Lenovo profits sink 75% as PC demand continues nosedive

Bottom line weight driven by job cut costs

Chinese powerhouse Lenovo is feeling the burn as demand for personal computers continues to melt in a post-pandemic world.

The world's largest maker of PCs reported revenue of $12.635 billion for Q4 of its fiscal 2023 ended 31 March, down a brutal 24 percent year-on-year. Pre-tax profit was down 75 percent to $130 million on the back of workforce restructuring charges.

"By the end of this quarter or early next, the inventory digestion will come to an end so that the activation number and the shipment number will be more consistent," said Lenovo CEO Yanqing Yang.

The Intelligent Devices Group – the PC and smart gadget division – was most devastated by shifting buying patterns: revenue fell to $9.79 billion versus $14.69 billion a year earlier, a 33.3 percent decline, and one that may mark a bottoming out of shipments.

The PC became the essential tool to work, learn, and play during the COVID-19 crisis. Manufacturers quickly sold out of stock within months and struggled to make enough to meet mounting orders. Lenovo's channel, for example, had one-third of its normal inventory.

Shipments peaked at 350 million for 2021, and PC makers believed that the total addressable market would remain at those heady heights, but saturation means there has been something of a procurement slowdown, and the channel has shifted from famine to having too much unsold kit.

"During the year under review, excess channel inventory intensified business challenges amid falling sell-in demand and currency headwinds. Sell-in activity was compromised by channel inventory clearance," said Lenovo in a statement.

"Nevertheless, Group sell-out data, or actual sales to end users, suggested a more moderate decline in end demand and, simultaneously, greater gain in market share. The Group's PC business remained number one by market share."

According to Gartner, PC shipments declined 30 percent to 55.154 million across the industry in calendar Q1, which tracks with Lenovo's Q4. Vendors used discounts to drive sales.

In its previous quarter, Lenovo reported its first profit decline in three years and hatched a plan to save $850 million in annual overheads. One of the levers was cutting jobs. During this latest quarter, it recorded a one-time restructuring charge of $249 million.

Lenovo is trying to emphasize other divisions to seek out higher growth in areas including servers and tech services.

The Infrastructure Solutions Group grew to $2.2 billion in the latest quarter, up from $1.408 billion, selling servers and the like to SMEs, larger enterprises, and cloud service providers. The Solutions and Services Group, which includes managed services, grew to $6.66 billion for $5.441 billion a year earlier.

For the full year, Lenovo revenues fell to 14 percent to $61.94 billion and it reported a profit before tax of $2.136 billion, down 23 percent. ®

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