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Good afternoon, ladies and gentlemen. Welcome to Lenovo's 2018 Annual Results Investor Presentation. First, let me introduce the management here with us today. They are Mr. Yang Yuanqing, Chairman and CEO; Mr. Gianfranco Lanci, Corporate President and COO; Mr. Wong Wai Ming, CFO; Mr. Kirk Skaugen, Executive Vice President and President of Data Center Group; not the least, we have Mr. Sergio Buniac, President of Motorola and Senior Vice President of Lenovo. Now may I invite Yuanqing to start the presentations and then followed by Wai Ming. May I -- yes, Yuanqing. Thank you.
Hello, everyone. Thank you for joining us here today. I'm pleased to discuss our last quarter results. We definitely had a strong quarter, demonstrating our progress in executing our 3-wave strategy. And as I mentioned in the previous quarters, Lenovo has now passed the turning point and entered a new phase of growth.
Last quarter, our revenue was over USD 10.6 billion, up more than 11% year-on-year. We resumed our double-digit growth journey. We also improved the profitability in all 3 key businesses, core businesses, year-on-year. And the pretax operational performance, excluding onetime nonoperational items, improved USD 255 million year-on-year. Our PC & Tablet revenue grew almost 16% year-on-year. That is the highest growth in the past 4 years. Pretax income margin also returned to 5% after a year. In Data Center, we showed even stronger growth momentum than last quarter. Our revenue grew almost 44% year-on-year, and we saw growth in all segments and all geographies. Overall profitability improved by over 11 points year-on-year, narrowing our loss for the fourth consecutive quarter. Our Mobile business overall is definitely not as good as we expected. We are refining our branding strategy and the business model in emerging markets. But we still showed our strength in North America and the Latin America, and we have taken actions to cut expense by 30% to reshape the business for the new fiscal year. In our 3rd Wave business, we delivered a concrete progress. Our non-device revenue driven by software and services increased almost 30% year-on-year. In new smart devices, we are already the worldwide #1 AR device player with Mirage. And the last quarter, we launched the Mirage Solo VR headset, VR camera, Smart Office, ThinkSmart Hub and many other new smart devices. Now as we move into the Smart IoT era, more smart devices are emerging, generating huge amount of data, fueling intelligence. To adapt to the change in the world, we combined our PC, Mobile and the Smart Devices into Intelligent Devices Group, or IDG. This new group will enable us to leverage shared platforms like global supply chain and services for lower costs and higher efficiency; accelerate the technology convergence between computing and communication; even more importantly, this group will drive a new UDS platform to connect our users, devices and cloud services.
Looking forward, the new Intelligent Devices Group, or IDG, will strengthen our leading profitability and the market position in PCs and Tablets, reshape and improve profitability in our Mobile business and then return it to financial health. At the same time, we will focus more on high-growth smart IoT segments, building UDS platform and then increasing our service penetration rate. Our rapidly growing Data Center business will become a profitable, sustainable growth engine. In the new year, we aim to more than double our hyperscale and software-defined businesses through continued industry-leading innovation. We remain committed to significantly improving profitability year-on-year. And to pioneer in the intelligence era, we will build our capability in Vertical Intelligent Solutions using IoT, big data and AI technology. Lastly, we see that our strong execution has returned our business to growth. In the year ahead, I'm confident that you will see us continue to grow our revenue and profitability as well as build competitiveness in the smart IoT and intelligence era. Thank you. Now let me turn it over to our CFO, Wai Ming. Wai Ming, please.
Thank you, Yuanqing. Now I will take you through the Lenovo financial and operational performance in Q4 and fiscal year 2018. Next chart, please.
So let me first share with you the financial highlights for our quarter 4 performance. Our quarter 4 performance continued to show solid momentum. Revenue grew 11% with strong operational profit improvement year-on-year, led by a strong revenue performance from both PCSD and our Data Center businesses.
Gross profit increased by 13% year-on-year while gross profit margin increased by 0.2 percentage point year-on-year to 14.5%. The result was driven by better product mix in PCSD businesses, which helped offset the impact of the component cost increase. Operating expenses increased by 11% to $1.4 billion. Our E-to-R ratio increased slightly year-on-year to 13.6%, mainly due to the onetime items recorded last year that offset the overall expenses.
