Lenovo Reports 16% Drop in Q3 Revenue Amidst PC Supply-Demand Imbalance

The result was consistent with the average estimate of $14.45 billion from seven analysts compiled by LSEG.

Lenovo Group Ltd (0992.HK) reported a 16% decrease in revenue for the third quarter, in line with market expectations, as the supply of personal computers (PCs) continued to outpace demand.

The company’s quarterly revenue dropped to $14.41 billion, marking the fifth consecutive quarter of declining sales.

This decline was attributed to Lenovo’s efforts to reduce excess inventory accumulated during the COVID-19 pandemic.

The result was consistent with the average estimate of $14.45 billion from seven analysts compiled by LSEG.

In May, Lenovo had already reported a 14% decline in revenue for the fiscal year ending in March, marking its first annual drop since 2019.

The pandemic initially led to a surge in both enterprise and personal electronics sales as remote work became widespread.

However, as supply started exceeding demand, revenue began to contract.

According to data from Canalys, global PC shipments fell by 7% in the second quarter of 2023, although this decline has slowed compared to the over 30% decline experienced late last year.

To boost PC sales, Lenovo plans to release its first “AI PC” in the second half of the following year.

This innovative PC will be capable of utilizing artificial intelligence (AI) without the need for an internet connection, offering enhanced user privacy by eliminating the need to send data to the cloud.

Lenovo Chairman Yang Yuanqing expressed confidence in the potential of AI PCs to create value for users and customers while revitalizing PC sales.

He also addressed concerns about the impact of new U.S. restrictions on AI chip exports, noting that Lenovo’s collaboration with Nvidia encompasses a wide range of products, including gaming PCs, workstations, and high-performance computing, which are unlikely to be significantly affected by the regulations.

In addition to its PC business, Lenovo has been diversifying into non-PC sectors, such as smartphones, servers, and information technology (IT) services, to improve profit margins.

During the first half of its fiscal year, revenue from Lenovo’s digital solution service business increased by 14% to reach $3.6 billion.

Despite the revenue challenges, Lenovo reported a 60% decrease in overall net income attributable to shareholders for the second fiscal quarter, which amounted to $249 million, slightly above analysts’ estimate of $235 million.

Following the earnings release, Lenovo’s shares saw a 2.86% decline in early afternoon trading in Hong Kong, outperforming the 1.42% decline in the benchmark index (.HSI).