Tracy: So Joe, we are here in Hong Kong still. And we're learning a lot of different things, a lot of interesting things. One of the most interesting things we heard actually came yesterday from the Baidu CFO, where we were just talking casually ahead of our interview, but he was saying that the word token

Joe: Yeah.

Tracy: has now officially been added to the Chinese Mandarin dictionary.

Joe: And that the characters that actually make up the Chinese word for token are something like word currency.

Tracy: I think that's so fascinating. You know, I'm fascinated by the etymology of the word token specifically. So I was thrilled to hear that. But it is, you know, it's like we know the word token in the monetary context. We know Chucky Cheese tokens. We know [laughter] crypto tokens. But we also know that since the middle of the 20th century, linguists have been using token to describe more or less a word. And then obviously with LLMs, we talk about these linguistic tokens a lot. So to see that in Chinese, the formal term is a merger of these two concepts is I find a very intellectually satisfying thing to learn about.

Joe: Bringing up Chucky Cheese tokens is really a way to make sure everyone knows that you're a millennial, Joe.

Tracy: Yeah, that's right. That's right. Arcade I I should say arcade token.

Joe: That's right.

Tracy: Yeah.

Joe: Okay. And I think what's really interesting about word currency itself is it implies that it's connected to spending, right?

Tracy: And so when you think about the big companies that are spending all this money on tokens and I guess the AI infrastructure build out more broadly, CFOs become really important, right?

Joe: Totally. So, we, you know, the headlines by and large are about uh CapEx, right? And that's going to continue to be because of the data center build out. We're going to talk about that. But a lot of it is also going to be OpEx and figuring out how to within a company allocating token permissions and caps and so forth and I doubt anyone has figured out the final answer. But if two different people can get different value out of using AI models, then there is no way that it makes sense for them to have the same token budgets. By the way, Tracy, can I ask you a personal question that I've never asked you before?

Tracy: Oh, okay.

Joe: Outside of the work context, are you a Mac or a PC person?

Tracy: Oh, I mhm, I only have I only have work computers at the moment.

Joe: Okay. All right, before that, but

Tracy: Before that, before that, definitely PC.

Joe: Okay, good. Me, too.

Tracy: Yeah.

Joe: And in fact,

Tracy: it's not it's not a choice, is it? Like, I Sorry, I I really don't like Macs.

Joe: I don't, either. And in particular, I am long been a fan of the what used to be the IBM ThinkPad laptop with the famous red button, which is now owned by Lenovo.

Tracy: That's right. You've talked about that computer before, so I can say that this is categorically true. Joe likes that computer. But what's interesting about Lenovo is like, okay, it's famous for the computer with the little red button in the middle, but it's now making an AI play. I mean, everyone's making an AI play, but it's doing it from a different perspective. So, AI integrating into the actual computer, the hardware, but it's also doing cloud, right? So, this is a really good opportunity to, I guess, take the temperature on AI, the AI build out, the AI spend from a bunch of different perspectives. So, we do in fact have the perfect guest. We're going to be speaking with Winston Shang. He is the CFO of Lenovo. So, Winston, thanks so much for coming on Odd Lots.

Winston: Hey, thank you, Tracy, and thank you, Joe.

Joe: Why don't you go ahead and describe what Lenovo is and what the AI play is and how it actually fits into the existing business?

Winston: Yeah, Lenovo is a global AI infrastructure company that provides pocket to cloud AI infrastructure for the consumer and the enterprise. I think that's really in a nutshell. And so, today we're able to provide this to hyperscalers, which are doing a lot of the spending, are driven by training demand today. And then, given our IBM x86 heritage, which we also acquired the server from the IBM actually. So, we actually are very strong in CPU compute as well, given that IBM was a dominant player in the x86 architecture. So, from that perspective, we're well positioned for inferencing needs of the enterprise and also the hyperscalers in terms of in the cloud as well. So, I think from the perspective of then, you talked about tokens. And I think from a token perspective, really today people are in the early stage of how much I'm really paying for. I heard someone saying that there was an engineer at a particular company, which I will not mention, that apparently spent $100 million in a month on tokens. And so, as a

Joe: So, just to be clear, for the computers themselves, they can do some inference, right? But where it makes sense, you route it to the cloud. Is that right?

