For Lenovo, a deal with Fujitsu could help boost its purchasing power and consolidate its footing in a PC market where profit margins are thin. — Reuters
HONG KONG: Chinese personal computer maker Lenovo Group Ltd warned of higher costs and margin pressure due to shortages of components like memory chips, as it posted its first quarterly loss in almost two years on Friday.
Lenovo, which gave up its title as the world’s largest PC maker to HP Inc in the quarter through June, lost US$72 million compared with a profit of US$173 million a year earlier.
It was the company’s first quarterly loss since September 2015 and lagged analysts’ average forecast of a US$5.29 million profit, sending the stock down as much as 5% to a year-low of HK$4.52 during Friday's morning trade.
The outlook for the rest of the year was challenging as component shortages would drive costs higher, possibly forcing the company to raise its selling price to protect margins, executives said.
“Most of the component cost is stabilising except memory... and the price is still going up,” Lenovo chief operating officer Gianfranco Lanci said on an earnings call.
Memory price rises would continue ”at least until the end of the year”, albeit at a slower rate than the past two quarters, he said, a product of exploding global demand for semiconductors.
Auto industry demand was also pushing up the price of batteries, he said.
While personal computer makers around the world are struggling as consumers switch to mobile devices, Lenovo’s core PC business is declining more rapidly than many of its competitors’.
Lenovo posted a 6% decline in PC shipments in the quarter, compared with a 3% fall globally. Its PC revenue was flat at US$7 billion.
“Overall, it will be very challenging for them to improve their PC performance in the short term with the component price rise that’s here to stay,” said analyst Mo Jia, of industry consultancy Canalys.
MARGINS AND MOBILE
Despite the challenging outlook, chairman and chief executive Yang Yuanqing was upbeat about the prospects for margins and the struggling mobile business.
He pointed to a US$110 million sequential improvement in operational pre-tax income, which he attributed to improvement in the mobile and data centre businesses.
“Not only did this gave me more confidence we will turn around our mobile business in the second half of FY2018, I think the entire Lenovo is entering a new phase of growth,” he said.
Lenovo has struggled with mobile since acquiring Motorola in 2015, and as Chinese rivals such as Huawei and Xiaomi leapt to global prominence.
Losses from its mobile business narrowed and revenue rose 2% to US$1.75 billion in the quarter. It was the only unit to post a rise in revenue, although it still accounted for just 17% of the total. Total revenue was flat at US$10 billion.
To protect margins, Yang said Lenovo would focus more on fast-growing premium products such as PCs tailored for gaming and millennials.
It had dropped low-margin deals such as that with Google’s Chromebook, and would raise selling prices if component costs continued to climb.
Lenovo’s data centre business group recorded an operational loss of US$114 million, versus a loss of US$31 million a year ago.
Despite an 11% drop in revenue, Yang said he expected the group to turn profitable in two years. - Reuters
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