(Yicai) Feb. 13 -- A business’s supply chain capabilities are becoming its economic moat amid the rise in component costs driven by surging memory chip prices, according to Yang Yuanqing, chief executive officer of Chinese personal computer giant Lenovo Group.

“At this point, it's all about who can secure more supply and achieve lower costs,” Yang said yesterday on the Beijing-based company’s fiscal third-quarter earnings conference call. Lenovo's scale advantage, diversified supply system, and excellent long-standing ties with suppliers are becoming its moat during this cycle of rising raw material costs, he added.

Although demand for memory from cloud service providers is huge, Lenovo’s procurement is no less than theirs because its business spans PCs, smartphones, and servers, Yang pointed out. That gives Lenovo stronger bargaining power with suppliers, enabling it to “secure more supply at lower cost,” he said.

The company’s “global resources, local delivery” model has enabled it to build a diversified global supply network, which includes both international suppliers and many Chinese partners, allowing it to flexibly allocate resources and mitigate the risks associated with relying on a single supplier, said Yang, who is also Lenovo’s chairman.

Furthermore, deep and long-term trust-based ties with upstream suppliers ensures that Lenovo enjoys priority supply during supply shortages, according to Yang.

Transaction targets with major suppliers are in the billions or even tens of billions of US dollars, Yang said. Those between Lenovo and US chip giant Nvidia, for instance, have quadrupled in the past three to four years, and the goal is to quadruple them again in the coming years, he noted.

After the United States announced “reciprocal tariffs” on imports from all countries last April, most original equipment manufacturers were cautious about placing orders, Chief Financial Officer Zheng Xiaoming said on the call. But Lenovo correctly judged future market demand and stocked up, with the subsequent surge in memory prices lifting the value of its inventory, he pointed out.

On whether current AI investment is overheated, Yang said that while there may be over-investment in certain niche areas, AI as a whole is by no means a bubble. AI is an intelligent technology based on massive data, powerful computing power, and excellent models, he said.

AI’s value explosion will occur more at the business and individual levels, leveraging private data to generate enterprise and personal intelligence, Yang said, adding that this is also the underlying logic of Lenovo's "hybrid AI" strategy. This irreversible trend will drive demand for more smart devices and AI infrastructure, according to Yang.

In the three months ended Dec. 31, Lenovo's adjusted net income jumped 36 percent to CNY4.1 billion (USD593 million) from a year earlier, its financial report showed yesterday. Revenue rose 18 percent to CNY157.5 billion (USD22.8 billion).

AI has become an important growth driver for the company, with AI-related revenue surging 72 percent to account for 32 percent of Lenovo’s total. AI PC revenue achieved high double-digit growth, AI smartphones triple-digit growth, and AI servers high double-digit growth.

Lenovo’s shares [HKG: 0992] closed 2.9 percent higher at HKD9.26 (USD1.18) each in Hong Kong today.

Editors: Tang Shihua, Martin Kadiev