China's Lenovo says supply issues to hit shipments, revenue growth slows

Illustration photo of a Lenovo logo
·2 min read

By Josh Ye

HONG KONG (Reuters) -China's Lenovo Group warned on Thursday that shipments would fall in the short term as China's COVID-19 lockdowns exacerbated shortages of microchips, after posting its slowest quarterly growth in seven quarters.

The world's largest maker of personal computers (PC) is among many companies facing supply chain headaches that have been worsened by a protracted shortage of chips, business disruptions from the Russia-Ukraine war and China's efforts to stop the spread of COVID in the country.

"Due to the macro economic headwinds, the shortage is weighing significantly in the very short term," Luca Rossi, executive vice president of Lenovo, told a post-earnings call.

"Specifically in this quarter, the manufacturing shutdowns will impact the total shipments in basically everywhere, particularly in the People's Republic of China," he said, adding that demand was also being curbed by geopolitical tensions and inflationary pressure.

Lenovo's CFO Wai Ming Wong said the company's Shenzhen factory operations were impacted during the quarter. The south China city imposed a one-week lockdown in March and conducted multiple rounds of testing after a jump in COVID cases.

The company said it was seeing some easing in supply shortages for the PC segment, but said its smartphone and data centre businesses were still under heavy pressure.

A bellwether for the global PC market, the Beijing-based company led the market with a 23.1% share in the January-March period, according to data from research firm Counterpoint.

A rush to buy PCs to work at home during the pandemic culminated in record sales and profit for Lenovo in the December quarter. But sales have begun to lose steam as China, the company's biggest market, has been hit by the Omicron variant, keeping consumers at home and shutting factories.

The company's revenue rose to $16.69 billion in the quarter ended March 31 from $15.63 billion a year earlier, below an average estimate of $17.36 billion from 9 analysts, according to Refinitiv. That amounted a 6.8% year-on-year rise, its slowest growth in seven quarters.

However, profit attributable to shareholders jumped to $412 million, exceeding analysts' expectations.

Lenovo also reported the annual result for its fiscal year ending in March. Revenue rose 18% to $71.6 billion and profit jumped 72% to $2 billion, the highest levels for both since the company went public in 1994.

Counterpoint reported in April that global PC shipments fell 4.3% in the first quarter of 2022, as the war in Ukraine and China's lockdowns pressured already fragile supply chains and added to shortages of components.

(Reporting by Josh Ye; Editing by Muralikumar Anantharaman, Stephen Coates and Kim Coghill)