Group PTI $37 million, up 143% year-on-year. Group operational performance was $76 million, improving $255 million from a year ago. The improvement was mainly driven by the solid performance in PCSD, while the losses in both of our DCG and MBG businesses continued to narrow year-on-year. For the full year, revenue was $45 billion, up 5%, resuming growth momentum. Gross profit increased 3% year-on-year while margin decreased by 0.4 percentage point to 13.8%, impacted largely by the component cost increases during the year. Operating expenses increased by 8% to $5.9 billion, largely due to the onetime items recorded in the previous year that offset the overall expenses.
Group reported pretax income was $133 million. Group operational performance was $193 million, improving around $100 million from a year ago. Profit attributable to equity-holders for Q4 was $33 million, and the year-on-year drop was due to a tax credit recorded in the previous year. We recorded $189 million loss for the full year, mainly due to a onetime noncash write-off charge of $400 million in Q3 on the deferred income tax asset, which we have already announced in the last quarter. The year-on-year drop was largely due to the onetime items and the tax credit recorded in the previous year. Basic loss per share for the year was USD 0.0167 compared to earnings of USD 0.048 -- sorry, USD 0.0486 last year. The board decided in this morning's meeting to declare a final dividend of HKD 0.205 per share. So next chart, please.
So cash used in operation was at $753 million in Q4, mainly due to our buy-ahead actions in key components for our businesses during the quarter.
At the end of quarter 4, we have net debt of $1.8 billion versus $86 million of net debt in the previous year. The higher debt position was mainly due to the utilization of our revolving facility. The lower cash level compared to a year ago was partially due to the paydown of the Google promissory notes during the year in addition to the buy-ahead actions in key components. In Q4, we have successfully refinanced our $714 million of our U.S. dollar bonds, extending the maturity date from the initially May next year to March 2023. We have also refinanced our syndicated U.S. dollar revolving facility, extending the availability for another 5 years and expanding the facility from $800 million to $1.5 billion. In Q4, our cash conversion cycle was negative 17 days, 5 days worse year-on-year, due to the longer inventory days that resulted from our components buy-ahead plan for our businesses. We expect the buy ahead to moderate and subside in the few -- in the coming quarters with inventory days improving. Next chart, please.
The global PC market continued to show signs of stabilization in Q4. Our PCSD business delivered a strong result, with a sixth consecutive quarter of solid revenue growth. We recorded double-digit year-on-year revenue growth in 4 out of 5 key geographies we operate. Our PC business in China also regained momentum with premium to market revenue performance.
For the full fiscal year, PC business -- PCSD business also resumed its growth momentum, thanks to the solid commercial business and our strong performance from workstation and gaming PC. Both our workstation and gaming PC business are now a $1 billion business. Revenue in Q4 was up 16% year-on-year to $7.7 billion, thanks to more innovative products and a better product mix. Pretax income was $384 million up 33% year-on-year. PTI margin improved 0.7 percentage point to 5% level. Our PTI margin has shown quarter-to-quarter improvement throughout the financial year.
For the full fiscal year, revenue was up 8% year-on-year to $32 billion. Pretax income maintained at around $1.5 billion, similar level to the last fiscal year, while margin dropped 0.5 percentage point year-on-year mainly due to the component cost hike during the year. Next chart, please.
Our transformation of -- our transformation in Data Center business is well on track. Q4 revenue growth is the highest since the acquisition and the profitability continued to improve throughout the year. Geos outside China saw strong double-digit revenue growth, especially strong in America and EMEA, while China continues revenue growth momentum since quarter 3. Our margin has also shown both quarter-on-quarter and year-on-year improvement during the quarter. On the product segment performance, our hyperscale segment achieved triple digit revenue growth, while margin improved significantly, thanks to our previous efforts to refining the business model. Our high-performance computing and software-defined segments also achieved double-digit revenue growth during the quarter.
