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Good afternoon, ladies and gentlemen. Welcome to Lenovo 2022 to 2023 Annual Results Investor Presentation. We are very thankful and happy to see you all in person and online once again. Let me introduce our management with us here today. They are Mr. Yang Yuanqing, Chairman and CEO; Mr. Wong Wai Ming, Executive VP and CFO; Mr. Ken Wong, Executive VP and President of Solutions and Services Group; Mr. Kirk Skaugen, Executive VP and President of Infrastructure Solutions Group; Mr. Luca Rossi, Executive VP and President of Intelligent Device Group; not the least, Mr. Sergio Buniac, Senior VP of Mobile Business Group and President of Motorola.
Now may I invite Yuanqing to start the presentations and followed by Wai Ming on the financial performance. Yuanqing, please.
For quite a while, we haven't met our friends here in person. So hello, everyone, and thank you for joining us. Among all the uncertainties over the past year, the market conditions have evolved relatively in line with our expectations despite the challenging economy and the softer device market demand. We continued to make steady progress in our service-related transformation and technology-driven innovation.
For the full fiscal year, we maintained a stable profitability. Thanks to our diversified growth engines and operational resilience. We believe that the overall PC market channel inventory digestion will come to an end. And the trends of shipment and activation will become more consistent. The entire smart device market is expected to resume growth in the second half of this year and the IT service market will resume relatively high growth, driving the total IT market in 2023 full-year are back to moderate growth.
In the mid- to long-term digital and intelligent transformation, we will continue to accelerate, leading to bigger growth potential for cloud and the entire computing infrastructure. Last year, we overcome tremendous challenges and achieved a stable profitability. From a full-year point of view, our revenue was impacted due to device market softness, but thanks to our strong growth of solutions, services and the infrastructure businesses.
Our net margin was keeping flat year-on-year on non-Hong Kong FRS basis. Non-PC revenue mix increased to nearly 40%, demonstrating the effectiveness of our efforts in building the diversified growth engines. At the same time, our cash position remains strong, and we significantly improved our cash conversion cycle. With a healthy liquidity, we have been able to remain committed to our investment in R&D around the new IT to build our future competencies. And we continue to deepen our commitment to ESG.
In fact, anticipating the decline in PC and smartphone demand over the past few quarters, we proactively took actions to mitigate the risks with our solid profitability, strong market position, resilient operations and more importantly, are reaching new milestones in our transformation from a device hardware company to our solution and service company. We are well prepared to achieve sustainable growth in the future.
Now I will talk about each of our businesses. Let's start with SSG, Solution and Service Group. The new IT services segment are within the $1 trillion IT services market continue to expand. By 2025 device-as-a-service market and the cloud solution market are both expected to grow at a double-digit CAGR. Vertical solutions and services spending will also keep a strong growth. Last year, our SSG delivered a strong revenue growth and a higher profitability to become both our growth engine and important profit contributor. Its revenue broke a record to reach $6.7 billion with operating margin standing higher at 21%.
Revenue mix of non-hardware-driven solution and services has increased that to more than half of our SSG business. Meanwhile, SSG has consistently invested in building scalable and repeatable horizontal solutions or building blocks that can be deployed in vertical solutions or industries, definitely leveraging our own IP. In addition, we have been continuously enhancing our digital workplace solutions and developing TruScale hybrid cloud solutions portfolio.
Our Infrastructure Solutions Group or ISG continues to benefit from the ongoing ICT infrastructure upgrade. By 2025, the server market surpassed the US$132 billion, storage US$36 billion, and edge infrastructure US$37 billion. Last year, our ISG delivered a historical full-year performance and become a profitable high-growth engine. Its total revenue grew 37% year-on-year to almost US$10 billion and achieved an all-time high. We also achieved a record high revenue in server, storage and software, respectively. We have moved up from the fourth to be the third largest server provider in the world and have jumped from number eight to number five in global storage market.