Winston: That that is our goal. So, the Lenovo Agentic AI today we what we are good at is really integrating and maximizing the compute capabilities on a device. And from that perspective, given the various needs in terms of various operating systems, agents that may not want to sit on top of a device, I think

Joe: It's interesting this word orchestrate because you so you have the AI agent orchestrating maybe a bunch of different sub-agents to complete some task, and that is something that perhaps is done best on a CPU. A company that builds servers is also an orchestrator of the supply chain and acquiring the

Winston: Absolutely, Joe. I think everything is about the return, right? And the planning. So, we're not afraid to invest. As a CFO, you are there to allocate capital. You're not there to constrain capital. You have to allocate, but you have to be clear in terms of that return. And I think in that case, it's

Tracy: Wait, say more about measuring the actual return. And again, I realize it's early stages, but I'm curious how you think it will actually be done because we've been asking a bunch of executives, how do you internally benchmark your AI projects or your token spend? And everyone says, "Oh, productivity

Winston: Yeah, I I think it really depends on your specific enterprise. In our case, I would really hone in on a few areas. For me in terms of pricing and that visibility of demand in terms of channel inventory and the demand of 180 markets and what I would take to actually provide and work with my channel partners.

Tracy: [music]

Joe: Let's go back to the theoretical engineer who spends a hundred million dollars on tokens in a month because you know, it seems to me like you're going to have someone who actually can with their you know, intuitions and skills with AI etc. Actually deliver ROI even if the nominal amount they spend is

Tracy: Don't give all your tokens to a Joe with AI psychosis.

Joe: How do you avoid giving all of them all giving me the uncapped budget and finding that person who actually deserves a very liberal spending budget?

Winston: Yeah. And you know, these are great questions. They're so relevant particularly in a large enterprise like us in a global Yeah. for global 200 company, right? In 180 markets, 80 plus billion in terms of revenues. We have massive scales and so many tens and thousands of employees. So, it's really diff

Joe: Yeah. Well, let me press on that. I find this to be very interesting and maybe even gets to a certain philosophical split, perhaps, among CFOs, because I think, okay, there's one school of thought would say, okay, you keep these very tight constraints, and then you see who can do the most with the

Winston: And and and I think that that decision exists within the same company, but it could be two paths that you just described. Because, for example, where we really it's a face of innovation today in terms of where the market's going. And so, we really need to put more dollars in terms of innovation. And

Tracy: Mhm.

Winston: And also, within the laptops, a lot of them are also recyclable materials, as well. And we also have a refurbished effort, given the components constraints today. So, I think from that perspective, we really want to spend dollar on innovation. Now, as you say, then there's the other pocket. Should th

Tracy: Mhm.

Winston: That's very, very much well spent. But, I think that's just a philosophy. It's less AI-driven, but it's really the philosophy of where that return is. And I think you allocated earlier. You spend based on the ROI generation. And I think today you have to recognize first the AI capabilities that you

Tracy: We should definitely talk more about that, but you just mentioned the word unlimited in the context of AI spend. And coming from the US, this is something that we're really seeing and I guess living through at the moment. Like be people talk about the total addressable market being like basically inf

Winston: Sounds good. I think there's two very distinct questions there. The first one really with respect to Lenovo's position in the entire tech ecosystem. I was in Davos earlier this year and when I came back I was particularly affected by Mark Carney's speech. And um really talking about the superpowers and the middle powers and of course within the middle

Tracy: power, you mean?

Winston: I I think we're definitely not a superpower. We have to recognize that. But I think from our perspective being the number one device PC manufacturer in the world, having a strong ecosystem and the best broadest portfolio set right across PC, tablets, and mobile phones, and great partners to Microsoft and Google's of the world in terms of that type of

Joe: We know well. We know well.

Winston: It only happens in China market. So if they can survive within their cutthroat market under the constraints of the chip supply, they are pretty strong. They are pretty strong. So I think that would be one difference I would say. Yeah.

Tracy: I want to talk about competition. You mentioned that the deep and broad relationship you have with all these suppliers across the supply chain. And when I think about like when I think about competition within the server space specifically, I feel like there are two dimensions through which you could win. And one of them is of course like okay, you h

Winston: I I think it's not a either or question. It's fully integrated tech stack. Today, the value to a customer or in a partner, and I think there are less customers today than they are really a partner because their architecture is not driven and the spend is a multi-year spend.

Joe: Yeah.

Winston: So, they're coming to you for the multi-year plan, not just a single purchase. So, we take that attitude and we need to have that attitude with our suppliers as well. We have invested well over 10 years in these factories. We have 30 factories around 12 and each region of the world. We can produce in Europe in Hungary for the European market or the U

Joe: Yeah.

