Lenovo's quarterly profit slips 66% amid downturn in global PC market

The company will be investing an additional $1bn over the next three years to accelerate the deployment of AI services

Lenovo remain's the world's biggest PC manufacturer, fending off its challengers amid declining sales in the overall market. Reuters

Lenovo Group, the world's biggest manufacturer of personal computers, said its first-quarter net profit plunged two thirds amid a downturn in the global PC market.

Net profit attributable to equity holders of the company in the three months to the end of June dropped 66 per cent to $177 million, missing average analyst estimates of $235 million, the Chinese-owned company said in a statement on Thursday. Lenovo's fiscal year begins in April.

Group revenue declined by nearly a quarter on an annual basis to around $13 billion, while operating profit halved to $390 million.

Lenovo acknowledged that the challenging macroeconomic environment has weighed on its business, but is optimistic that a rebound is on the horizon.

"Lenovo sees signs of market stabilisation and improvement, component prices bottoming out and believes the client device market can be expected to recover and resume growth in the second half of this fiscal year," the company said.

Lenovo said it will be investing an additional $1 billion over the next three years to accelerate the deployment of artificial intelligence services for businesses globally, specifically for devices, infrastructure and solutions.

This is part of its commitment to doubling its investment in innovation in the medium term and an apparent attempt to tap into the potential of the growing AI craze.

“Last quarter, the macro environment presented challenges, and our hardware business remained in a phase of adjustment, but we persisted in executing our strategy," Yuanqing Yang, chairman and chief executive of Lenovo, said.

"I am confident in the long-term position to deliver sustainable profitability and growth in the future."

Shares of Lenovo settled more than 3 per cent lower to HK$7.67 ($0.98) at the close of trading in Hong Kong on Thursday. The stock is up nearly 20 per cent year-to-date and nearly 13 per cent in the past 12 months.

The global PC market has been dealing with a number of challenges, with manufacturers trying to cope up with high interest rates, rising inflation and supply chain disruptions – all of which have dampened consumer sentiment and demand.

Lenovo, however, has kept its spot as the top PC manufacturer worldwide, fending off its competitors amid declining sales in the overall market.

Worldwide PC shipments hit 59.7 million units in the second quarter of 2023, which was a 16.6 per cent decline from the same period a year ago, with Lenovo shedding nearly 21 per cent, Gartner said a July report.

After seven consecutive quarters of year-on-year decline, the market had shown signs of stabilisation by posting a sequential increase from the previous quarter, the US research firm said. It also forecast demand normalising by the end of 2023 and demand returning to growth next year.

“The rate of decline in the PC market has slowed, indicating that shipment volumes may have reached their lowest point,” said Mikako Kitagawa, director analyst at Gartner.

Also in July, the International Data Corporation said that second-quarter PC shipments dropped 13.4 per cent year-on-year to 61.6 million units, which was a sixth straight quarter of decline. Lenovo lost 18.4 per cent, according to the IDC data.

However, it also acknowledged that the industry performed better than the first quarter, despite weak demand from both the consumer and commercial sectors, and a shift in IT budgets away from device purchases.

Lenovo said it will continue to invest in developing AI-ready and AI-optimised infrastructure, including for Edge computing, the hybrid cloud, and servers and storages that support AI-centric workloads. It also forecasts AI to drive demand for ICT infrastructure upgrades.

"Over the next three years, the trend of digital and intelligent transformation will continue to drive strong growth of global IT spending, especially in IT services," the company said.

"At the same time, overall demand for vertical solutions, including smart city, smart manufacturing, smart education and smart retail is expecting strong growth through 2026."