Lenovo China Warns About Shipment Shortage Due to Supply Chain Issues Amid Slow Revenue Growth

China’s Lenovo Group warned Thursday that shipments will decline in the short term as China’s COVID-19 lockdown exacerbates microchip shortages, after it posted its slowest quarterly growth in seven quarters.

The world’s largest maker of personal computer (PC) is among several companies facing supply chain issues that have been exacerbated by prolonged chip shortages, business disruptions due to the Russo-Ukrainian War, and China’s efforts to stem the spread of COVID in the country.

“Due to the macroeconomic headwinds, the shortage is taking a big toll in the very short term,” said Luca Rossi, Lenovo Executive Vice President, on the post-earnings call.

“Specifically in this quarter, manufacturing shutdowns will affect overall shipments basically everywhere, especially in the People’s Republic of China,” he said, adding that demand has also been curbed by geopolitical tensions and inflationary pressures.

Lenovo Wai CFO Ming Wong said Shenzhen factory operations were affected during the quarter. The city in southern China imposed a one-week lockdown in March and conducted multiple rounds of testing after a jump in COVID cases.

The company said it was seeing some regression in the supply shortage for the PC segment, but said its smartphone and data center business remained under severe pressure.

The Beijing-based company led the global PC market, with a share of 23.1 percent in the January-March period, according to data from research firm Counterpoint.

The rush to buy computers to work at home during the pandemic peaked in Lenovo’s record sales and profits in the December quarter. But sales are losing steam as China, the company’s largest market, has been hit by the Omicron variant, keeping consumers at home and shutting down factories.

The company’s revenue rose to $16.69 billion (approximately Rs 1,29,559 crore) in the quarter ended March 31 from $15.63 billion (approximately Rs 1,21,331 crore) in the previous year, below the average estimate of 17.36 crore. $1 (approx. Rs. 1, 34799 crore) from 9 analysts, according to Refinitiv. That was a 6.8 percent year-over-year increase, the slowest growth in seven quarters.

However, profit attributable to shareholders jumped to $412 million (about Rs 3,199 crore), beating analysts’ expectations.

Lenovo also announced the annual result for the fiscal year ending in March. Revenues rose 18 percent to $71.6 billion (~Rs 5,55,970 crore) and profits jumped 72 percent to $2 billion (~ Rs 15,530 crore), the highest levels for both since the company went public in 1994.

Counterpoint reported in April that global PC shipments fell 4.3% in the first quarter of 2022, as the war in Ukraine and shutdowns in China squeezed already fragile supply chains and increased component shortages.

© Thomson Reuters 2022

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