China’s Lenovo Group warned that sales would decline in the near term as China’s COVID-19 lockdowns worsened shortages of microchips after registering its worst quarterly increase in seven quarters.
The world’s biggest producer of personal computers (PC) is among several firms suffering supply chain issues that have been aggravated by a lengthy scarcity of chips, business interruptions from the Russia-Ukraine conflict, and China’s attempts to curb the development of COVID in the nation.
“Due to the macroeconomic challenges, the shortfall is weighing considerably in the near term,” Luca Rossi, executive vice president of Lenovo, said during a post-earnings call.
“Specifically in this quarter, the factory shutdowns will harm the overall shipments virtually everywhere, notably in the People’s Republic of China,” he said, adding that geopolitical tensions and inflationary pressure were also restraining demand.
Lenovo’s CFO, Wai Ming Wong, stated the company’s Shenzhen production operations were disrupted throughout the quarter. The south China city enforced a one-week lockdown in March and performed repeated rounds of testing following a rise in COVID cases.
The firm said it was witnessing some improvement in supply constraints for the PC market but claimed its smartphone and data center businesses remained under intense pressure.
According to statistics from research firm Counterpoint, a bellwether for the worldwide PC industry, the Beijing-based business dominated the market with a 23.1 percent share in the January-March quarter.
A rush to acquire PCs to work at home during the epidemic resulted in record sales and profit for Lenovo in the December quarter. But sales have started to lose speed as China, the company’s primary market has been hammered by the Omicron version, keeping people at home and halting industries.
The company’s sales grew to $16.69 billion (approximately Rs. 1,29,559 crore) in the quarter ended March 31 from $15.63 billion (about Rs. 1,21,331 crore) a year earlier, below an average forecast of $17.36 billion (roughly Rs. 1,34,799 crore) from 9 analysts, according to Refinitiv. That represented a 6.8 percent year-on-year increase, its smallest gain in seven quarters.
However, earnings attributable to shareholders soared to $412 million (approximately Rs. 3,199 crores), above analysts’ forecasts.
Lenovo also released the yearly performance for the fiscal year ending in March. Revenue grew 18 percent to $71.6 billion (approximately Rs. 5,55,970 crore), and profit surged 72 percent to $2 billion (about Rs. 15,530 crores), the highest levels for both since the business went public in 1994.
Counterpoint said in April that worldwide PC shipments declined 4.3 percent in the first quarter of 2022, as the crisis in Ukraine and China’s lockdowns stressed already unstable supply chains and contributed to shortages of components.