Lenovo Group Ltd. said its net profit for the fiscal third quarter rose 11% on year, on the back of record-high quarterly sales and better profitability due to improvement in its product mix.

Net profit for the October-to-December period was $258 million, compared with $233 million over the same period a year earlier, the world's largest PC maker by shipments said Thursday.

Revenue edged up to $14.10 billion from $14.04 billion a year earlier, breaking its quarterly sales record, Lenovo said.

Gross margin also expanded by 1.5 percentage points on year to 16.1%, as the company continued to shift to premium and high-growth PC products such as gaming computers, it said.

“Last quarter, despite the geopolitical uncertainties and industry-wide supply shortages, we delivered a record-setting performance with geographical balance, operational excellence, and solid strategy execution. Both group revenue and pre-tax income reached all-time highs,” said Yang Yuanqing, Lenovo Chairman and CEO. “These core competencies not only enable us to seize the opportunities of technology transformation and drive sustainable growth, but also help us address the challenges we face today.”

As the coronavirus epidemic continues to evolve, the company said it expects potential volatility in business performance in the short term.

Although the company's factories in China have resumed partial production, its suppliers and logistics partner's operations remain disrupted due to manufacturing suspension and transportation restrictions to contain the outbreak, Lenovo said.

Segment highlights

Lenovo’s Intelligent Devices Group (IDG) continues to lead the company’s strong performance. The PC and Smart Devices Group (PCSD), one of the two IDG business units, set all-time records for revenue at US$11.1 billion, pre-tax income of US$684 million, and a PTI margin of 6.2%. In PCs, Lenovo extended its #1 position with record high shipments, outperforming a growing market by almost 2 percentage points. Volume in high-growth and premium categories such as Gaming, Thin & Light, Visuals, Workstations and Chromebooks continued to grow at high double-digits and significantly outgrew the market by double digits year-on-year.

IDG’s second business unit, the Mobile Business Group (MBG), posted its fifth consecutive quarter of profitability. In the company’s stronghold of Latin America Lenovo’s volume outgrew the market by 19 points, while improving pre-tax income margin to 5.8%.

The Data Center Group (DCG) saw server shipments grow by 18% year-on-year. While Data Center group revenue remained flat year-on-year due to sharp component price reductions that decreased average system prices, profitability continued to improve. Non-hyperscale had its highest revenue in four years and grew nearly 16%, with the revenue from the China market alone up 46% year-on-year. Software Defined Infrastructure (SDI) and Storage have both seen year-on-year revenue growth of more than 40%.

Software and Services revenue surpassed the US$1 billion per quarter for the first time, growing 41% year-on-year, and now contributes 7% of overall Group revenues. In Smart IoT, revenue almost quadrupled year-on-year to US$90 million, driven by growth in AR/VR, consumer Smart Home and Smart Office.

Smart Infrastructure revenue grew more than 50% year-on-year driven by Software Defined Infrastructure and Network Function Virtualization. Smart Vertical revenue doubled as a result of triple-digit growth from Data Intelligence Business Group revenue and PCSD solutions in the healthcare and education sectors.