China’s prominent tech company, Lenovo Group, has unveiled a disappointing 24% decrease in revenue for the April-June quarter, indicating a persistent global decline in the demand for personal computers.
This marks the fourth consecutive quarter of diminishing sales for the world’s largest PC manufacturer.
This setback follows a 14% reduction in annual profit for the fiscal year ending in March, representing its initial annual decline since 2019.
The April-June quarter yielded revenue of $12.9 billion, falling below the Refinitiv-compiled average of seven analyst estimates, which stood at $13.84 billion.
In response to this announcement, Lenovo’s shares in Hong Kong experienced a brief 6% plunge, though they later recovered slightly to settle at a 2.9% drop. Meanwhile, the benchmark index showcased a 0.9% gain.
Although the COVID-19 pandemic initially fueled electronic sales due to the surge in remote work setups, revenue began shrinking last year, a consequence of waning demand compounded by rising interest rates and mounting inflation.
The road to recovery remains sluggish, with many retailers grappling with unsold stock, thereby necessitating production volume and pricing adjustments for PC manufacturers and suppliers, including chipmakers.
In a statement, Lenovo expressed optimism about its PC business, citing stabilization and anticipating a year-on-year recovery in late 2023.
Market research firm Canalys reported a 12% global decline in PC shipments during the second quarter of 2023, a significant improvement from the preceding two quarters’ drop of over 30%.
Lenovo’s China sales experienced a sharper decline than other markets, with quarterly revenue plummeting by 29% compared to the same period last year.
Despite the country’s post-COVID-19 restrictions, China’s economic resurgence has been lackluster.
Nonetheless, Lenovo’s CEO, Yang Yuanqing, voiced faith in China’s long-term fundamentals.
He expressed encouragement over the government’s current efforts to stabilize the market and stimulate consumption.
Net income attributable to shareholders also faced a setback, plummeting by 66% to $177 million, falling short of analysts estimated $212.49 million.
In a bid to enhance profit margins, Lenovo has been diversifying beyond PCs into businesses like servers and information technology (IT) services.
However, its device business, encompassing PCs, smartphones, and tablets, continues to contribute nearly four-fifths of group revenue.
Notably, Lenovo’s infrastructure solutions business, specializing in servers and related equipment, experienced an unexpected 8% revenue decrease.
This was its first quarterly decline in multiple quarters, partially attributed to a shortage of AI chips, according to Yang.
He noted that “(Cloud service providers) are shifting their demand from the traditional computers to the AI servers. But unfortunately, the AI server supply is constrained by the GPU supply.”