For the full year, our transformation actions to build in-house design capability helped our hyperscale business improve its customer mix and grow this business outside of China rapidly, that's also achieving revenue growth year-on-year. Our software-defined segment achieved triple-digit revenue growth, while we further narrowed the gap to challenge the #1 supercomputer position. Global accounts grew 5 quarters in a row and 147% year-on-year for the quarter. We have not only returned to the year-on-year revenue growth, but also continue to reduce the loss for 4 consecutive quarters. This reflects the execution to the strategies set last year to drive dedicated DCG sales, supply chain and quality capability, leading the Intel Purley Xeon transition with the best customer satisfaction in the industry, introducing our most comprehensive data center road map in history and delivering higher attach rate of storage and services to our growing server business. Revenue from Data Center business was up 44% year-on-year to $1.2 billion in quarter 4. Our operation PTI margin improved significantly, and operational loss before tax was narrowed to $34 million in the quarter. For the full fiscal year, revenue up 8% year-on-year to $4.4 billion. Operational loss before tax was narrowed to $305 million. Next chart, please.
For our Mobile business, we continue our strong momentum in our core geography, Latin America, with double-digit revenue growth and maintained strong profitability in Q4.
In mature market, our volume achieved double-digit growth year-on-year. Specifically, we continue to strengthen our presence in mainstream models and carrier expansion, and achieved a very strong shipment growth in North America. In emerging markets, we continue to face challenges of intense competition while we continue to refine branding strategy, product portfolio and business model by focusing on profitability. Revenue declined 24% year-on-year in Q4, which was mainly due to both external challenges and our continued and deliberate adjustment in strategy to reposition in the emerging market. Operational loss narrowed while margin improved 1.8 percentage points year-on-year, thanks to the expenses control across the geographies. For the full year, revenue declined 6% year-on-year, while operational loss narrowed by more than $100 million and margin improved by 0.9 percentage point. Looking ahead, we'll continue to focus on driving better profitable growth, building on strong results of the last few quarters. We'll continue to drive premium to market revenue growth and maintain our industry-leading profitability for our PC business. We'll continue to improve our user experience with our innovative products and channel reform to drive future growth. Our smart devices are now in the go-to-market phase and starting to contribute to our revenue.
To continue the success of our Star Wars AR headset, we also just launched the VR device Mirage Solo in May, and will be launching more Smart Home and Smart Office devices soon.
For Mobile business, expense control actions including optimizing cost structure, leveraging shared platforms and streamlining portfolio are underway to significantly reduce operating loss. Meanwhile, we will focus on driving profitable growth from core markets such as growing a strong position and profitability in Latin America and strengthen our presence in the mature markets. Nevertheless, the fierce competition in the emerging market may still impact our short-term performance.
For our Data Center business, we are confident to deliver sustainable profitable growth over time. We established a solid foundation through our stronger organizing structure, product portfolio and sales force to drive long-term growth. We continue to expect strong momentum in our hyperscale business, thanks to our unique in-house design and manufacturing business model. Meanwhile, we'll continue to strengthen our position in high-performance computing and outgrow the market in software-defined infrastructure. As Yuanqing mentioned, the formation of the Intelligent Device Group, combining the PCS and MBG, will allow us to leverage the shared platform that we have been building. Our industry has emerged from the PC [indiscernible] era to a mobile Internet era, and now quickly moving into the smart IoT era. Accelerating the convergence of the different technologies and devices enables us to address more market opportunities in the future and to drive our smart IoT plus cloud businesses to the next level. Coupled with our competitive cost structure and efficiency, we are confident that our profit improvement will continue and remain confident in our vision and strategy to deliver long-term profitable growth. Thank you. Now we can happily take your questions.
Thank you, Wai Ming. Please take your seat, and may I invite the management to come to the stage for the Q&A session, please.
Thank you. We will now move into the Q&A sessions. We will now take questions from the floor. If you have any question, please raise your hand and we'll pass you a microphone -- we'll pass you the mic. To make sure all of our participants, including our participants in the webcast, can hear your questions, please wait for the mic before you speak. [Operator Instructions] So may I have the -- may I take the first question from the floor? Yes, gentleman at the second row, please. No, the second row. Yes, thank you.
