Lenovo revenues drop due to falling demand for PCs

But overall profits are up thanks to cost cutting and success in other divisions

Lenovo revenues declined for the first time in 10 quarters due to a steep fall in demand for PCs and tablets. Still, profits rose due to cost-cutting measures and growth in other areas such as its services division.

The Chinese technology giant put a positive spin on its Q2 results for its financial 2023, claiming that all of its main businesses delivered operating profit and saying that it was on track to meet its goal of doubling profitability in the medium term.

However, total Lenovo Group revenue for the quarter to the end of September was $17.09 billion, a decline of 4 percent from the $17.87 billion it reported for the same period last year.

Net income attributable to shareholders grew to $541 million, up 6 percent against the $512 million for the same period last year.

Lenovo bolstered its profit margins by cutting costs in key areas. Published figures [PDF] show it cut spending on R&D, advertising, and promotional expenses over the six months to the end of September compared with the same period last year.

Lenovo claimed that its healthy cash balance means it remains committed to doubling investments in R&D over the medium term.

"Lenovo once again delivered solid results, even in a challenging global market," chairman and CEO Yuanqing Yang said in a statement. "For Lenovo, these results prove that our strategic foresight, operational resilience, and consistent investment in diversified growth engines, have prepared us well for challenging times."

Lenovo says that both its solutions and services business and infrastructure business saw double-digit year-on-year growth, with the non-PC divisions of the Lenovo Group now accounting for more than 37 percent of total group revenue, up 11 percent year-on-year.

But revenue of the Intelligent Devices Group – comprising PC, tablet, smartphone, and other devices – was down by 7 percent to $13.7 billion this quarter versus a year ago, while operating profit fell by 8 percent. This was driven by "subdued demand and inventory control in certain segments," according to Lenovo, which largely means there was simply less demand for client devices due to rising inflation and other concerns in many economies.

Revenue from the Infrastructure Solutions Group (ISG) grew by 24 percent during this quarter to $2.6 billion, with server and storage product sales up by double digits year-on-year. This division announced over 50 new products and services in September, in an announcement it said was timed to coincide with the 30th anniversary of the first IBM PC server.

The Solutions & Services Group (SSG) saw revenue up 25 percent to $1.72 billion and operating profit up by 27 percent to $697 million and the revenue brought in by Managed Services increased by more than 70 percent year-on-year, attributing this to the growing popularity of as-a-Service (aaS) solutions.

There was an overall 12 percent revenue decline in China for this quarter, with blame on continued COVID containment measures, but also, the important recognition that market demand had fallen.

In the Americas, Lenovo achieved a 4 percent year-on-year increase in sales for the quarter, adding that its ISG business grew revenue by 67 percent here with an increase in new orders.

For the EMEA region, Lenovo Group's revenue remained broadly consistent with the same quarter last year, but with ISG and SSG showing a growth trajectory that helped offset weakness for IDG products, the company said.

In its outlook, Lenovo points to challenges in the global market during this quarter are likely to continue due to an "increasing exchange rate fluctuation" because of the strength of the US dollar against other currencies, but this should be a factor for all global companies, not just Lenovo.

Lenovo said there are strategic opportunities in digital and service-led transformations that will support long-term growth for the company, and predicted the global PC sector should remain at a higher level than the pre-pandemic period thanks to the hybrid work model. ®