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Lenovo Reports First Revenue Decline in 10 Quarters due to Chinese Covid Restrictions

UTC by Tolu Ajiboye · 3 min read
Lenovo Reports First Revenue Decline in 10 Quarters due to Chinese Covid Restrictions
Photo: Wikimedia Commons

During the third quarter, Lenovo also raised profits by reducing costs in a bid to offset the impact of its revenue decline.

American Chinese tech company Lenovo recently reported its first revenue decline in 10 quarters, citing Covid lockdowns as a causative factor. Lenovo had enjoyed a computer sales boom aided by the pandemic at the time, but Chinese sales have now tapered off due to Covid lockdowns. According to the leading consumer electronics and PC maker on Thursday, total revenue realized during the third quarter came in at $17.09 billion. This figure represents a 4% drawdown from the year-ago quarter but still beats the average Refinitiv estimate of $16.74 billion given by seven analysts. However, most notably, Lenovo’s latest revenue haul marks the company’s first decline since the March quarter of 2020.

During Q3, Lenovo also optimized its profits by cutting down on operability costs.

China Covid Lockdowns

Lenovo’s third quarter revenue from China slipped 12% from the same period last year amid the country’s stringent Covid containment measures. According to Lenovo chairman and chief executive Yang Yuanqing, the revenue decline in the East Asian country is due to weakening demand from commercial clients rather than consumers. This peculiarity runs contrary to the situation in several other markets around the world where soaring inflation is impacting consumer demand. Yang said:

“In China, consumer is better than commercial. Actually, in the rest of world, it’s the reverse (where) consumer is impacted by inflation.”

However, Yang also pointed out that a majority of Lenovo’s factories in China “are still operating very well.”

Beyond Q3 Revenue Decline, Lenovo Boosts Profits by Lowering Costs

On another front, Lenovo has boosted profits after lowering costs associated with production and sales. The dual China and US-headquartered company saw its earnings go up 6% after cutting expenses on research & development, advertising, and sales of personal computers. In addition, Lenovo also managed to carve out new businesses to offset dwindling global computing demand.

Lenovo’s net income for the period ended September 30th rose $541 million. This comfortably surpassed the consensus estimate of $473 million for the same period. In addition, although sales slipped up for the first time in more than two years to $17.1 billion, the figure still beat analysts’ estimate of $16.8 billion.

Lenovo has been working over the last several quarters to improve its non-PC businesses. These include smartphones as well as servers and information technology services such as software and business solutions. Altogether, these non-PC business components now constitute around 37% of the company’s revenue.

US Export Controls on Chips

According to Yang, the recent US export controls on semiconductor chips to China will have a limited impact on Lenovo’s business performance. According to him, “it will have an impact only on the high-performance computers. But that business accounts for a very tiny portion of our total revenue.”

Yang further added that this curb will not affect Lenovo’s general-purpose server, storage, or other infrastructure sales. The chairman and CEO of the world’s largest PC maker also aired his views on the current semiconductor supply. According to Yang, Lenovo is currently not lacking in the supply of chips for PCs and smartphones. However, it is the company’s infrastructure business that is experiencing shortages.

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