China's Lenovo sees PC shipments slide in Q3 as global market remains depressed

Chinese technology giant Lenovo Group saw its personal computer shipments decline in the third quarter as the global market remained gloomy amid volatile currencies, excess hardware inventory and the transition to Microsoft’s new Windows 10 operating system.

Separate preliminary estimates released on Friday by research firms IDC and Gartner showed about a 4 per cent drop in Lenovo’s worldwide personal computer shipments last quarter, pulled down by lacklustre sales in the Asia-Pacific and Europe-Middle East-Africa geographic markets. 

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That slump does not augur well for Lenovo’s performance in its second fiscal quarter ended September 30, after the company reported a 51 per cent net profit decrease in its previous fiscal quarter ended June 30.

Lenovo, which operates in more than 160 countries, initiated a sweeping restructing plan in August that included laying off 3,200 employees and writing off US$300 million of its smartphone inventory.

Jefferies equity analyst Ken Hui said in a report that Lenovo was earlier “expected to meet [market] consensus of 10 to 15 per cent quarter-on-quarter shipment growth in the third calendar quarter”.

IDC estimated that Lenovo’s shipments fell 4.9 per cent year-on-year to 14.937 million units in the third quarter, while Gartner calculated a 4 per cent decline on shipments of 14.995 million.

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The rest of the world’s top-five personal computer suppliers — Hewlett-Packard, Dell, Apple and Acer — also saw their volume shipments go down last quarter, IDC said.

Lenovo, however, held onto its position as the industry’s largest supplier on a record-high global market share of 21 per cent, boosted by strong sales in the United States, according to IDC. Gartner estimated a lower 20.3 per cent market share. 

Yang Yuanqing, the chairman and chief executive at Lenovo, said in August that the company was moving to reduce costs in its personal computer business to improve profitability.

The company was integrating the manufacturing supply chain for its personal computer and server products to drive greater efficiency. 

IDC said worldwide personal computer shipments in the third quarter had shrunk 10.8 per cent year-on-year to 70.976 million units. Gartner estimated a smaller contraction of 7.7 per cent on total shipments of 73.728 million.

“The global PC market has experienced price increases of around 10 per cent throughout the year due to the sharp appreciation of the US dollar against local currencies. In the third quarter, this continued to be a major cause for weaker demand,” Gartner principal analyst Mikako Kitagawa said.

IDC analysts pointed out that computer suppliers and their distributors were working to limit price swings in the face of currency exchange rate volatility.

Channel distributors across many regions were also challenged by efforts to clear their inventory of personal computers pre-installed with Windows 8 operating system, before a more complete portfolio of models incorporating Windows 10 and the latest Intel Skylake processors were released.

“We estimate that Lenovo had more than 15 weeks of consumer personal computer inventory in Europe, above the normal eight weeks [of inventory], which will take some time to be digested,” Jefferies’ Hui said.

Windows 10, which was launched in the third quarter, generally received favourable reviews, but many personal computers users opted to upgrade their operating system rather than buy new hardware.

“While PC shipments will be hampered in the short run by the availability of a free upgrade to Windows 10, the improved PC experience across user segments should drive longer-term demand for new PC hardware that is expected help stabilise the market in 2016 and beyond,” said IDC research manager Jay Chou.