Lenovo posts quarterly loss on higher costs, flat sales

Henrietta Strickland
August 18, 2017

Chinese PC and mobile maker Lenovo Group Ltd. (LNVGY.PK) reported that its loss attributable to equity holders for the first-quarter ended June 30, 2017 was about US$72 million, compared to profit of US$173 million reported in the corresponding period of previous year.

Furthermore, ongoing challenges in Lenovo's datacentre business - which the firm blames on tough competition and higher component costs - have put a strain on both revenues and profitability.

Mobile revenue was $1.75 billion - representing approximately 17% of total revenue, it said.

Despite PC and mobile gains, Lenovo posted its first quarterly loss in nearly two years this month, while also warning of higher costs due to component shortages. The data centre business continued to struggle, with revenue down 11 percent to Dollars 971 million and an operating loss of USD 114 million. Those results did show improvement from the fourth quarter and year ago quarter.

Revenue was flat at $10.01 billion (roughly Rs. 64,205 crores), in line with an estimate of $10 billion.

Shortages of memory chips added to costs and dragged down margins, it said.

The vendor's datacentre business - which has been going through something of a renaissance since November - launched its new ThinkSystem and ThinkAgile products this year, while its smartphone segments also introduced new Moto products to the market, including the Moto Z2 Force, which is set for release in August. Lenovo said higher average selling prices helped make up for the lower volume, while its market share dropped by 0.6 percentage points year-on-year to 20.4 percent. Our total revenue year-on-year was stable. The higher component costs and increased sales and marketing led to a pretax operating loss of United States dollars 129 million, but Lenovo said the margin improved 2.2 percent points from a year ago. This defensive battle of PC business has not been easy.

Its mains PC business posted flat sales of Dollars 7.005 billion, and pretax profit down 21 percent to USD 291 million.

Lenovo's PC shipments declined 6 percent, after two quarters of growth.

To protect margins, Yang said Lenovo would focus more on fast-growing premium products such as PCs tailored for gaming and millennials. In China, revenue and shipments were down again.

The company's growth was largely outside of China. Particularly MBG continued to improve, and is on track to break even by the second half of this fiscal year.

Other reports by Click Lancashire

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