Meanwhile, we have been consistently improving our in-house manufacturing capabilities, cost competitiveness as well as the full stack product capabilities that cover both cloud service provider and the Enterprise SMB segments. We have also made a significant investment in infrastructure innovations empowered by artificial intelligence, such as AI powered edge computing, hybrid cloud and the intelligent operations.
For our Intelligent Device Group, or IDG, its business performance was impacted by continued device market softness and channel inventory digestion in the first half of 2023. But given PCs are still the essential productivity tool in this digital era. So we anticipate the PC market will return to year-on-year growth in the second half of 2023 with accelerated growth in 2024. Meanwhile, driven by digitalization trend and hybrid work model smart space solutions continue to see steady growth.
First with severe market headwinds, IDG revenue declined year-on-year, but successfully maintained our PC market leadership and the industry-leading profitability. We increased the revenue mix of premier products to 30%.
Our mobile business continues to be profitable for three consecutive years and achieved a premium-to-market revenue growth in most of the markets. And our smart spaces solution continued to demonstrate great growth potential. We will continue to take actions to manage expense and further sharpen our operational excellence in IDG and we will keep investing in innovations, focusing on premier offerings and adjacent areas, while our enhancing smart space solutions for hybrid work model.
Let me also briefly cover our fourth quarter performance. It was the most challenging quarter of the year, facing pressures from both device market and the global economy. Our IDG revenue declined due to severe downturn in both PC and smartphone markets, but both SSG and ISG maintained a high double-digit year-on-year growth momentum, which helped to offset the device market softness. Last quarter, our non-PC revenue mix reached a historic high of 43%.
Furthermore, we have recognized our one-time restructuring and other charges along with various other actions to deliver about $850 million annual run rate group expense savings onwards, helping to establish a solid foundation for our operations in a challenging market and position ourselves for future growth.
Finally, I'd like to highlight Lenovo's solid performance in the face of industry downturn over the past year. We are already seeing positive signs of market stabilization. Our strategy has been proven to be working, and our operations continue to demonstrate the resilience and most importantly, even in a challenging market, we have increased rather than decreased our commitment to innovation solutions and services. Lenovo is now fully prepared in a strong position than ever before to capture the next wave of growth opportunity. Thank you.
Now let me turn it over to our CFO, Wai Ming. Wai Ming, please.
Thank you, Yuanqing. Good afternoon, everybody. I will now take you through Lenovo financial and operational performance for the fiscal year 2023 and its fourth quarter.
Next slide, please. For the fiscal year 2023, the group diversified growth engine set multiple performance records. The non-PC business made up nearly 40% of the combined revenue of the three business groups, signaling a quick shift in our exposure towards the growth areas. ISG and SSG spearheaded our group transformation. The combined revenue and operating profit increased by 31% and 24%, respectively.
IDG remained a strong sector leader in both market share and profitability notwithstanding sector-wide challenges ranging from channel inventory digestion, the system macro headwinds to extreme exchange rate fluctuations during the year, IDG revenue declined 21% year-on-year. Thanks to its operational excellence and its premium mix. IDG maintained a robust operating margin of 7.3%, down just mere 30 basis points year-on-year.
Group revenue declined by 14% to $61.9 billion or down 9% on constant currency. Gross margin and operating margin delivered 18-year highs, thanks to the non-PC strength helping transcend the cycle. We recognized the one-time restructuring and other charges of $249 million among various other actions to deliver an annual run rate group expense saving of about $850 million. We aim to establish a solid foundation to operate in a challenging market and position ourselves for future growth.
Excluding the non-recurring charges, our non-GAAP net profit margin remained stable at 3% and flat year-to-year. We remain committed to achieving our target of doubling net margin in the medium term. Profit attributable to equity holders was $1.6 billion, down 21% year-on-year. Today, the Board declared a final dividend of HKD0.30 per share, taking into consideration of the interim dividend of HKD0.08 per share, total dividend for fiscal year 2023 would be HKD0.38 per share.
Next slide, please. In Q4, notwithstanding the market challenges, the non-PC business continued to grow 12% year-on-year, and its revenue contribution rose to 43% of the combined revenue of the three business group. Thanks to a resilient and well-executed transformation strategy. ISG and SSG combined revenue grew by 37% year-on-year, setting a new milestone.
