermicro, and increasingly cloud providers such as Amazon Web Services, Microsoft Azure, and Google Cloud, which offer integrated infrastructure and cloud services. Competition affects Lenovo in several ways. One important risk is that competitors may introduce products with better performance, more attractive features, or new technologies that customers value more highly. The rapid development of artificial intelligence has increased this risk, as companies across the technology industry are investing heavily to bring AI capabilities into personal computers, smartphones, servers, and enterprise software. If Lenovo fails to keep pace with these innovations, customers may choose competing products instead. Pricing also represents an important competitive challenge. Many of Lenovo's products, particularly consumer PCs and smartphones, compete in markets where products are relatively similar and customers often compare prices closely before making a purchase. This creates constant pricing pressure, making it difficult for manufacturers to increase prices without risking lower sales volumes. Aggressive pricing by competitors can therefore reduce Lenovo's profitability even if the company maintains its market share. Competition also extends beyond products and prices. Enterprise customers increasingly evaluate suppliers based on service quality, software capabilities, cybersecurity, AI solutions, and long term support rather than hardware alone. As Lenovo continues expanding its infrastructure and services businesses, it must compete not only with traditional hardware manufacturers but also with software companies, cloud providers, and specialized AI vendors that are investing heavily to capture the same customers.

Reasons to invest

Devices are a reason to invest in Lenovo because the company has built one of the world's strongest device ecosystems, giving it a leadership position across personal computers while creating significant opportunities to benefit from the transition to artificial intelligence. Lenovo is the world's largest PC manufacturer with roughly one quarter of the global market, and its leadership extends across both consumer and commercial PCs. Rather than simply maintaining its position, Lenovo has continued to gain market share, outperforming the broader PC market for multiple consecutive years while widening its lead over its closest competitors. This leadership is particularly valuable because scale creates important competitive advantages. Higher shipment volumes improve purchasing power with suppliers, support more efficient manufacturing, strengthen relationships with enterprise customers, and allow Lenovo to spread research, development, and marketing costs across a larger number of devices. These advantages have helped Lenovo consistently maintain industry-leading profitability despite operating in one of the most competitive hardware markets in the world. Another important strength is Lenovo's continued focus on premium devices. While many PC manufacturers compete primarily on price, Lenovo has increasingly shifted its product mix toward higher-value ThinkPad, Yoga, Legion, and workstation products, allowing average selling prices and profitability to improve. Premium PCs accounted for roughly half of shipments during the latest quarter, demonstrating that Lenovo is successfully growing in the parts of the market where customers are generally less price sensitive and more focused on performance, reliability, and productivity. The company's innovation pipeline also supports its leadership position. Lenovo continues introducing new products across commercial PCs, gaming systems, workstations, monitors, and AI-enabled devices that improve performance, battery life, energy efficiency, and user experience. At the same time, Lenovo has strengthened its position in gaming through its Legion portfolio while expanding its range of professional devices designed for enterprise customers and AI workloads. Smartphones represent another important growth opportunity. Motorola has delivered record shipments, record revenue, and expanding profitability while steadily increasing its presence in premium smartphones. The brand continues gaining market share in regions such as North America, Latin America, Europe, India, and Japan, while its Razr foldable smartphones have strengthened Motorola's position in the premium segment. Looking ahead, Lenovo's device leadership could become even more valuable as artificial intelligence becomes increasingly integrated into personal computing. Rather than viewing AI as a standalone application, Lenovo is developing an ecosystem in which PCs, smartphones, tablets, wearables, and future AI-native devices work together through its Qira personal AI platform. Because Lenovo already has one of the world's largest installed bases of personal computing devices, it begins this transition from a position of strength. As more AI capabilities move onto devices and customers increasingly seek connected experiences across multiple products, Lenovo's scale, broad product portfolio, and ecosystem approach could create additional opportunities to strengthen customer loyalty, increase premium device sales, and generate new software and service revenue over time.

