China's Lenovo posts revenue growth after five quarters of decline

FILE PHOTO: An employee gestures next to a Lenovo logo at Lenovo Tech World in Beijing

By Josh Ye

HONG KONG (Reuters) -China's Lenovo Group, the world's largest maker of personal computers (PCs), reported stronger-than-expected earnings on Thursday, with revenue returning to growth after five quarters of decline amid a post-COVID-19 slowdown.

It said October-December revenue rose 3% from the same period a year prior to $15.72 billion. Analysts polled by LSEG estimated revenue to be flat at $15.25 billion.

Revenue started contracting in 2022 at the end of a boom in demand for PCs and other electronic products that had been brought about by movement restrictions during the pandemic. But after almost two years of decline, the market is showing signs of recovery, in part due to vendors clearing excess inventory.

Researcher Gartner in January reported Lenovo's third-quarter PC shipments grew 3.2% versus the same period a year earlier. Industry-wide PC shipments likewise grew, by 0.3%.

Lenovo controlled 25.6% of the global PC market during the period, Gartner data showed, with HP, Dell and Apple in second, third and fourth place.

However, while Lenovo enjoyed an upturn in third-quarter revenue, profit dropped 23% to $337 million. Still, even that exceeded market expectations.

Lenovo's share price rose after the earnings announcement and was up 3.27% in afternoon trade versus a 1.45% increase in the benchmark Hang Seng Index.

The firm saw revenue grow in most markets, however it plunged 10% at home in China. The drop "definitely reflects" challenges posed by slowdown in the world's second-largest economy, said CEO Yang Yuanqing at an earnings briefing.

Still, investors have been buying Lenovo shares over the past 12 months in part due to expected demand for "AI PCs", or personal computers optimised to run artificial intelligence (AI) software. In that time, Lenovo stock has gained more than 25%.

On Thursday, Lenovo said AI PCs - including those capable of running AI applications without being connected to the internet - will be a strategy focus for the foreseeable future. Last year, it unveiled more than 10 AI-capable PCs at the International Consumer Electronics Show.

AI PC shipments will likely reach 50 million units this year and are set to more than triple to 167 million units by 2027, accounting for close to 60% of total shipments, showed data from researcher IDC.

Lenovo is also set to benefit from being one of the technology industry's big manufacturers of "AI servers", or dedicated AI computers equipped with multiple processing chips developed by leading AI chipmakers such as Nvidia.

"The AI server (market) is expected to grow twice as fast as the (traditional) server market," Yang said.

Lenovo has been a major partner of U.S. chipmaker Nvidia, but as the United States bans exports of high-end AI chips to China to slow that country's technological development, that partnership has come under investor spotlight.

Asked about the ability to source Nvidia's AI chips, Yang said supply has been stable for Lenovo's non-China business.

(Reporting by Josh Ye; Editing by Christopher Cushing)