The strength of non-PC revenue reflected our market advantages in capturing digital and intelligent transformation opportunities and help mitigate IDG's revenue decline of 33%. Non-recurring, restructuring and other charges of $249 million mainly impacted our Q4 performance. Non-GAAP net profit was $284 million, down 44% year-on-year, and the group profit attributable to equity holders was $114 million.
Next slide, please. We continue to optimize group operations for greater business agility and long-term growth. Our cash and cash equivalent balance reached $4.3 billion in March, up 8% year-on-year. We also finished the year with a net cash position for the eighth consecutive quarter with a balance of $366 million. The group improved its cash conversion cycle by 12 days on a year-on-year basis to negative two days, returning to the pre-COVID period where such figures was negative.
Since Q1, we have seen continuous improvements in cash conversion cycle, a testament to our prudent working capital management. At the same time, we also put in significant effort to decrease our inventory level by over $1.9 billion on an annual basis.
Next slide, please. Thanks to the increasing demand for the end-to-end solutions across hardware, software and services as well as subscription-based model, SSG performance continued its upward trend since the business group inauguration in April 2021. Its full-year revenue and operating profit grew 22% and 16% year-on-year to $6.6 billion and $1.4 billion, respectively. Its full-year operating margin of 21% top all business groups. In the fourth quarter, revenue was up 18% year-on-year, while operating margin was 20%, down around 2 percentage point year-on-year off a very high base.
The solid performance was underlined by double-digit growth across all three business segments, led by management service. We reported year-on-year revenue growth of 67%. Thanks to the strong as-a-service adoption. Our project and solution services segment with a broad base of solutions leveraging Lenovo IP reported year-on-year revenue growth of 13%. Attach and supported services revenue also increased 14% year-on-year with a record PC service penetration rate. Full-year deferred revenue reached $3 billion, echoing the group focus on enlarging and sustaining its recurring revenue base.
Next slide, please. ISG delivered exceptional revenue and profit growth, with revenue growing 37% and operating profit surging to a new high of $98 million. Fiscal year 2023 marked the third consecutive record setting year. ISG was one of the world's fastest-growing infrastructure solution providers and achieve premium-to-market growth across several product lines. Such achievements was built on years of investment in creating a full stack portfolio. This product strategy, together with the broad customer coverage and a unique, fully integrated ODM+ business model, were effective in driving revenues of server storage, software and AI edge to an all-time high.
Third-party statistics affirm ISG's strong market positions. It start off the fiscal year with its market share by revenue in worldwide server at number four position. We finished the year at number three position. At the same time, it ended the year with its global share in storage at number eight and exited at number five. ISG is also capturing emerging opportunities in AI and building the most diverse AI portfolio in infrastructure. 70% of new ISG products from edge to core data center products and the fiscal year 2024 will be AI ready. This includes its popular liquid cooling Neptune technology for a high GPU loading AI server training.
By customer segment, ISG exposure to CSP and ESMB segments gave the group a unique advantage in balancing scale and profit. Both segments saw double-digit revenue growth to record levels. In Q4, ISG yet again set another revenue record with a growth of 56%, thanks to its comprehensive product portfolio, an important catalyst for significant premium to market growth.
Next slide, please. IDG was impacted by the sector-wide headwinds, including lower demand and excessive inventory. Full-year revenue declined 21% year-on-year, but remained markedly higher than fiscal 2000 pre-COVID levels. Operating profit for the fiscal year dropped by 24% with operating margin down 30 basis points year-on-year, reaching 7.3%. This was significantly above the pre-COVID level, thanks to our operational excellence and a favorable mix shifting, enabling higher margin sales.
In the fourth quarter, revenue declined 33%, while the business made significant progress in cleaning channel inventory. This inevitably has a negative impact on our operating margin, which was down 90 basis points year-on-year to 6.7%.
IDG made great progress in seizing growth opportunities beyond PC products. Non-PC sales made up 19% of IDG's revenue, up 0.4 percentage point year-on-year. Our smartphone revenue declined from overall market demand weakness. Nevertheless, is outperformed in multiple markets such as EMEA and AP by notable margin.