Winston: Then, do you have the capability to test what is being produced? So, we at Lenovo provide that end-to-end capability to our customer and that ensures them to have the safety and one-stop shop. In fact, our SSG can actually also So, the Solutions and Services Group at Lenovo can also build data centers. So, different from our OEM-like competitors, the

Joe: Wow.

Winston: With a plan to say I have a plan to have a this site. So people who are not even hyper scalars, people who are landowners, and they have power in specific areas, they come to Lenovo and they said, "Help me build a data center." Because we also have a modular solution that can build this data centers within 9 months.

Joe: Wow.

Winston: In a depending on what you already have available in terms of infrastructure, we can do it as fast as 6 months. So that is very, very fast and that gets the time to market and enable revenues immediately for our partners. And then in terms of that total infrastructure plus if they have can have GPU compute in the local market, then of course Lenovo ca

Joe: [music][music]

Joe: Tracy, I'm thinking about the difference between, you know, the server market today and say like the PC market of the '90s. And I think part of the reason we talk about and remember the red button on the laptop is simply because the companies were all unable to differentiate themselves at all product-wise. It was like truly the PC market kind of kill

Tracy: Yeah, I remember that environment. So I remember like you had to go to Best Buy, right? And you had to basically get a salesman to tell you what the difference was between all these different things. Yeah. Um okay, since we're on the topic of supply chains and you mentioned data centers as well, give us some color on what it's like to try to get I g

Winston: Optical connectors.

Tracy: Oh, yes, thank you. How difficult is that at the moment getting those key things?

Winston: Yeah, the the market is very robust because the demand is very robust and then as we're sitting in Hong Kong today but in in the Bloomberg offices, but really there are some really exciting IPOs coming, right? And also capital raises. We're seeing capital raises at such significant levels and that's really all going back to AI infrastructure spend. So

Joe: Mhm.

Winston: But we know that the supply chain is starting to invest, but in terms of you know, some some of the memory specific areas, it does take almost two to three years for a new fab to come online. So I think from that perspective and I think you're seeing bottlenecks across the board, right? And as I said earlier, land, power, not just the transformers, b

Joe: Mhm.

Winston: So, I think we really need to be able to do that, pull the global resources together.

Tracy: One of the things that we all learned during the pandemic is that, you know, we all learned about how supply chain disruptions work, and the bullwhip effect, or at least, you know, us laypeople learned about these concepts for the first time. Everyone we talked to We recently did an episode with one of the co-founders of Coreweave, one of the neo clo

Winston: I think these are very sophisticated companies in terms of the final off-takers and and uh so, but I think I would point out to the fact that the duplication could happen in the pipeline.

Joe: Yeah.

Winston: But not necessary in a backlog because I think if if people have standard definitions of the backlog, by that time it's actually already a sign sign deal and so then yeah. So I think they wouldn't double sign with people.

Joe: Yeah, okay.

Winston: And then of course revenue recognition is a totally different thing. I think you have already shipped the actual product and you expect to collect on your accounts receivables.

Joe: Okay.

Winston: So I think from that perspective, really looking at the pipeline that is massive in the market, there is likely duplication there and people are waiting to see who has the supply and who can deliver to you, right? But overall, I think the commitment that we see in the market, particularly for data center space, for equipment, for other things, is real

Tracy: Mhm. Lenovo has software as well, right? And you have the gaming business. Is that right?

Winston: We have a we're the leading online games Oh, sorry. The game PC company in the world, yeah.

Tracy: So, what do you think about the SaaS apocalypse idea? So, the idea that with AI, we're going to be able to replicate whatever application we want, whether it's Microsoft Word or Excel or something like that. Would that eat into your margins or because you own the IP, can you just do it more cheaply?

Winston: No, I I I think we are not a SaaS company by by any means, but I think from the perspective uh of Lenovo or enterprises, I think really as it relates to what we touched upon earlier, your IT department, and I think it actually works for a company like Lenovo because we are not a software-centric company, these tools now lower the bar for us. So, I thi

Tracy: You know, I feel sorry for gamers because even prior to AI gobbling up some of the GPUs, right before that it was crypto and I remember they used to complain that the Ethereum miners were buying up all of their Nvidia GPUs, etc. But, I'm curious like you know, this is a one another one of the big meta themes of the time. Like, in your own gaming busin

Winston: Well, we got a fantastic franchise in terms of as you alluded to the the ThinkPad business

Joe: Yeah.

