Lenovo revenue drops 9.7% to $10.6 bn in Jan-March quarter

Lenovo Group, the world’s biggest maker of personal computers, said its revenue dropped 9.7 percent to $10.6 billion in January-March quarter of 2020.
Lenovo event in 2016Lenovo Group reported a deep slump in fourth-quarter profit due to disruptions caused by the coronavirus crisis.

Lenovo Chairman Yang Yuanqing told Reuters production was back on track and he expects to see year-on-year revenue growth this quarter for its PC and smart devices business and its data centre business as more people work from home permanently.

He told a separate briefing the company estimates that in two to three years the total addressable market for PCs industry-wide may have increased by 25 percent to 30 percent.

Net profit nosedived 64 percent in January-March to $43 million.

Data Center Group (DCG) highlights

# DCG revenue dropped 9% on hyperscale weakness
# Non-hyperscale sales grew thanks to double digit growth in storage, Software-Defined Infrastructure (SDI) and Software & Services; no.1 lead in high performance computing (HPC)
# Hyperscale revenue declined double-digit, due to customers’ inventory digestion and average selling price erosion caused by commodity price compression
# DCG targets to recover and improve profitability: work-from-home (WFH) to benefit cloud demand; share gain in high-growth non-hyperscale segments; new customers and products in hyperscale business

Lenovo had to shut down factories, including a big plant in Wuhan, the epicentre of China’s outbreak, due to measures to contain the virus. At some points, the company had in extreme cases, needed to share staff with other firms and send office employees to work on assembly lines when production workers were in quarantine.

“We have resumed 100 percent production in China,” Yang told Reuters, although he noted that some components were still in short supply.

Shipments of personal computers tumbled 12.3 percent in the first quarter of 2020, the sharpest fall since 2013 due to the pandemic, research firm Gartner said last month.

Lenovo took 24.4 percent market share in PCs during the quarter, ahead of rivals HP and Dell which had 21.5 percent and 19.7 percent respectively, Gartner said.

Data Center Group (DCG)

Lenovo Data Center Group (DCG) business revenue dropped 8.7 percent in fiscal 2019-20.

Lenovo data center business revenue

Lenovo said its DCG business has made investments to improve its growth prospects. Three segments including storage, Software-Defined Infrastructure (SDI) and the Software and Services business delivered strong double-digit revenue growth in fiscal 2019-20.

Among the products, storage has had the strongest growth thanks to the NetApp joint venture and new product growth in entry- and mid-range flash arrays.

The company was ranked as the number three supplier globally in the entry storage market for the first time in the fourth quarter.

Its Software and Services business delivered robust growth, leveraging diversified portfolio, including the new Truscale HWaaS (HardWare as a Service) product.

Sales on its High Performance Computing (HPC) continued to grow and the Group extended its lead in the global supercomputing segment with 173 designs in 14 countries.

China has been the largest beneficiary of the non-hyperscale business. China reported strong double-digit revenue growth for the last three quarters of FY19/20, during which period the NetApp joint venture became operational and investments were put in place to broaden its domestic sales coverage and product portfolio.

The hyperscale business suffered from the sector’s slowdown. Hyperscale revenue declined by double-digits year-on-year driven by inventory issues experienced by global hyperscale customers and by the erosion in commodity prices.

Signs of a recovery started to show in the fourth quarter, as the DCG’s hyperscale shipments increased by double-digits, for the first time since 4QFY18/19.

DCG Group’s revenue declined 8.7 percent while its losses slightly improved year-on-year to $226 million. There was notable improvement in profit margin in the first three quarters of the fiscal year.

Demand in certain regions was affected and supply chain costs including freight charges had risen after COVID-19. Lenovo says DCG business will be a long-term winner as demand tailwinds started to bode well for cloud orders.

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