Caixin
Aug 13, 2020 07:38 PM
BUSINESS & TECH

Home Computing Trends Reboot Lenovo Profits During Global Pandemic

Lenovo's Beijing headquarters in 2019.
Lenovo's Beijing headquarters in 2019.

Global PC giant Lenovo Group Ltd. logged a return to solid profit and revenue growth in its latest reporting quarter, as the company and its peers benefited from strong demand from people working and studying at home during the Covid-19 outbreak.

Beijing-based Lenovo reported its revenue rose 7% year-on-year to $13.3 billion in the three months to June, bouncing back from a 10% revenue decline in its previous quarter, according to its latest financial report published on Thursday. Similarly, profit for the latest quarter rose 31% to $213 million, reversing a 64% decline the previous quarter. 

Revenue for the company’s core PC and smart-device unit, which accounted for 80% of the total, grew 10% to $10.6 billion during the quarter.

“Work-from-home demand has been a clear catalyst for thin-and-light notebook PC sales, while consumers are buying more gaming PCs to meet their play-from-home requirements. E-learning has emerged as a consistent driver across all regions,” the company said in a statement.

Lenovo’s results were consistent with the broader PC sector, whose shipments jumped 11.2% to 72.3 million in the second quarter, according to IDC. Lenovo was the world’s No. 2 producer with 24.1% of the global market, behind HP Inc., which commanded 25%. The pair has seesawed back and forth in the top two positions, with Lenovo holding the No. 1 spot in this year’s first quarter.

“The strong demand driven by work-from-home as well as e-learning needs has surpassed previous expectations and has once again put the PC at the center of consumers’ tech portfolio, IDC analyst Jitesh Ubrani said in a report accompanying its global second-quarter figures. “What remains to be seen is if this demand and high level of usage continues during a recession and into the post-Covid world since budgets are shrinking while schools and workplaces reopen.”

Lenovo was more certain of the durability of some of the latest trends seen during the pandemic.

“In this uncertain time, the dynamic shift in consumer behavior has created demand tailwinds for e-learning, work-from-home, play-from-home, cloud infrastructure and 5G,” it said. “These long-term structural trends could enlarge the addressable market for (PCs and smart devices) and cloud infrastructure and also accelerate the development of 5G services.”

The company’s stock rose nearly 20% since the start of July through Wednesday’s close on anticipation of its strong performance. But the shares gave back some of those gains and lost about 3.1% on Thursday after the results came out midway through the trading day.

Despite the strong overall results, Lenovo’s smartphone business — which has stabilized recently after years of failure to find an audience — suffered an unexpected setback due to a drop in demand from Latin America, one of its most important markets. Revenue for its intelligent devices and mobile business group, which includes smartphones, tumbled 27% for the quarter from a year earlier to about $1.1 billion, or about 8% of its total revenue.

“Market demand for the mobile business group’s biggest core market, Latin America, experienced a sharp correction of over 30% year-on-year with its addressable market by shipments,” Lenovo said. “As a result of this market weakness, the mobile business group’s revenue performance in Latin America was put under pressure.”

Contact reporter Yang Ge (geyang@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)

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