Winston: is an iconic franchise and and and we love it. Our customers love it. I have actually visited the R&D facility that originated actually from Japan. It's the Yama from the Yama Moto Labs of IBM. So, we kept that intact also with a lot of the people from it from it, but I think the original inventor actually retired some year some years ago, but there

Joe: Mhm. Talk to us about your decision to I guess not tie yourself to any one AI platform cuz I'm sure there are some very very big tech companies out there who would love to have exclusivity with Leno

Winston: I think today what we see is that we're still in that journey of improvement and you see improvements every few months from the likes of open AI or anthropic or Gemini or whoever it might be. And s

Joe: Should we believe these companies? Let's say in Microsoft. So Microsoft recently announced their flagship model. I forget if it's pronounced Maya or Maya or whatever or MAI. I haven't played with it

Winston: I think there's a lot of great things that Nvidia is doing today and I think a lot of people are recognizing. So their their revenues are clearly growing significantly. I think they're probably at t

Joe: Of course.

Winston: So I think that continues but of course as cost become to a level where people have to find alternatives, you're also seeing people from a cost perspective making selections, but also probably from

Joe: Yeah.

Winston: who have the scale and also the technological capability and the capital to be able to develop their own

Joe: it about their models really will run better on these chips that they're designing or is it about long-term strategic at least you know, I wouldn't want to say divorce from Nvidia, but maybe you know

Winston: Some time apart.

Joe: wishing they had a pre-nup or something like that. Just like having a little bit of like not so dependent on one company's specific chip capacity and roadmap.

Winston: I can't speak for for them, but so there's really from external point of view, but but I believe it's probably a little bit of both, right? Because if you were a corporate

Joe: Yeah.

Winston: really deciding on your strategy. I think that's probably one where you especially given that a lot of them are also tech stack focused companies as well. So they probably want to be have more cont

Tracy: Mhm. So speaking of diversification, if we were recording this episode a year or so ago, we would probably still be talking about AI, but I think we'd be talking about trade and tariffs as well, ri

Joe: I forgot about that story.

Tracy: That's right. So Lenovo obviously has a very large and complex supply chain all across the world, but how does I guess the the general return of more trade restrictions actually impact your busine

Winston: Yeah, it actually happened very interestingly on April 2nd. So, I took over on the reins. Our fiscal year is April 1st. And I took over on the reins on April 1st. So, the second day,

Tracy and Joe: [laughter]

Winston: there was the most major event in the history of 100 I think it was 200 plus countries that were enacted on this and we're probably in 180 of those. So, I think it's a major event and given the significance of our business. But, it's it's really about enabling and providing our products at a very reasonable price to our end customers, right? So, I

Joe: Right.

Winston: So, that's a very critical aspect of it. So, lowering the tariff barrier is actually essential to ensure that their citizens and any citizens should have the lowest cost access to technology.

Joe: You mentioned something earlier and you're like, okay, on a per token basis, Deep Seek is significantly cheaper than say, you know, the most advanced models from say OpenAI and Anthropic. But, strictly speaking, there is wide agreement that still the flagship models from the American labs are the best models in the entire world and I just don't thin

Winston: Yeah, I'm I'm going to answer your question in my how I started my morning today because

Joe: Okay.

Winston: I'm in the journey of figuring this out.

Joe: Yeah.

Winston: And I've decided to spend some money with external consultants and so we're in that in journey process. And as I said, you know, we spent an hour and a half with the global team and this is one of the major firms. I'm starting to get a sense from talking to various parties that everyone is new to this game. So everyone, even the advisors who are try

Joe: ask what you're paying them for?

Tracy and Joe: [laughter]

Winston: But I I would not uh

Joe: Okay.

Winston: make comments about another industry.

Joe: You love them and they're they're good guys.

Winston: Absolutely. But you know, I think from the from that perspective, that goes to say that if they are the specialists or those that see a lot in the market, then what about specific departments or individuals in the company? So I think from that perspective, everyone is in that journey and it's the people who can be most clear-headed to learn the fast

Joe: Yeah.

Winston: Right? So I think from that perspective, we need to be able to take out the red tape, enable the process these to work, accelerate. I think timing is and speed is essential in the AI in the in the AI world. And then we need to deploy that where it's sensible. And then as you say, where do you actually allow that spending and the interaction to gener

Tracy: Joe, do you think in the future when people like meet each other, they're going to say their names and their nationality and then like declare Yeah, declare Well, I was going to say declare the foundational model that like they use.

