China’s Top PC Maker Lenovo Posts Profit Above Estimates as Sales Beat

Lenovo Group's earnings beat estimates after China’s top PC maker relied on new businesses to weather an unprecedented slump in global computing demand.

Lenovo has been counting on growth from businesses such as in servers, cloud computing and data storage, to help offset worsening PC sales. (Bloomberg)

Lenovo Group Ltd.'s earnings beat estimates after China's top PC maker relied on new businesses to weather an unprecedented slump in global computing demand.

Net income reached $541 million in the quarter ended September, the company said Thursday in a statement. The average analyst estimate was $473 million. Sales declined for the first time in more than two years to $17.1 billion, but still beat the $16.9 billion analysts predicted.

Lenovo and its rivals Dell Technologies Inc. and HP Inc. are struggling with a global PC market that saw its steepest quarterly drop on record -- the fourth straight decline in shipments. In Lenovo's home market, Beijing appears to prioritize Covid Zero over the economy, triggering lockdowns in major cities, smothering retail demand and disrupting manufacturing.

What Bloomberg Intelligence Says

An extended macroeconomic overhang will likely lead to another down year for the PC market in 2023, though there's scope for a rebound later in the year and potential for a return to growth in 2024. We've trimmed our 2023 PC-shipment target by 1% to 281 million, which implies a 3% unit drop.

- Woo Jin Ho, analyst

Beyond China, the global tech outlook is clouded by a plethora of restrictions Washington imposed on chip and technology exports to China last month, which threaten to further curtail shipments to the world's largest PC and semiconductor market. Industry bellwether Intel Corp. is planning a major reduction in headcount, likely numbering in the thousands, Bloomberg News has reported.

Lenovo has been counting on growth from businesses beyond its bread-and-butter division -- such as in servers, cloud computing and data storage -- to help offset worsening PC sales. But its core division still yields about four-fifths of revenue.

“Demand cracks are spreading to enterprise hardware end-markets, including PCs and data center infrastructure,” Morgan Stanley analysts wrote this month.