Smartphone business also maintained profitable for three consecutive years with a growing 5G mix. Within non-PC business, smart collaboration solutions also delivered double-digit growth year-on-year with key wins across regions and global accounts.
Next, slide please. Now let me shift gears and talk about our R&D investments. As we continue to invest in innovation, R&D spending as a percentage of revenue rose to 3.5% from 2.9% last year. Digital transformation has never been more important to our growth as we invest in new IT infrastructure spending across client-edge-cloud-network-intelligence.
Our investment will accelerate the development of the high value-added products and key components, including edge, storage and cloud in responding to significant growth in the data creation and data consumption. We will also drive innovation to propel our AI smartphone portfolio, scenario-based solution and ESG initiatives as well as expand our services score. Every aspect of our R&D investment has contributed to our record operating margin and long-term competitiveness.
Next slide, please. In fiscal year 2023, the group has made remarkable progress in ESG. Our commitment to reach net zero by 2050 was validated and approved by the Science Based Target initiative or in short SBTi, a partnership between the UN Global Compact, CDP World Resources Institute and Worldwide Fund for Nature, making us the first PC and smartphone maker and one of the only 139 companies in the world with a net zero target validated by SBTi.
The group ESG efforts have been well recognized and have received many accolades. MSCI upgraded our ESG rating to AAA, the highest level. CDP also recognized us as a leader in climate change, water scrutiny and supply engagement for the second consecutive year. Additionally, Lenovo was highlighted in the Bloomberg Gender-Equality Index for the fourth consecutive year.
While the [indiscernible] external challenges could extend well into the future periods. The group will continue to invest in innovation and high value-added products and components, while fostering the development of the new architecture within the client, edge, cloud, network, intelligence framework.
Looking forward, SSG will benefit from the mega trends such as digital transformation, infrastructure upgrades and strong demand for hybrid cloud and remote work and collaboration. SSG will continue to broaden its service offerings, which include digital workplace, hybrid cloud and sustainability services while protecting its core business with product-related services as well as strengthening channel tools and cooperation with business partners. Given this strong growth outlook, SSG will further enhance its financial contribution to the growth.
ISG has built industry-leading end-to-end infrastructure solutions and expanded to full stack offering that includes server, storage and software solutions. The ESMB segment will also capitalize on growth opportunity in AI powered edge, hybrid cloud, high-performance computing and solutions for the telco communication sectors.
For the CSP segment, ISG has a unique ODM+ business model to address the growing demand for vertically integrated supply chains. The business will continue to diversify its customer base and capture new accounts through design win across technology platforms. The approach will achieve an optimal balance between general purpose and customized offerings while ensuring an appropriate scale and efficient cost structure to enable revenue growth and profitability expansion.
The PC and smartphone markets will resume their growth trajectory in the second half of 2023, and accelerate their growth in 2024. IDG will continue to drive efficiency within its lean operations, maintain healthy cash generation and invest in innovation. IDG will lead the global race in device innovation by enhancing features for hybrid working, gaming, entertainment and ESG designs.
Scenario-based solutions, including smart collaboration and smart home devices will continue to grow at a stable pace. The commercial upgrade cycle and the trend of premiumization will help IDG drive premium-to-market growth as smartphone business will focus on portfolio expansion with differentiation to take advantages of accelerated 5G adoption.
Meanwhile, the group strive to reinforce its number one position in the PC sector with leading profitability and accelerate the innovation led growth in the non-PC and adjacent areas, including accessories. Our strong financial position provides a solid foundation to proactively pursue growth opportunities ahead.
Finally, as always, we remain committed in driving sustainable growth and profitability for our shareholders. Thank you. We now take your questions.
Thank you, Wai Ming. May I invite YY, Ken and also, Luca to come on stage. Please be seated. Thank you. We will now open the floor for questions. [Operator Instructions] So we welcome the first question from the floor. If there is any question, please raise your hand. Yes.
