China's Lenovo returns to profit as supply shortages extend to batteries

China's Lenovo returns to profit as supply shortages extend to batteries

China's Lenovo Group Ltd, the world's largest personal computer maker, on Thursday posted a 41 percent drop in fourth-quarter profit at a time of sluggish PC demand.

A man uses his laptop next to Lenovo's logos during the Mobile World Congress in Barcelona, Spain February 25, 2016. REUTERS/Albert Gea/Files

HONG KONG: China's Lenovo Group Ltd, the world's largest personal computer (PC) maker, reported a return to profit on Thursday but said rising component prices could pressure its bottom line this year as supply shortages extend to batteries.

Profit reached US$535 million in the year to March on revenue that fell 4 percent, just missing analyst estimates. The news sent Lenovo shares up as much as 6 percent in Hong Kong trade.

The result comes as Lenovo navigates a PC market that has shrunk markedly since the advent of tablet computers. According to researcher Gartner, global PC shipments fell for the 10th consecutive quarter in January-March, dipping below 63 million units for the first time since 2007.

Lenovo's annual shipments fell 1 percent versus a market decline of 3 percent, with its share rising 0.4 percentage point to a record 21.4 percent. Revenue in its PC and smart devices unit - which makes up 70 percent of the total - fell 2 percent.

The company blamed the declines on transition in its smartphone and data centre businesses, as well as on a difficult macro environment and component supply constraints.

Memory shortage is likely to continue this year, particularly solid-state drives (SSD), pushing up parts costs, said Corporate President and Chief Executive Officer Gianfranco Lanci at an earnings briefing.

"We are starting to see shortage in batteries," Lanci added. "That is mainly because of cars consuming many more batteries than before."

Lanci said it could take a year for battery suppliers to catch up with demand and for prices to normalise, having risen by a single digit percent so far this year.


Lenovo's mobile business, which accounts for 18 percent of revenue, booked a loss which widened somewhat to US$566 million, though the firm said it was enjoying strong growth in Latin America and Western Europe.

In an interview, Chairman and Chief Executive Officer Yang Yuanqing said reorganising its China business, announced last week, would not affect mobile, which will be a third line of business outside of PCs and smart devices, and data centres.

"We need to improve our China consumer strategy ... sharpen our brand, and transform our retail system," Yang told Reuters.

Lenovo's data centre business, which includes servers and enterprise services, booked a loss of US$343 million.

For the three months through March, profit fell 41 percent to US$107 million on revenue that rose 5 percent.

(Reporting by Sijia Jiang; Editing by Christopher Cushing)

Source: Reuters