This is Arthur Lai from Citi. So the first question actually is on the PC margin. So I think investors were surprised you continue to increase the margin to the 5%. In compared to your U.S. investor, actually, they just report the margin declined year-over-year. So what's the secret sauce of the PC margin expansion?
U.S. competitor. You...
Actually, yes.
U.S. competitor, we don't have a U.S. -- I don't know, we may have U.S. investor also. But we have a lot of U.S. competitors, yes.
Yes, yes. So why the -- your margin continue to increase in the PC market?
Well, there are probably maybe 3 reason, I would say. One, we have been, during the last years or I would say the last year, the last 3, 4 quarters, we have been extremely, extremely careful to manage growth and profitability, which means that we have been much more focused on commercial than consumer, for example. And we have seen our commercial business growing double-digit and our consumer business almost not growing. We also decided to give up some -- almost give up, let's say, not really -- low end...
Chromebook.
Chromebook, for example, while probably the competitor you mentioned is very focused on Chromebook. Chromebook, it's a nice business in terms of volume, it's a terrible business in terms of profitability. So we are -- so this is, I think -- so very, very careful in terms of managing growth and profit. The other things we did, we also look at our product portfolio in terms of optimizing the product portfolio and avoiding duplication. And so making sure that we have a good offer covering all the segment, but without any duplication. And we have been able to move resources from PC to invest on the smart devices without compromising PC growth, right? So this is -- it's another important thing. The other thing, we have been focusing on some segment much more than before. Frankly speaking, we have been working for almost 18 months, but now you see the result. Now we are #1 on gaming, both volume and revenue for the last 3 quarters -- for the last 3 months, sorry, and it's more than $1 billion. Workstation, it's another business that is more than $1 billion. We have seen a very good growth. We're also gaining some -- we cannot name the customer, sorry, but some big customers from some of our competitors because -- so -- and the last thing is thin and light.
Thin and light.
So it's really, I would say, a product deciding to focus on some segment rather than others, more commercial than consumer. Product optimization and...
New market.
And new market.
Yes. Very good. And second one is to Kirk. So we're actually quite impressed, your high growth in the Data Center market. And so if we -- our memory is right, like hyperscale actually bring down the margin in the past. So why will it be different this time, and can you share more color on what's your vision and also maybe technology innovation?
Yes, so a year ago, we set out a plan, maybe 1.5 years, I've been here 18 months, we got a 4 by 100 plan. First 100 days was to analyze what went right and what could be improved after the IBM acquisition. Second 100 days, we spent putting those fixes into the market outside China. Third 100 days was making sure those fixes were transforming and generating better profit and share results. And then the last 100 days, we implemented those changes in China. So I think the first thing is if you just look at our transformation, you see growth like 92% in North America. You see 60-plus percent in Europe. China looks only like 8%. But remember, it's 100 days behind in the transformation, okay? That's the most important thing. It was done purposefully, okay? On hyperscale, the business models completely changed year-on-year. Last year, we just took off-the-shelf motherboards from Taiwan and sent them in to the hyperscalers. This year, we built out a team led by Paul Ju, the founder of Wiwynn. He knows how to do things very cost effectively. We're building over 33 custom products now, deep engineering with the 6 design wins we have of the top 10. Then we're putting it into our motherboard factory, which we didn't do last year, and into our systems factories around the world and then using our supply chain and procurement power. So we can do this profitably because relative to the ODMs -- everyone asked, "Can you compete with the ODMs?" We have far more purchasing power because of the 2 gentlemen on my left here being in the phone and the PC business than a typical ODM, number one. Number two, relative to the system integrators that are local, supplying some of the top hyperscalers, we ship into 160 countries in the world. So we've seen great success shipping into Brazil, South Africa, India, this kind of thing, because of our global supply chain. And then third, we have world-class reliability and quality, and that is appreciated even by the hyperscalers. So for this reason, we think we can grow triple digits sustainably for some time. Thank you.
Thank you. Yes?
It's Gokul Hariharan from JPMorgan. So first question just to belabor the point on hyperscale, could you talk a little bit about what is hyperscale going to be a portion of the mix for Lenovo Data Center business, let's say, in 18 to 24 months? It looks like for the market, it's already getting to be 40% to 50% in terms of volumes at least. And what is the strategy for hyperscale in China? Because it feels like that China hyperscale competition has been even more fierce compared to the global hyperscale market.
