Lenovo Group Ltd reported a 16% decrease in revenue for the third quarter, aligning with market predictions. This decline is attributed to an oversupply of personal computers (PCs) surpassing consumer demand.
Quarterly revenue for Lenovo hit $14.41 billion, marking the fifth consecutive quarter of sales contraction. The dip reflects Lenovo’s ongoing efforts to manage excess inventory stemming from the aftermath of the COVID-19 pandemic. The reported figure closely mirrors the market estimate of $14.45 billion.
Lenovo experienced a 14% reduction in revenue for the year through March, marking its first annual downturn since 2019. This reversal followed an initial surge in electronics sales driven by the global transition to remote work. However, this trend tapered off as supply exceeded demand.
Global PC Shipment Decline and Lenovo’s Response
Canalys data for the second quarter of 2023 indicates a 7% global decline in PC shipments. In response, Lenovo aims to introduce its inaugural “AI PC” in the latter half of the upcoming year. This innovative PC is designed to harness artificial intelligence (AI) capabilities independently of internet connectivity. Chairman Yang Yuanqing expressed optimism, anticipating that this new PC category would not only provide added value for users but also potentially reinvigorate PC sales. A distinctive feature of AI PCs is their capacity to utilize generative AI tools without transmitting data to the cloud, thereby enhancing user privacy.
U.S. Regulations and Potential Impacts
Yang stated that Lenovo is carefully assessing potential impacts of new U.S. regulations restricting AI chip exports. The regulations primarily target high-end GPUs used in AI training, excluding the entire spectrum of chips. Despite these restrictions affecting U.S. chipmaker Nvidia, Lenovo believes its extensive collaboration with Nvidia in gaming PCs, workstations, and high-performance computing will remain largely unaffected.
In a move to enhance profit margins, Lenovo has diversified beyond PCs into non-PC sectors, including smartphones, servers, and information technology (IT) services. The first half of the fiscal year witnessed a 14% increase in revenue from Lenovo’s digital solution service business, totaling $3.6 billion.
The overall net income attributable to shareholders in the second fiscal quarter witnessed a 60% decline, amounting to $249 million, slightly below the analysts’ projection of $235 million.
Following the earnings release, Lenovo’s shares experienced a 2.86% decline in early afternoon trading in Hong Kong, in contrast to the benchmark index’s 1.42% decrease (.HSI).
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