Infrastructure Solutions is a reason to invest in Lenovo because the business has transformed from a low-margin server operation into one of the company's most important long-term growth opportunities, driven by the rapid adoption of artificial intelligence. Over the past decade, Lenovo has steadily expanded its infrastructure business through acquisitions, product development, and investments in engineering, manufacturing, and enterprise capabilities. These efforts have now reached an important milestone, with the Infrastructure Solutions Group achieving record revenue and full-year profitability while demonstrating that it can become another meaningful engine of both growth and earnings alongside Lenovo's traditional device business. This transformation is particularly significant because infrastructure products such as servers, storage systems, and AI solutions typically generate higher margins and longer customer relationships than consumer hardware. A major driver of this opportunity is the growing demand for AI infrastructure. As businesses increasingly move beyond experimenting with artificial intelligence and begin deploying AI across their operations, they require powerful computing systems capable of training and running AI models. Lenovo has positioned itself to benefit from both sides of this market by providing infrastructure for hyperscale cloud providers that train large AI models while also helping enterprises deploy AI within their own data centers through hybrid AI solutions. Management believes this represents the beginning of a multiyear investment cycle rather than a short-term surge in demand, supported by a strong pipeline of AI infrastructure projects worth more than $20 billion and thousands of customer deployments. Another important advantage is Lenovo's ability to serve a broad range of customers. Unlike many competitors that primarily focus either on hyperscale cloud providers or traditional enterprise customers, Lenovo combines both business models through its ODM+ capabilities for cloud providers and its long-established enterprise business serving large organizations and small and medium-sized businesses. This broad customer base allows Lenovo to participate in multiple areas of the AI infrastructure market while reducing its dependence on any single customer group. Innovation also plays an important role in strengthening Lenovo's competitive position. The company continues to expand its portfolio of AI servers, rack-scale systems, hybrid AI solutions, and high-performance computing technologies such as its Neptune liquid cooling platform, which helps customers improve energy efficiency while supporting increasingly powerful AI workloads. These technologies are complemented by partnerships with companies such as NVIDIA, enabling Lenovo to bring new AI platforms to market quickly while providing customers with validated end-to-end solutions. The recent acquisition of Infinidat further strengthens this strategy by expanding Lenovo into the high-end enterprise storage market. Storage is becoming increasingly important as AI systems require fast and reliable access to enormous amounts of data. By combining Infinidat's enterprise storage technology with Lenovo's global sales network, infrastructure portfolio, and operational scale, the company gains access to a significantly larger addressable market while creating additional opportunities for higher-margin revenue.

Solutions and Services is a reason to invest in Lenovo because the business is helping the company move beyond one-time hardware sales and generate more predictable, higher-margin revenue from long-term customer relationships. Lenovo originally built its services business around support and maintenance attached to its PCs, servers, and other hardware. However, the Solutions and Services Group has gradually expanded into managed services, subscription-based infrastructure, digital workplace solutions, hybrid cloud services, sustainability solutions, and artificial intelligence. This transformation allows Lenovo to participate in a larger share of its customers’ technology spending while reducing its dependence on the more cyclical and lower-margin hardware market. The financial development of the business demonstrates the progress Lenovo has made. Solutions and Services has reached approximately $10 billion in annual revenue, representing average annual growth of around 17% over the past four years, while operating profit has more than doubled over five years. The business has also delivered double-digit revenue growth with high margins for 20 consecutive quarters.  Importantly, a record 62% of revenue came from managed services and project and solutions activities. These offerings generally provide greater value to customers than traditional hardware support and often involve recurring contracts, which can make Lenovo’s revenue more predictable over time. TruScale is an important part of this strategy. TruScale allows customers to use Lenovo’s devices, infrastructure, and services through a subscription or consumption-based model rather than purchasing everything upfront. Customers can therefore pay according to the technology and computing capacity they use while Lenovo helps design, install, operate, and maintain the systems. This is attractive to companies that want greater flexibility, more predictable technology costs, and less responsibility for managing complex infrastructure themselves. It is becoming particularly relevant as artificial intelligence creates substantial uncertainty around how much computing capacity businesses will require. Rather than committing large amounts of money to infrastructure that may later prove insufficient or unnecessary, customers can use TruScale to expand capacity as their needs develop. These agreements can also strengthen Lenovo’s relationship with customers because the company remains involved throughout the technology life cycle instead of completing a single product sale. The more Lenovo understands a customer’s operations and technology needs, the more opportunities it has to provide additional devices, infrastructure, software, and services. Management has reported high renewal rates among existing TruScale customers and encouraging progress in expanding those relationships over time. Artificial intelligence represents another important opportunity for Solutions and Services. Many companies are no longer asking whether they should experiment with AI, but how they can move AI projects into daily operations quickly, securely, and at a reasonable cost. Installing servers or purchasing access to an AI model is only one part of that process. Businesses may also need help selecting appropriate use cases, preparing their data, designing the infrastructure, integrating software, protecting sensitive information, training employees, and operating the system after deployment. Lenovo can support customers across this entire process through its Hybrid AI Advantage offering, which combines the company’s devices, infrastructure, software, services, and industry knowledge. This gives Lenovo an opportunity to generate revenue not only from providing the underlying hardware but also from designing, deploying, managing, and improving the customer’s AI environment. Lenovo is also building a library of more than 60 enterprise-ready AI solutions developed from actual customer deployments across industries such as manufacturing, retail, and sports. Instead of requiring every customer to develop an AI solution from the beginning, Lenovo can offer systems that have already been tested and can be adapted to similar business needs. Examples include AI-powered contact centers that improve customer service and efficiency, robotic systems that inspect manufacturing facilities, and intelligent command centers that monitor complex operations and identify potential problems in real time. Because these solutions can be repeated across multiple customers, Lenovo may be able to grow the business without increasing its workforce at the same pace as revenue. The company is supporting this approach with xIQ, its AI-based delivery platform, which automates parts of the service process and helps Lenovo deliver solutions more quickly and efficiently. This technology-led and less labor-intensive model could support continued growth while protecting the group’s strong margins.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 1,09, which is from fiscal year 2026. I have selected a projected future EPS growth rate of 13%. Finbox expects EPS to grow by 12,8% a year in the next five years. Additionally, I have selected a projected future P/E ratio of 26, which is twice the growth rate. This decision is based on Lenovo's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be HKD 23,78. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Lenovo at a price of HDK 11,89 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 31.550, and capital expenditures were 9.895. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 6.927 in our calculations. The tax provision was 3.999. We have 12.405 outstanding shares. Hence, the calculation will be as follows: (31.550 – 6.927 + 3.999) / 12.405 x 10 = HKD 23,07 in Ten Cap price.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Lenovo's Free Cash Flow Per Share at HKD 1,75 and a growth rate of 13%, if you want to recoup your investment in 8 years, the Payback Time price is HKD 25,23.

