Lenovo Group Ltd.’s profit fell for the first time in almost three years on waning demand for personal computers, forcing it to warn of job cuts ahead.
Net income fell for the first time since 2020, after revenue dropped a bigger-than-expected 24% to $15.3 billion in the final quarter of last year, according to a company statement. Analysts had expected sales of $16.4 billion on average.
The world’s largest maker of personal computers has been struggling with a tumble in global demand following a pandemic-era work-from-home boom. PC shipments worldwide plunged 28% last quarter to 2018 levels, according to IDC, hurting it and long-time rivals HP Inc. and Dell Technologies Inc.
“We think the smart devices market is in its worst period,” Lenovo Chief Executive Officer Yang Yuanqing said on an earnings call Friday. The company will need to make adjustments in its workforce to cut expenses in some operations, while hiring in high-growth areas such as services, he said.
Yang didn’t provide details on how large the job cuts might be, but he said headcount would be “just a very small portion” of the overall operational cost reduction.
The PC market might stabilize sooner than expected this year, and the company will in the meantime raise efficiency and invest in innovation, Lenovo said. Such cost cuts helped Lenovo’s quarterly net income fall a smaller-than-expected 32% to $437 million.
“Real demand, reflected by users’ device activations, was much better than industry shipment data,” Yang said. The market is still working its way through pandemic-era inventory, he said. “We think the market demand is not as bad as many expected.”
Still, shares of Lenovo extended losses to more than 4.9% in Hong Kong on Friday, in their biggest intraday drop in a month.
Softer corporate demand adds pressure on Beijing-based Lenovo’s profitability, as revenue contribution from lucrative services solutions declines, Bloomberg Intelligence analyst Steven Tseng said.
“Deteriorating enterprise spending amid slowing economic growth and geopolitical tension could be the culprit, and the headwind might persist in the near term,” said in a memo ahead of the earnings release.
In the coming quarters, China’s pledge to spur consumer spending could boost electronics sales. The country dropped its stringent Covid restrictions late last year following widespread protests.
But the recovery could be a bumpy one. While the smartphone market could see a modest recovery this year, PC sales could face more challenges because of lackluster demand from corporations, Tseng and Sean Chen said in a separate memo.
“Companies might remain cautious in the near term and tighten spending on digital infrastructure,” they said. “Yet Lenovo could stand out as it’s poised to be the major beneficiary of China’s localization push to replace foreign-branded PCs in the public sector.”