Lenovo China Warns About Shipment Shortage Due to Supply Chain Issues Amid Slow Revenue Growth

China's Lenovo Group warned on Thursday that shipments would fall in the short term as China's COVID-19 lockdowns exacerbated shortages of microchips, after posting its slowest quarterly growth in seven quarters.

The world's largest maker of personal computers (PC) is among many companies facing supply chain headaches that have been worsened by a protracted shortage of chips, business disruptions from the Russia-Ukraine war and China's efforts to stop the spread of COVID in the country.

"Due to the macro economic headwinds, the shortage is weighing significantly in the very short term," Luca Rossi, executive vice president of Lenovo, told a post-earnings call.

"Specifically in this quarter, the manufacturing shutdowns will impact the total shipments in basically everywhere, particularly in the People's Republic of China," he said, adding that demand was also being curbed by geopolitical tensions and inflationary pressure.

Lenovo's CFO Wai Ming Wong said the company's Shenzhen factory operations were impacted during the quarter. The south China city imposed a one-week lockdown in March and conducted multiple rounds of testing after a jump in COVID cases.

The company said it was seeing some easing in supply shortages for the PC segment, but said its smartphone and data centre businesses were still under heavy pressure.

A bellwether for the global PC market, the Beijing-based company led the market with a 23.1 percent share in the January-March period, according to data from research firm Counterpoint.

A rush to buy PCs to work at home during the pandemic culminated in record sales and profit for Lenovo in the December quarter. But sales have begun to lose steam as China, the company's biggest market, has been hit by the Omicron variant, keeping consumers at home and shutting factories.

The company's revenue rose to $16.69 billion (roughly Rs. 1,29,559 crore) in the quarter ended March 31 from $15.63 billion (roughly Rs. 1,21,331 crore) a year earlier, below an average estimate of $17.36 billion (roughly Rs. 1,34,799 crore) from 9 analysts, according to Refinitiv. That amounted a 6.8 percent year-on-year rise, its slowest growth in seven quarters.

However, profit attributable to shareholders jumped to $412 million (roughly Rs. 3,199 crore), exceeding analysts' expectations.

Lenovo also reported the annual result for its fiscal year ending in March. Revenue rose 18 percent to $71.6 billion (roughly Rs. 5,55,970 crore) and profit jumped 72 percent to $2 billion (roughly Rs. 15,530 crore), the highest levels for both since the company went public in 1994.

Counterpoint reported in April that global PC shipments fell 4.3 percent in the first quarter of 2022, as the war in Ukraine and China's lockdowns pressured already fragile supply chains and added to shortages of components.

© Thomson Reuters 2022