Conclusion

I believe Lenovo is an intriguing company with good management. Lenovo has built its moat through its operational excellence, vertically integrated global supply chain, scale, and deep customer relationships. Lenovo's ROIC has remained above 10% since fiscal year 2019, supported by its scale, operational efficiency, and strong supply chain. Although ROIC has declined from the unusually high pandemic peak to 13,6% in fiscal year 2026, it remains healthy and could gradually improve as higher margin infrastructure, services, and AI businesses become more important. Lenovo's free cash flow has been volatile because of the cyclical nature of the hardware industry and the cash required to manage its global supply chain, but the company has consistently demonstrated its ability to generate strong cash flow over time. As higher margin infrastructure, services, and AI businesses become a larger part of the company, I believe free cash flow generation can gradually improve despite continued investment in future growth. Macroeconomic factors are a risk for Lenovo because demand for its products and services depends heavily on consumer spending and corporate technology investment, both of which tend to weaken during economic slowdowns. Inflation, higher interest rates, currency fluctuations, and delayed AI and IT investments can all reduce demand and put pressure on Lenovo's revenue and profitability. Laws and regulations are a risk because Lenovo operates globally and must comply with an increasingly complex set of rules covering areas such as trade, cybersecurity, data privacy, artificial intelligence, and product standards. In addition, its Chinese headquarters expose the company to geopolitical tensions and potential trade restrictions that could increase costs, disrupt its supply chain, or limit access to certain markets. Competition is another risk because Lenovo operates in highly competitive markets where rapid innovation, pricing pressure, and evolving customer needs require continuous investment to maintain its market position. As Lenovo expands into infrastructure, services, and AI, it must compete not only with hardware manufacturers but also with cloud providers, software companies, and specialized AI firms. Devices are a reason to invest because Lenovo is the world's largest PC manufacturer, benefiting from scale, strong brands, and a growing ecosystem of premium and AI enabled devices that support long term growth and profitability. As AI becomes increasingly integrated into personal computing, Lenovo's leadership across PCs, smartphones, and connected devices positions it well to strengthen customer loyalty and capture new growth opportunities. Infrastructure Solutions is another reason to invest because it has become a fast growing, profitable business that is well positioned to benefit from the long term expansion of AI infrastructure. With a broad customer base, innovative AI solutions, and growing exposure to higher margin servers and storage, this segment has the potential to become an increasingly important driver of Lenovo's future growth and profitability. Solutions and Services is also a reason to invest because it is increasing the company's exposure to recurring, higher margin revenue through managed services, subscriptions, and AI solutions, making the business less dependent on hardware sales. As customers adopt more complex AI and hybrid cloud technologies, Lenovo is well positioned to deepen customer relationships and capture a larger share of their long term technology spending. I believe there are many things to like about Lenovo and, if you can stomach the volatility associated with Chinese stocks, opening a small position at the Ten Cap price of HKD 23 could be a good long term investment.

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