PC giant Lenovo expected to see drop in quarterly revenue

Steady growth remained a challenge at Chinese hi-tech company’s mobile and data centre business units in the three months to September

PUBLISHED : Tuesday, 01 November, 2016, 4:47pm
UPDATED : Thursday, 03 November, 2016, 5:16pm

Chinese technology titan Lenovo Group is expected to report a weak set of quarterly financial results in the three months to September 30, despite likely stable sales growth in its core personal computer business.

Analysts pointed out that profitability at Lenovo’s mobile and data centre businesses have remained challenging.

Data from Jefferies showed the world’s largest supplier of personal computers is estimated to report a net profit of US$200 million for the second quarter of its fiscal year that ends in March, rebounding from a US$714 million loss in the same period last year. 

Total revenue, however, is forecast to decline 9.2 per cent year on year to US$11.03 billion.

Shares in Lenovo, which reports its latest quarterly earnings on Thursday, closed unchanged at HK$4.98 in trading on Tuesday.

“The personal computer market remains volatile,” Jefferies equity analyst Ken Hui said in a report. “However, the company’s guidance of widening personal computer growth ... in the September quarter suggests that the worst is over.”

Lenovo is rated a “Buy” by Jefferies, which has put a HK$7 share price target on the stock.

Last month, technology research firm IDC reported that Lenovo shipped 14.51 million personal computers worldwide in the quarter to September, down 3.2 per cent from a year ago, but good enough to keep its top position with a 21.3 per cent global market share.

That marked the sixth consecutive year-on-year decline in global personal computer shipments for Lenovo, IDC said.

Alberto Moel, a senior analyst at Bernstein Research, said Lenovo has guided for a more than 10 per cent growth over the previous quarter for its personal computer and smart devices business, which includes tablets, in the three months to September.

“Our conversations with the company suggest that Lenovo is targeting at maintaining flattish sales in their personal computer business segment for its fiscal year to March,” Moel said.

Bernstein rates Lenovo shares as “Outperform”, with a price target of HK$6.

In September, Lenovo implemented another round of lay-offs as it struggled to revive its flagging smartphone business amid a lingering global economic slowdown and slow sales in mainland China.

The personal computer market remains volatile. However, the company’s guidance of widening personal computer growth ... in the September quarter suggests that the worst is over
Ken Hui, Jefferies equity analyst

Lenovo, which operates in more than 160 countries, said the new job cuts affected “less than 2 per cent of its approximately 55,000 employees globally”.

The company added that the majority of the job losses were part of the strategic integration of Motorola Mobility’s smartphone business, which it bought from Google for US$2.91 billion in 2014.

“We believe the company has what it takes to turn around the smartphone business and achieve profitability by the end of its fiscal year 2018,” Moel said.

He expected the same timeline to profitability for Lenovo’s data centre business group, which includes the x86 server division of IBM that it acquired for US$2.1 billion in 2014.

Citi Research analyst Arthur Lai said in a report that margins for Lenovo’s data centre business margins could improve in China, thanks to less price competition in the server market there. Citi rates Lenovo a “buy”, with a share price target of HK$6.30.