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(Bloomberg) — Lenovo Group Ltd.’s earnings. climbed 6% after China’s top maker relied on cost-cutting and new businesses to weather an unprecedented slump in global computing demand.
Net income rose to $541 million in the quarter ended September, the company said Thursday. The average analyst estimate was $473 million. Sales fell for the first time in more than two years to $17.1 billion, but still beat the $16.8 billion analysts had predicted.
Lenovo and its rivals Dell Technologies Inc. and HP Inc. is struggling with a global PC market that saw its steepest quarterly drop on record — the fourth straight decline in shipments. In Lenovo’s home market, Beijing appears to be prioritizing Covid Zero over the economy, triggering lockdowns in major cities, stifling retail demand and disrupting manufacturing.
What Bloomberg Intelligence Says
An extended macroeconomic glut is likely to lead to a further decline in the PC market in 2023, although there is scope for a rebound later in the year and potential for a return to growth in 2024. We have cut our 2023 PC shipment target by 1.% to 281 million, which implies a 3% unit drop.
– Woo Jin Ho, analyst
Beyond China, the global technology outlook is clouded by a slew of restrictions Washington imposed on chip and technology exports to China last month, which threaten to further curb shipments to the world’s largest computer and semiconductor market. Intel Corp.’s industry. is planning a major reduction in the number of employees, probably in the thousands, Bloomberg News reported.
Lenovo has been unable to sell some of its top-end PCs to customers in China because of the latest American chips, Chairman Yang Yuanqing said in an interview. The impact on Lenovo’s sales is limited because such products are only a small part of the company’s China business, he said. “It will not affect our general purpose server, storage or other infrastructure sales,” he added.
Cost management will be a priority for Lenovo in the coming quarters, according to Yang, as the global electronics market sees signs of contraction. Last quarter, Lenovo lowered spending on advertising and promotions to support its profit margins. It also spent less on employee benefits and rent. Yang, however, said Lenovo is not considering large-scale layoffs, without elaborating.
“We need to ensure the competitiveness of our business. We need to ensure that the revenue to revenue is competitive,” Yang said.
Shares of Lenovo closed largely unchanged in Hong Kong. They are down 33% this year.
The company is counting on growth in businesses beyond its bread-and-butter division — such as in servers, cloud computing and data storage — to help offset deteriorating PC sales. But its core division still yields about four-fifths of revenue.
“Cracks are spreading to enterprise hardware end markets, including PCs and data center infrastructure,” Morgan Stanley analysts wrote this month.
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