Lenovo Continues To Struggle As PC And Smartphone Maker

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Lenovo was hit hard by the coronavirus pandemic during its fourth quarter , causing net income to tumble 64 percent and total sales to drop 10 percent year over year. The PC and data center giant reported fiscal fourth quarter revenue of $10.6 billion, down 10 percent year over year, with a net income of $43 million compared to $118 million during the same quarter last year.

“Our Mobile business was severely impacted by the pandemic, as our primary smartphone factory remained closed for much of the quarter,” said Yang Yuanqing, chairman and CEO of Lenovo during the company’s fourth fiscal quarter earnings call. “Our mobile business was on target for a breakthrough year until the impact in the fourth quarter.”

Lenovo has been struggling with its smartphone offering for years. As Bloomberg’s technology columnist Tim Culpan noted in a tweet, it’s no secret this section of the company has demonstrated unprofitability, so it seems absurd that Lenovo is claiming it retains the same value now as it did then. The company has rather vaguely said it will “focus on reducing losses in the new fiscal year”, but maybe it’s time that it takes a leaf out of LG’s book and has a complete rethink.

Lenovo was forced to shut down the company’s primary smartphone factory, which caused Lenovo’s Mobile Business Group (MBG) sales to decline 47 percent year over year with a pre-tax loss of $60 million in the fourth quarter. The closure also caused revenue in Lenovo’s bread and butter PC and Smart Devices group to drop 4 percent year over year, although the company did not provide a sales figure for PC and Smart Devices for the quarter, which ended March 31.

Another factor on fourth quarter sales: declining data center revenue stemming from softer hyperscale demand and a “sharp commodity price drop,” said Yuanqing. Lenovo’s data center revenues declined 3 percent year over year to $1.2 billion.

“Some of our customers had paused buying as they were consuming inventory. We see that dramatically changing rapidly starting this quarter in units, but even more dramatically next quarter,” said Skaugen. “And revenue was impacted in hyperscale primarily because of sharp commodity declines in SSD (solid state drive) and memory.

However, this finding comes amid a sea of otherwise disappointing results, including a 69 percent drop in net income — the biggest annual loss in nine years — which it attributed to higher component costs, an expected tax write-down and lower-than-anticipated income from asset disposals. Ongoing losses in its mobile division – where revenue fell 6 percent – aren’t going to help either.

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