Thank you for the opportunity to ask questions. This is Tony Zhang from CLSA. So I have several questions. First one is how is our view in the global PC market in terms of inventory cycle? How is our plan to issue the new product model in this year? Thank you.
So thanks for the question. So I think your question is, one, on the how is the market, how is the inventory and then what is the product development or innovation. So regarding the market, obviously, we have seen – witnessed softness in the demand – the end demand, but there is I think an important deep dive to do. So that is the difference between the weakness in shipments and the weakness in activation, which is the Windows activated devices every day. We do the – we check every day. And you can see a difference of – a significant difference. The shipments are declining more than 20%, but the real end user demand is declining much less. So this is clearly a sign of a much healthier end user demand than demonstrated by the shipment. And that is the correction of the inventory that has been generated by the over shipments during the COVID period when the shipments were superior to the end demand.
Now the inventory is gradually being digested in the channel. And when it comes to our inventory, we think this quarter, this is basically the last quarter with this adjustment and our global channel inventory is basically back to the pre-COVID inventory levels by the end of the current quarter. So we think our level of inventory is now normalized. That is why we are confident that we resume in the second half a moderate growth, and that growth should accelerate in 2024. And obviously, innovation is part of the reason why we are confident there will be new devices, new form factors AI-enabled PCs. So a lot of new things that will accelerate and attract demand.
Additionally, we are confident of the demand because of the Windows 11 transition cycle in the end of 2023 and particularly in 2024, should accelerate. And there also should be the replacement cycle of the devices that have been accelerated shipments in 2021, that will arrive to the third or fourth year of life. So the total market, we believe, is increased. Now to be more specific, when we look at the end demand measured by the Windows activation, we believe that the end state will be bigger than the pre-COVID end demand approximately by high one digit.
Yes. So this cycle has been very clear. So call it triggered the booming of the PC demand than probably 2021, we face the supply shortage. So that period activation is much higher than the shipment then it triggered the channel to accumulate the inventory. So 2021 to first half of 2022. So that period, shipment is higher than the activation than since the second half of last year. So shipments declined significantly by 20%, 30%. But the activation didn't decline that much. So that means the activation has been much higher than the shipments. So we forecasted by the end of this quarter. So the shipment and activation will be more consistent over time. But definitely as Luca introduced so we have a good chance to keep at a higher than pre-COVID level.
And if I may add one thing that I forget to complete your question, within this activation scenario, it's important to highlight that Lenovo activation share is gaining market share significantly at the high one-digit premium to market compared to pre-COVID, meaning we are at the record level of worldwide device activation with the Lenovo brand in the world. Thank you.
Thank you, Luca and Wai Ming. Next question? Yes, please.
I'm Edison from Jefferies. So I have two questions for the server section, for the server segment. Number one is that can you share with us what is your revenue distribution from key markets in server? And number two is that in terms of AI server, what is the proportion of your service sales in AI? And what kind of trend are you seeing in 2023 of the AI service contribution? Thank you.
So we'll ask our ISG President, Kirk Skaugen to answer the question. Kirk, please.
Yes. So I think the growth of our business is very widespread. And in fact, in the previous quarter, we had over 60 different records, so it's impossible to talk about this. But the key message is it's not just one part of the business. We have records in server and storage and software and edge and as a service et cetera. Our strongest geography right now is actually North America, which is also the largest total available market for the infrastructure business and our weakest market has been China for obviously some of the macro issues that we've seen. Our exposure to China is the lowest been in five years. So hopefully, that answers your first question.
As you can see, we grew 37% year-on-year. If you look at it in the fourth quarter, we grew 56% year-on-year. So we're talking about high double-digit premium to markets. If you look at the distribution of our business, about 29% growth in server, over 200% growth in storage and that's widespread across midrange storage, all-flash arrays, entry storage where we became number one in the world and in cloud-based storage. And then software is growing 25% year-on-year. So really broad-based business.