Joe: Oh, I was going to say like I wonder if like Ed Bars or like women when they gossip with each other,

Winston: [laughter]

Joe: they're like, I want a man who is like this much token spend. You know what I mean?

Winston: I It'll be part of their identities, for sure.

Tracy: That's right. Well, okay. So, speaking of rich men, I have to ask at least one CFO-ish question, which is when it comes to capital spend, I'm sure you could justify pretty much anything right now. And there's so much money that's actually going out on the AI build-out. How are you thinking about returning capital to shareholders? Because the stock's

Winston: Yeah, we paid the in the last fiscal year, which just ended March 31st, we paid the highest dividend ever in the Lenovo history. So, our shareholders are very happy. We're share our success with our shareholders. But we also see a lot of opportunities for growth. And as you have mentioned many times on this the discussion is that there's also a lot

Joe: Northern Virginia in the US is sort of understood to be the data center capital of America. But you know, it's expanding, there's a lot that's sort of like off-grid in Texas that's happening. And And then there's also of course anti-data center politics in the US, and we don't know how that will affect the map. What is the Northern Virginia of East

Winston: Well, I think I think Asia tends to be a little bit more flexible from that perspective, but clearly the best infrastructure of scale was in is in China. But I think from that perspective a lot of people do to certain regulations and policies cannot have data centers. So, you have a lot of idle resources today whether it's power and data center ther

Tracy: Joe, we got to go visit a data center in Hong Kong, right?

Joe: I would love to. Well, I was going to say Hong Kong actually to me makes a lot of sense as a data center location because if there's one thing I know about Hong Kong, it's there's plenty of cheap real estate here and [laughter] there's and there's more than enough space and we know that uh people are very happy with the price of how affordable there

Winston: is actually a lot of land. You just can't build on it, right?

Joe: can't build on it, right. Yeah, so.

Tracy: All right. Winston [music] Cheng, thank you so much for coming on Odd Lots. Really appreciate it.

Winston: Thank you, Tracy. Thank you, Joe.

Tracy: [music] Joe, that was a lot of fun.

Joe: Yeah.

Tracy: I feel like we haven't actually spoken about AI from the perspective of a company like Lenovo, right? Like we've never done that before. Yeah.

Joe: No, we haven't. And that was really nice. And look, part of the I would say two things about AI, which is we're doing a lot of AI episodes. And I would say there's two reasons for that. One is because, I mean, it's just the biggest thing of our lives, probably, in terms of the significance and trying to everyone's trying to wrap their heads around i

Tracy: Right.

Joe: And so, you think like, okay, a company like Lenovo, a server company that also happens to uh offer the ability to build complete data centers, not just the servers, who therefore is then interacting with all types of players, is almost like the perfect sweet spot for like an Odd Lots guest, even among all of our perfect guests. Someone who has that

Tracy: Yeah, I think I said before, there's such a weird tension between these sort of bodyless, faceless AI interface, and then when you think about all the actual physical infrastructure that supports it, like

Joe: It's why I think it's so interesting. The other thing, too, that I think is interesting about hearing from a Lenovo, and again, hearing from a CFO of Lenovo, is like, look, they're not a hyperscaler. I'm sure they're investing a ton of money in building out their capabilities, etc. But, they're not one of these companies that announces big things li

Tracy: Yeah, everything's up for grabs.

Joe: Yeah.

Tracy: I also thought the the involution point was was interesting when we were talking about the key differences between China and US AI and the idea that because competition is so cutthroat in China that it just drives your costs down and down and down so that like even if you're not that competitive in China, you would still be competitive compared to Ye

Joe: of funny to think about. Yeah, absolutely. No, I love that chat.

Tracy: All right, shall we leave it there?

Joe: Let's leave it there.

Tracy: This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

Joe: And I'm Joe Weisenthal. You can follow me at The Stalwart. Follow our producers Carmen Rodriguez at Carmen Arman, Dash Bennett at Dash Bot, Kil Brooks at Kil Brooks, and Kevin Lozano at Kevin [music] Lloyd Lozano. And for more Odd Lots content, go to bloomberg.com/oddlots for the daily newsletter and all of our episodes. And you can chat about all o

Tracy: And if you enjoy Odd Lots, if you like it [music] when you hear from the perspective of Chinese tech companies, then please leave us a positive review [music] on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. [music] All you need to do is find the Bloomberg ch

Joe: [music][music][singing][music]