Lenovo’s pandemic boost is over
Summary
- The personal-computer maker raked in a windfall from the pandemic. But there isn’t a clear pathway to new growth as that boost fades.
The pandemic gave Lenovo, the grande dame of China’s information-technology sector, an unexpected lift. As that boost fades, the world’s largest personal-computer maker needs to find a new source for growth.
The Chinese PC maker on Wednesday reported that revenue for the quarter ending in June was flat compared with a year earlier, down from 7% growth in the first three months of 2022 and 18% in the last fiscal year. After two years of strong demand from students and workers marooned at home, a slowdown in the PC market was inevitable. Global PC shipments fell 15% year on year in the second quarter after a 5.1% decline in the first quarter, according to industry tracker International Data Corp.
Lenovo, with around a quarter of the global PC market, will undoubtedly feel the pain, even though it managed to perform better than many of its peers. Revenue at its devices segment, which also includes smartphones and tablets, fell 2.7% year on year. Even that relatively soft figure was boosted by a 12% gain in revenue from non-PC products, which accounted for 22% of revenue at the segment. Its revenue from mobile sales, for example, grew 21% year on year. Demand for smartphones, however, is also set to slow.
The company’s data-center business also helped offset some of the weakness in PCs. Sales increased 14% from a year earlier. But the segment remains only weakly profitable: It managed to eke out a 0.5% operating profit margin last quarter.
The PC market will likely revert to what it was before the pandemic: an industry in slow decline. So naturally, Lenovo is looking at new growth drivers. The company’s technology services segment has been a bright spot: Operating profit there grew 25% year on year in the June quarter. That segment has an operating margin of 22.6% versus 7.5% for its device division.
But selling devices, mostly PCs, remains Lenovo’s bread and butter, accounting for around 84% of its sales. Spending cuts at companies may also affect revenue from data centers and technology services.
That’s perhaps why the stock is trading so cheaply: 5.3 times expected earnings, according to FactSet. Unless the company can pull a new growth driver out of the hat, that could be the case for quite a while.
This story has been published from a wire agency feed without modifications to the text
