(Yicai) Feb. 13 -- Companies' supply chain capabilities will become their economic moat amid the latest round of increases in the cost of components and parts driven by soaring memory prices, according to the chief executive of Chinese personal computer giant Lenovo Group.

"It depends on who can secure more supplies and achieve lower costs," Yang Yuanqing, who is also chairman of Beijing-based Lenovo, said at an earnings conference call yesterday. The firm's scale advantage, diversified supply system, and excellent long-term ties with its suppliers are becoming its moat during this round of rising raw material costs, Yang added.

Although cloud service providers' demand for memory products is huge, thanks to its extensive business scope covering PCs, smartphones, and servers, Lenovo has a large overall procurement scale that is no less than that of a single such provider, Yang noted, adding that this gives the company stronger bargaining power in negotiations with suppliers, enabling it to "gain more supplies at lower costs". 

Lenovo's "global resources, local delivery" model has enabled it to build a diversified supply network, which includes both international suppliers and many Chinese partners, Yang pointed out. Such a layout helps it flexibly allocate resources and avoid single risks, he noted.

In addition, the deep binding with upstream manufacturers based on long-term trust also ensures that Lenovo can obtain priority supply guarantees during times of tight supply, according to Yang. The transaction targets with major suppliers are all in the billions to tens of billions of US dollars range, he said.

For example, transactions between Lenovo and US chip giant Nvidia have quadrupled in the past three to four years and have a goal to quadruple again in the coming years, he pointed out.

After the United States announced it would impose so-called "reciprocal tariffs" on imports from all countries last April, most original equipment manufacturers placed orders more cautiously at the time, said Zheng Xiaoming, chief financial officer of Lenovo. The firm made an accurate judgment on future market demand and actively replenished its stock. As a result, the subsequent surge in memory prices continuously lifting the valuation of its inventory, Zheng pointed out.

Although investment in artificial intelligence might be overheated in some market segments, the overall development direction of AI is by no means a bubble, Yang stressed. AI is an intelligent technology based on massive data, powerful computing power, and excellent models, he said.

The future value explosion points of AI will occur more in the firm and personal ends, generating company and personal intelligence through the use of private data, which is also the underlying logic of Lenovo's "hybrid AI" strategy, he noted. This irreversible trend will continue to drive the market demand for more smart terminals and AI infrastructure, according to Yang. 

Lenovo's net profit surged 36 percent to CNY4.1 billion (USD594.1 million) in the three months ended Dec. 31 from a year earlier, according to its fiscal third quarter financial report released yesterday. Its revenue rose 18 percent to CNY157.5 billion (USD22.8 billion).

AI has become an important engine driving Lenovo's growth, with relevant income jumping 72 percent, accounting for 32 percent of the company's total, the report showed. Revenue from AI PCs had a high double-digit growth, that from AI smartphones a triple-digit surge, and from AI servers a high double-digit jump.

Editors: Tang Shihua, Martin Kadiev