After registering its poorest quarterly growth in seven quarters, China’s Lenovo Group warned that shipments would decline in the short term as China’s COVID-19 lockdowns aggravated microchip shortages.
The world’s largest PC manufacturer is one of several firms dealing with supply chain issues worsened by a prolonged chip shortage, economic disruptions from the Russia-Ukraine war, and China’s efforts to halt the development of COVID in the nation.
“Due to macroeconomic headwinds, the shortfall is weighing considerably in the concise term,” Luca Rossi, executive vice president of Lenovo, said in a conference call following the company’s results announcement.
“Specifically in this quarter, factory shutdowns will harm overall shipments essentially everywhere, notably in the People’s Republic of China,” he said, adding that geopolitical concerns and inflationary pressure were also weighing on demand.
Wai Ming Wong, Lenovo’s CFO, stated that the company’s Shenzhen production operations were harmed throughout the quarter. Following an increase in COVID cases, the south China city ordered a one-week lockdown and performed repeated rounds of testing in March.
The company said supply constraints in the PC category were reducing, but its smartphone and data center businesses were still under intense pressure.
According to data from research firm Counterpoint, the Beijing-based corporation dominated the worldwide PC market with a 23.1 percent share in the January-March period.
During the pandemic, a rush to acquire PCs to work from home resulted in record sales and profit for Lenovo in the December quarter. However, sales have begun to slow as the Omicron variant has entered China, the company’s largest market, keeping people at home and facilities closed.
According to Refinitiv, the company’s sales increased to $16.69 billion in the quarter ended March 31 from $15.63 billion the previous year, falling short of the $17.36 billion average forecasts of 9 analysts. This equated to a 6.8 percent year-on-year increase, the smallest in seven quarters.
On the other hand, profit attributable to shareholders increased to $412 million, beating analysts’ forecasts.
Lenovo also released its annual results for the fiscal year that ended in March. Revenue increased 18% to $71.6 billion, while profit increased 72% to $2 billion. This is the most significant level since the business went public in 1994.
According to Counterpoint, worldwide PC shipments declined 4.3 percent in the first quarter of 2022. The crisis in Ukraine and China’s lockdowns strained already unstable supply chains and exacerbated component shortages.