From an AI perspective, definitely one of our strong growth areas. About a year-ago, we consolidated about five different divisions into our edge division, which I really say is Edge AI. I think what we're seeing is that the amount of data in the world is exploding. Most of the statistics say that amount of data in the world will double over the next three years, and we're only computing 2% of that data. So this quarter, we grew over 170% in our Edge growth actually for the whole fiscal year. And a lot of that is AI driven workloads, things like safety and fast-food retail, optimizing drive-throughs, line queues in major stadiums, making manufacturing more effective, et cetera. So I would say the first thing on AI is Edge is exploding.
Number two, supercomputing or international supercomputing this week in Hamburg, large marker portion of supercomputing is AI-driven to solve some of the biggest challenges of the world like cancer research, things like that. I'm proud to report this week, we extended our number one position as the world leader in the top 500. And also, we're in the number one position of the most sustainable supercomputer in the world, meaning we have the greenest supercomputer in the world at the Flatiron Institute of New York.
Third, if you just think about Omniverse, Metaverse, digital twins, as Jensen Huang at GTC stated, we're in collaboration with Microsoft and NVIDIA and we are currently installing and building the world's largest Omniverse instance in the cloud. And I think we're very excited about that. We're working with some of the largest automotive companies in the world as they build new factories for their electric vehicles new digital twins for the factories, planning next-generation smart cities, planning next-generation 5G networks. So Metaverse, Omniverse is a critical part of our AI story. And of course, Lenovo is unique because we can do Edge to cloud and pocket to cloud. So we have the AR/VR devices. We have the workstations, where the servers only have the storage, which means we're simplifying that for our end users.
And then lastly, obviously, generative AI, ChatGPT, we're seeing more than a 30% compound annual growth rate on that. The huge amount of server and storage infrastructure being created. We have over 60 AI-enabled products now in the market and 70% of our new products that we're announcing are AI-ready. So this is going to be a huge growth area for us in the future, and I think we're well positioned. Thank you.
Thank you. Thank you, Kirk. Next question, please.
I want to ask one more question. My question is how about the current bond structure, especially with the decline of some semiconductor IC and also the memory price, what is the impact to our current outlook for our margin? Thank you.
Yes, I think – okay. And my answer will be for PC. Maybe Kirk will have a – so definitely, there is some deflationary trend for certain of the components. Well, that's potentially, that's a good news. It will depend on the market competition, how much it will be able to help. But obviously, we believe is positive for our GP going forward. Together, I think, with other elements, which make us confident on the sustainability of our GP, definitely our designing capabilities. So our ability to build kind of more effective cost structure in the PC segment mix sustaining the GP and also premium mix. So but your question is about the commodities. There is a moderate inflationary trend, which we believe will not continue for long because as soon as the demand will rebound, which we said we believe it will gradually happen from the second and second half that is probably coming to an end.
Thank you. Now let us move our questions and let us take some questions from the webcast online. First question is from JP Morgan, Albert Hung. The question is like, why ISG operating profit margin dropped in Q4 FY2023, while revenue remained strong? What is the demand outlook amid weakened IT budget? Should we expect a slowdown in software revenue in near term? What's the implication for profitability? And also the second question is, could we have more colors on the restructuring, please? Should we expect more restructuring costs in the coming quarters? What could we see the cost benefit from this restructuring?
Kirk, you answer the first question. Wai Ming on second.
Sure. So I think let me expand it I think it also relates to the question on memory earlier. I think certainly, we still see actually growing demand in ESMB as people build private clouds and hybrid clouds. So I think our view is that there's stronger demand in the enterprise SMB market than in the public cloud market right now. Having said that, we've also told you that we have growing design wins as we move to the next [indiscernible] in the gross profit going forward is that our ESMB market will be stronger in the future.
Relative to each quarter, I think we're proud that we've had six consecutive quarters of positive operating profit, but now eight consecutive quarters of year-on-year profit improvement. So I'll say when I say every quarter, our goal is to drive hyper growth and improve operating profit year-on-year each and every quarter, but we're also investing in things like TruScale-as-a-Service, Edge AI, hybrid cloud infrastructure and AI. So as a result, we're seeing tremendous kind of growth in the market.