Yes, good question. So I think first and foremost, we did rebalance our mix. We did move some of the business out of the top hyperscalers in China until we got to the new business model. So the old business model, obviously, was not working for us if you looked at our financial results. The new business model, we think, absolutely can work with us. Secondly is if you look at the second kind of wave of companies in China like JD.com or DiDi or these other kind of companies, they're also getting very, very large, right as well as the second wave of companies. I think the number like 11 through 200 still represent about 40 -- more than 40% of the market. So there is a business in that public cloud numbers 11 through 200 to be had. And then lastly, I think we're seeing higher-end workloads move to the cloud, right? It used to be HR applications or e-mail, but now we're seeing more mission-critical workloads move to the cloud. This could mean 8-way servers, 16-way servers. And traditionally, IBM has been the industry leader of delivering Xeon-class scale-up computing. So I think you shouldn't think of just very, very low-end pizza boxes going into the cloud. Some of the bids we're working on for the large hyperscalers, the servers could be up to $1 million apiece. That's very different than selling a $1,500 server in high volume. And obviously, I think you can make a little bit more margin when you do that. Thank you.
Just one question on the mobile side. Could you outline a little bit more detail in terms of the expense reduction, the 30% expense reduction that we are targeting? How much of it is already done? Is there more to come in fiscal '19? And what is the kind of strategy in mature markets now that we have broadened out the coverage in North America? What is the threshold in terms of profitability to be looking at some of these markets?
So number one, the reductions are between 95% and 100% done, right? We're going to see the results coming through this fiscal year, through the year, but all the actions have been taken and are underway. So it included like -- it was across the board, functional areas, R&D, regions. It was a very broad approach. So that's the first part of the question. The second like -- no, our -- well, the second came with a very big reduction in complexity. So we are taking, like, from 15 products to 9. We are -- from the 9 products that are left, we are taking like chipsets from 10 to 4, we are taking front cameras and, like, back cameras from 10 to 5. So when you see the new products coming, probably through the end of the year, we'll see a lot of this complexity going down. I think you cannot exactly measure, but once you take this out, you do less training to the sales force, less calls in the call center, less software development. There are a lot of things that come as you take this complexity out.
And better cost.
In terms of markets, and I see -- we normally see the net promoter score growing very quickly, but has a very strong [ R2 ] correlation with profitability and pricing most of the time. So that's the framework on the plan we have. In terms of markets, in Latin America, we are #2 in every market. It's not about being #2. We are #2 in Argentina. We are #2 in Brazil. We are 2 in Chile. We are #2 in Peru. We got to be #1 in Q3 in Mexico. We are very close to #1 last quarter. So even in Latin America our portfolio is much more solid. In the past, a big part of our profitability come from Brazil. It's much, much more spread now. So that's Latin America. When you go to North America, we are growing, right? We're taking -- we are growing 50% year-over-year. This year, the ranging we got, North America carriers has grown 54%. Wide-ranging in North America is the only indicator of growth. I believe this growth is going to sustain. And we are now ranging -- in the past we have 2 streams, super premium and a low tier, now we are coming for the Moto G family ranging in the mid-tier, so [ reasonably ] well. In Europe, we are growing especially in Western Europe. It's over a small base. There are very encouraging results like if you look to Germany, for example. It's one of the biggest markets. In absolute growth, we were #1 last year. So we see those 3 markets like pockets of growth. When you go to emerging markets, the approach we are taking is to de-risk, right? Last year, the strategy was to try to grow very quick to get scale, we are de-risking. We can give you an example in a very tough market today like India, where we were 100% online. It's a good model, but very easy to copy. I mean, we saw competition coming very fast. We are now de-risking that market. We're going to sell a little less. We are splitting 50-50 between off-line and online. We are growing off-line very quickly. We are only taking 30% of the online market because it can go very expensive in India if you try to have multiple tiers of distribution. So when you combine all this, we see our losses narrowing quarter-over-quarter, year-over-year moving forward. So it's a reduction of expenses that combine with complexity and a combination of using the markets where we know how to do well. We also are going to be way more sophisticated the way we do innovation. We are going to take a much de-risked approach. The [ profit ] potential is not so big, but it's much easier to contain to a good level of profitability.
