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China's Lenovo posts first revenue drop in 10 quarters as COVID lockdowns weigh

Stock Markets Nov 03, 2022 05:21AM ET
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© Reuters. FILE PHOTO: A Lenovo logo is seen at the computer in Kiev, Ukraine April 21, 2016. REUTERS/Gleb Garanich/File Photo
 
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By Josh Ye

HONG KONG (Reuters) -China's Lenovo Group (OTC:LNVGY) reported its first revenue decline in 10 quarters as a pandemic-fuelled computer sales boom comes to an end, with sales especially falling in China as COVID lockdowns took a toll.

The world's largest maker of personal computers said on Thursday total revenue during the July-September quarter was $17.09 billion, down 4% from the same quarter a year ago, but above an average Refinitiv estimate of $16.74 billion drawn from seven analysts. That was the first decline since the March 2020 quarter.

Lenovo had already seen growth for its first-quarter revenue grind to a halt, at only 0.2%. Together with its second-quarter result, the company reported a 2% decline for its fiscal first half.

Lenovo’s struggles reflect a weakening market for PCs internationally. Global PC shipments declined 15% year-over-year in the third quarter, according to a report published by data firm IDC last month.

But the company continues its trajectory towards better profit as it expands its non-PC business. Net income attributable to shareholders for the quarter rose 6% to $541 million.

Lenovo has been hit particularly hard in China due to the country's COVID containment measures, the company said. Revenue from China fell 12% from the same quarter last year.

Yang Yuanqing, Lenovo's chairman and chief executive, told Reuters in an interview that the revenue decline in China is due to weakening demand from commercial clients rather than consumers, unlike in many other markets around the world where consumer demand is being dampened by rising inflation.

"In China, consumer is better than commercial," he said, "Actually in the rest of world, it's the reverse (where) the consumer is impacted by inflation."

But Yang said that Lenovo's factories in China have not been impacted by the country's battle with COVID.

"Most factories are still operating very well," he said.

The IDC report showed that Lenovo, HP (NYSE:HPQ), and Dell saw year-over-year shipments fall by 16%, 28% and 21%, respectively. The Chinese company maintained its leadership in the global PC market with a 22.7% share. Lenovo did not give shipment numbers.

Chipmaker Qualcomm (NASDAQ:QCOM) expects a slump in sales as its forecast for holiday-quarter revenue fell about $2 billion short of Wall Street estimates.

Lenovo has been working over the past several quarters to improve its non-PC businesses such as smartphones, servers and information technology services, which together now make up about 37% of its revenue.

Yang said he expects the non-PC business will account for more than half of the company's revenue in the future.

When asked about recent U.S. government export controls on semiconductors to China, Yang said it will have a limited impact on Lenovo's business.

"It will have an impact only on the high-performance computers. But that business accounts for a very tiny portion of our total revenue," he said.

On semiconductor supply, Yang said that the company is seeing a normal supply of chips for PCs and smartphones but shortages persist for its infrastructure business.

In a later call with media, Yang said rising inflation around the world is softening demand for Lenovo's devices, particularly in mature markets like the United States and Europe.

Wong Wai Ming, Lenovo's chief financial officer, said the company's quarterly earnings have also been impacted by the strengthening U.S. dollar as a lot of Lenovo's revenue is received in other currencies.

China's Lenovo posts first revenue drop in 10 quarters as COVID lockdowns weigh
 

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