If you look at 37% growth right now for [indiscernible], that's a 25-point premium in the market. Even with our storage growth in Q4, we grew 432% and 208% for the year in a market that's low single-digit. So I mean we're not talking about small premium to market. So we're aggressively investing for hyper growth and that's why part of the GP issue is – or the profit issue is there. Memory, I would say one base announcement that we made that I think everybody followed is we did launch a new brand called Wentian in China for China. And while we're using Intel CPUs in that, we will use local memory, local drives to be even more competitive in the China market, and we committed to be number one server vendor in China in five years. So that's also a very aggressive growth at a significant premium to market.
Last thing is just profit. Why do we have confidence, again we are expanding server and storage. Remember in the [indiscernible] products for both the Intel and [indiscernible] CPUs, all of that development was done in-house. So we're being paid through our ODM+ model for the board design, the board manufacturing, for the system integration as well as for the rack level integration. And so across the board for both our ESMB products and our cloud products as we move to in-house design and manufacturing, and that will drive more profitability. And of course, we talked about software growing at 25% as well. So the market engines are continuing to grow at a premium for us. But the core answer to your question is we're investing for the future in hyper growth, but our commitment is year-on-year profit improvement which we did again this quarter for eight consecutive quarters.
So we actually improved almost $100 million year-over-year ISG regarding of the operating profit. But definitely in short-term. So for this business, the growth is still – is a primary objective. But we also confident. So year-over-year profitability will be improved. So probably next fiscal year, we have a good chance to double the operating profit again.
So Wai Ming on restructuring?
Yes. Okay. The restructuring expense $250 million will hit our Q4, and there are no other sort of charges. The result of that $250 million involve, I think, some rebalancing of resources action results and annual operating savings of at least $850 million.
Thank you. Next question comes from Ben Carbonneau from Technology Business Research. Can we get some more colors on MBG's performance? For example, what's the state of channel inventory? Can you provide a mix split on 5G device versus non-5G devices? Any geographical mix context? Where are you seeing to the strongest demand? How is the deflationary commodity impacted margin?
Sergio? Okay. Yes.
The following question. So look, I think we are, as YY mentioned, during presentation profitable for the last three years with even a small growth during fiscal year Q4, but only for the full-year. We are now – last quarter, we grew seven points premium to market. We came from number nine in the beginning of the year to number five, IDC sales outside China. We are seeing significant growth in Asia and Europe, more than 20, 25 points premium to market in average every quarter. Latin America last quarter, we were 17 point premium to market, only 21% market share.
And the only negative premium to market was in North America. But the new reason as the segments PC, we saw a decline in issuance, but our activations year-over-year were significantly better and drive growth in most of the quarters. We expect North America to come back to premium to market in the second quarter of this fiscal year, Q3. We expect overall the business next year to be double-digit premium to market. We are now growing in these segments. Besides we are growing in Asia and Europe faster than Latin America, North America for office business from a small base and we see a lot of demand for the new devices, especially the premium with the Edge where we have a very important launch next week with foldable we expect this third generation to sell at least 3x more than the two bigger generations combine it more to see next week.
And we are also growing segments that in many instances or our profitability. One of them is B2B, where we are leveraging the Lenovo channel infrastructure with a set of devices [indiscernible] that we consider the best with our ThinkPad. If you just think about the base of ThinkPad, if you can attach 10% of that we can almost double our premium sales. It's still in early stage, but with very good feedback from the channels, some major wins.
And last but not least, we started a very strong work now in what we call Internet of services monetization. We still see a lot of potential. So in the same way we developed the B2B infrastructure providing to Lenovo, hopefully, through the next year through the end, you see major improvements in our Internet of services numbers and then also leverage the footprint on SSG and merging that business. So Asia and Europe hypergrowth, protect Latin America and North America, B2B premium with a special focus on foldable, especially in North America, we see a big opportunity but not the highest ranging we have in many years, for bigger range in every market we decide to range. The product and also our edge sales that were 3% of our business, three years ago, it's already 15%. We expect that also to grow upon the next two years as a percentage of the business. A long answer sorry for the very open question.