We still have 1 or 2 more quarters to finish our restructuring. So don't expect [ any big ] performance will improve immediately or in current quarter. So -- but I think in the second half of the year, you will see the obvious improvement.
Thank you.
But you see continuous improvement, right? Why we're not...
He's involved [indiscernible].
You have -- we have a good feeling. Double complexity.
Okay, that's better.
Thank you for the question and the [ brilliant ] answer. Yes?
This is Melrose from Morgan Stanley. The first question is for the PC margins. Management team just explained about the reason for the margin improvement. For the outlook, how should we think about the outlook for the PC margins? Is 5% a normal, like, margins for PC going forward?
Well I think going forward, we can say that, first of all, we will continue to grow probably with the double-digit -- not probably, we will continue. Our plan is to continue to maintain double-digit growth in terms of revenue still with a good mix and so on. I think we will also be able to continue to deliver industry-leading profitability moving forward. I think we are in much better shape than last year, no doubt. We need to see then component cost. There are a lot of things that -- they are not so stable. Frankly speaking, if I look today, component cost and -- looks better than before. There are other things in shortage, and I think it's a [ pass-through ] component and small things, but you still need them. So overall, I think we can maintain double-digit growth, and I think we can also maintain leading profitability moving forward and on -- yes.
So one point that I want you to pay attention to. So if you see the volume of our PC shipment, so actually, we were flat year-on-year. But our revenue grew by 16% year-on-year. So that means average selling price was increased significantly. So that can prove -- so our strategy is right and that it works because we are focusing on the premium products like gaming, like workstation. So that help us to improve the profitability. But definitely, meanwhile, we lose the volume in the low end, in the Chromebook kind of things. But it doesn't matter, we don't care about that. So the volume or the market share is not everything, right? So that's why you see our -- we improved our profitability, but our competitors are getting worse.
Well, it's up to them.
Sorry, another one question is about the Mobile business. You do share a lot about the strategies. So I think for Lenovo, you spent a lot of efforts, you optimized cost structures and also the product strategy in the past 1 years. So based on the new cost structure, product strategy and also the stable profitability from Latin America, how should we think about the turnaround timing for Mobile business this time?
No, you talk first, and then I -- [ thread ] you a little bit.
I mean, the goal we have is to continue to show improvement quarter-over-quarter, year-over-year. Of course, we don't have a date for the breakeven. But I mean, we'll see continuous progress. As I said, I think the expense reductions are going to -- well, with the expense reductions, you see our sales are down year-over-year, but our activations are flat. It shows we are depleting inventory very aggressively. So I mean, I guess, probably the turnaround point for the inventory is around July, August time frame, the expense we're going to keep through the year more heavily like 100% starting in August. So I mean -- and then when we launch the new families, we will take a lot from the platform. So these things are going to add, and then we'll see -- we are very confident we'll see a path for continuous improvement, right? So that's the framework. A firm date we don't have for breakeven. We see very solid improvement.
Let me say in this way. I gave the team a very clear direction. So making profit first, so -- then we can consider how to drive the growth. That's very clear, yes. So I cannot tell you the exact date that we will break even. But that's the direction. So that's why we actually create a lot of countries or markets which cannot be profitable.
I mean, just to have an idea of the complexity. We have 1,300 SKUs. If you put colors, bands, like different -- from which 67% made almost 70% of our results. There were half of them who are like below a mean number that doesn't justify building the products. So that's the type of things you're going see a lot of progress in, it comes with profitability moving fast.
Thank you very much for the question. Yes?
Wei Chen from Goldman Sachs. So yes, I think one of the big highlights this quarter is obviously PC, and we're seeing kind of ASP expanding pretty meaningfully. And I think that's a function of obviously the changing mix. And from the management presentation, we also picked up, I think, very important stats, which is gaming PC now reaching over $1 billion in terms of revenue and also becoming #1 in terms of share in the past 3 months. So I think in general, there's the impression that Lenovo does very well on the enterprise side. But the fact that you're doing so well in gaming, can you kind of talk us through what has been kind of really working for Lenovo Gaming PC? And how do you -- kind of how should we think about the mix and also growth for gaming for Lenovo moving forward?
