Lenovo reported record revenue for its December quarter and sharply higher operating profit, but net income fell as restructuring charges and other non-operating items weighed on the bottom line.
Revenue rose 18% year-on-year to USD 22.2 billion for the third quarter of fiscal year 2025–2026, while operating profit increased 38% to USD 948 million, supported by scale and a higher contribution from premium offerings. Gross margin declined 0.6 percentage points to 15.1%.
Profit attributable to equity holders fell 21% to USD 546 million, even as operating profit rose. The divergence captures the quarter’s central tension. Lenovo is accelerating investment in artificial intelligence across devices, infrastructure, and services. At the same time, it is absorbing near-term costs to reshape parts of its portfolio, particularly its infrastructure business, while component prices continue to rise.
On an adjusted basis, profitability improved. Adjusted profit attributable to equity holders increased 36% to USD 589 million, and adjusted net income margin expanded to 2.7%. The company excluded items including a USD 285 million one-time restructuring charge tied to infrastructure solutions and enterprise sales, and a USD 186 million non-cash fair value gain on warrants.
A quarter shaped by AI and an infrastructure reset
Lenovo centered its earnings call on AI, arguing that growth is increasingly linked to what it calls “hybrid AI,” a combination of AI-capable personal devices, enterprise infrastructure, and services. The company said AI-related revenue rose more than 70% year-on-year and accounted for roughly one-third of group revenue.
Beyond headline growth, the segment mix shows where the company is seeking improvement. It is pushing higher-value categories while relying on operating leverage to defend profitability, even as costs rise and supply constraints persist.
The intelligent devices group (IDG) remained Lenovo’s largest unit and primary profit driver. Revenue increased 14% to USD 15.8 billion, and operating profit rose 15% to USD 1.15 billion.
Lenovo said its global PC market share reached 25.3% for calendar year 2025, citing continued leadership and share gains.
Management indicated that near-term market dynamics are likely to be shaped more by pricing and mix than by unit growth. It pointed to memory shortages and higher component costs, arguing that higher average selling prices and a shift toward high-end, AI-focused PCs could offset weaker unit demand in value terms.
The infrastructure solutions group (ISG) again outpaced overall company growth, with revenue rising 31% to USD 5.18 billion. The segment posted an operating loss of USD 11 million, an improvement from prior quarters and close to breakeven.
Lenovo booked a USD 285 million restructuring charge for ISG and said the program is expected to generate more than USD 200 million in annualized net savings over three years. The objective is sustained profitability in infrastructure solutions.
Management linked the restructuring to a shift in the AI market. Much of today’s AI spending has focused on training large models in public cloud data centers. Lenovo is positioning for the next phase, when companies deploy AI applications on premises and at the edge, a process known as inferencing, where trained models generate results in real time.
If enterprise demand for inferencing accelerates, a leaner cost base and a portfolio aligned with enterprise deployments could help turn growth into consistent profit. If adoption is slower than expected or competition intensifies, the payoff from restructuring could take longer to materialize.
Lenovo also cited growth in AI servers and its “Neptune” liquid cooling technology, as well as a strengthening infrastructure pipeline. It did not provide detailed figures.
The “solutions and services” group (SSG) remained the most stable and profitable segment. Revenue rose 18% to USD 2.65 billion, and operating profit increased 30% to USD 596 million. Operating margin was approximately 22.5%, near a historical high. Lenovo attributed the performance to a greater mix of managed services, and project- and solutions-based work.
Management positioned TruScale, its as-a-service offering, as a way for customers to move spending toward operating expenses for greater predictability, particularly in an environment of volatile component pricing.
Margin defense hinges on pricing and execution
The quarter points to solid operational execution. Operating profit grew faster than revenue, and cash generation remained positive, with USD 952 million in operating cash flow and USD 451 million in free cash flow.
At the same time, the figures underscore the costs embedded in Lenovo’s strategy.
Gross margin declined year-on-year, and management acknowledged higher component prices, especially memory, alongside supply-demand imbalances. Sustaining premium pricing and product mix without sacrificing share will be critical, as will procurement discipline and cost control.
The restructuring of ISG is the most consequential move in the quarter. Lenovo is accepting near-term earnings pressure in exchange for a lower cost base and a portfolio repositioned for enterprise AI demand. The targeted savings are material. Execution risk remains significant.
Outlook
Management said component cost inflation, particularly in memory, is likely to persist and could pressure unit demand, even if market value holds up through higher average selling prices and premium mix.
Lenovo expects to begin shipping Kira- and Qira-embedded devices next quarter, positioning personal AI features as a near-term catalyst.
The company also expressed confidence that it can deliver double-digit growth in its PC and infrastructure businesses over the next several quarters, citing supply chain resilience as a key support.
Taken together, Lenovo has delivered a robust quarter while resetting its infrastructure business for a different phase of AI demand. The next test is whether it can convert AI-related growth into sustained profit expansion while defending margins in a higher-cost hardware cycle. It needs to also show that the restructuring delivers results on the timeline management has outlined.