Thank you, Sergio. The next question is about ISG and SSG. This is from Jerry Su from Credit Suisse. For ISG, what's your expectations on the ESMB versus CSP growth for the coming years with enterprise and CSP controlling their CapEx with the increasing mix of AI server with higher pass-through costs, what will this impact your margin? The second question says, for the 22% year-on-year sales growth for SSG, what is the organic growth, excluding the Lenovo PCCW solution acquisition. How should we think about the growth outlook for SSG in the financial year 2023 to 2024?
Yes. You can answer the first. Yes.
All right. Thank you, Jerry. So I just want to recap. So overall, I think we are encouraged to see the SSG performance as YY shared, this is the eighth consecutive quarter of double-digit year-to-year growth and also with record high revenue and also profitability.
The second thing is when we look at the market, I think there are at least two opportunities that we see even in a challenging situation. One is opportunity around how can we provide services for our hardware so that we can continue to enhance the experience, right? This is starting from support services all the way to enhanced services. One of the examples is a month ago, we just announced what we call a Premier Support Plus services. This is for our hardware devices. And it's an AI-powered predictive support services package, right, which we have seen a lot of positive feedback and also financial growth for our business, right? So this is one growth that we continue to see in the market, even with the overall dynamic situation.
The other part is as a service, right, which just did a global CIO research, which we survey more than 700 CIO on a global basis. 79% of them, number one, they will continue to invest in IT services and IT technology, even with a challenging situation. Second, is that they continue to see the benefit enhance the demand on overall as-a-service, right, from devices and also infrastructure. So that also reflected in our strong growth, if you look at our manager services, which is primarily driven by the as-a-service demand. We do not disclose our PCCW solution performances, but there are some color I can share.
The venture started from August last year. And there's a clear complementary competence from both business. One, from Lenovo, I think we have a very strong pocket to cloud hardware and software, where in this part of the world, PCCW solution have a very strong IT services capability, right. So we have already seen pipeline building up and also some win cases, which is combining the best of both, right. For example, we just signed a contract with one of the leading transportation customer in Asia Pacific which is to provide a cloud solution for that customer. By combining the cloud hardware and software of Lenovo and also the capability of PCCW in building a cloud infrastructure for that customer. So we continue to see that synergy to contribute to our growth, and we are positive about the demand in the market.
Yes. So Kirk, you want?
Can you hear me?
Yes.
Great. So I'll answer the question on the data center side. So I think the question is really about ESMB versus cloud and where we see the demand. So on ESMB, I think we do agree with IDC that the market is in a bit of contraction. But for Lenovo, we're launching over 50 new products around our V3 platforms think system, think agile, think edge. So we think we'll be at a significant premium to market as we look into next year, even though the market is certainly contracting a bit due to the macroeconomic situation. In cloud, I think we've seen softness in general compute, but we're very diversified across server and storage. We know we have new design wins and storage and AI, as I mentioned earlier, are very robust, while general compute, I think people are optimizing the inventory that they have.
On storage, again, we're seeing tremendous growth. We achieved the number one position in the world in price bands one through four, which makes up more than 60% of all the units sold in the world in storage. Then we crossed over from number eight to number five as Wai Ming said, I think we'll be the number four here soon. So that will be a strong growth area within that, not just a server company, but it's one of the fastest-growing storage companies in the world.
And then Edge, again, for smart retail, smart manufacturing, smart city, we're seeing – this is our third consecutive quarter of triple-digit growth in Edge, and I think that will be a market that's growing to $37 billion by 2025, really larger than the entire storage market. And I think we're positioned as the industry leader there.
Thank you. Due to the time constraint, if there's any quick questions from the floor, we may take one last question. Okay. I think we have a very comprehensive explanations and presentations from the management. Thank you very much. Thank you, everybody and all the participants. That's the end of our presentation. Thanks again for joining and for all the investors on site and online. To our guest on site, please stay behind and check out our new products, which are stationed outside of venue. If you have any questions, please contact the Lenovo IR team. Thank you, and wish you all a good evening. Thank you.