I can talk for half an hour, but it's a...
We don't mind.
No, you don't mind, but maybe, yes. No, gaming -- first of all, you need to look at the market, right? I think market is, today, are the gamers and the casual gamers, let's say or if I can say. There are people spending the night gaming rather than sleeping and people that they may play 2 or 3 hours, but then they're able to socialize. And so we don't want to address or we are not addressing the people not sleeping. They -- usually, they go with big gamers provider like Alienware and some other people. It's not growing in terms of market, it's more or less stable to slightly growing, and you need to think about also in terms of device, a very special device, and [ these ugly ] things that you see that, most of the cases, the normal people don't like. And the other piece is the piece that is really growing. But you need to address these people with a product that are gaming product, of course, so with good graphical, good display, special keyboard, some lights and so on. But you still need to deliver product that are, in terms of look and feel, they feel appealing. So if you look at our product line today in terms of gaming, Legion, it's a -- I would say, it's a notebook or it's in a desktop that you can easily carry with you. Most of the cases, a gaming machine you don't carry with you because it's really something -- so we are -- this market is growing. It's growing in China and it's growing outside China in a lot of different geographies. So we have been working during the last 12 months to redesign completely the product in terms of material, look and feel and so on, and also in terms of performance, in terms of specs. You still need the high-end graphical, it's not that you don't need high-end graphical or you need certain things. But -- and then you need to do promotion because this market or this business is very special. You have all these esport event or this gaming event we are sponsoring different things in -- or different event in different part of the world. We have a dedicated team and a dedicated [ BU ] group of people. So we are addressing the part of the market that is, first of all, is growing, will continue to grow, and we will continue to develop product. But I think we address the right part of the market. We are not really too much -- we also have some solution on the other side, but we are really not too much focused on the other side.
So in my view, a gaming PC is replacing the home desktop. So I thought a home desktop will die, could die. But actually, the gaming PC, so it's another kind of home desktop PC.
Thank you very much. Any more questions from the floor, please? Okay. If there's -- yes, please.
Oliver Bolitho from Old Peak. The question of upselling the PC business, how long do you believe a strategy of pursuing limited volume and more aggressive pricing is sustainable before you get the competitive reaction that we saw 2 years ago when others moved into the sector and used price as the competition?
I don't fully understand the question. Sorry. You are talking about AUR?
AUR, yes. Actually, the...
Yes, so at the high end, essentially you're upselling, you're maintaining volumes giving up share and growing average selling price. At some point, your margins are going to attract everybody back into the game. How long do you believe that that's sustainable?
But it's not -- let's say, it's a very different game, frankly speaking. If you -- okay, you can segment the market between the low end, the mid-end and high end, right, of course. In the low end, first of all, when you see the market, low end anyway is shrinking. The only thing that is really growing is Chromebook, and Chromebook is probably 12 to 14 million units per year mainly in the United States, and this is where our competitors are very, very focused in order to get share. Then you need to address the mid and the high end. It is true that -- but then you need also to develop product addressing mid and high end. It's not just a matter that you increase price, if you increase price on the product that is not high end or mid-end, you will never sell it. Because if you take FIAT 500 and you think that you can sell it at a Mercedes price, it doesn't work, right? People are not coming. So you need, first of all, to develop the product, addressing mid and high end. You need to build the brand addressing mid- and high end. It's just -- it's not a very simple exercise. Of course, competition can come, but they probably need to spend 12, 18 months before they can do it. And when you do these things, it's also the product is for sure is more expensive. If you look within the improved margin in terms of -- because our margin is more or less flat. In terms of GP, gross margin, we improved our selling price. So if you do the exercise [ then completion ], but it's much more easy to fight on the low end and to be aggressive on low end and reducing price. It's much more difficult to do the same exercise on mid-end and high end. And you need to, as I said, you need to first you need to have the product.
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