Hands up who wants a PC? Lenovo reports declining returns

Lenovo profits took a nosedive for the second consecutive quarter as demand for personal computers continues to slump in the face of a crappy economy.

Turnover from sales for Lenovo's Q1 of its fiscal 2025 ended [PDF] June 30 fell by almost a quarter year-on-year to $12.9 billion and net income plunged 66 percent to $177 million, albeit better than the prior quarter's profit dive.

It is now a full year since the the world's largest PC maker reported growth – and a world away from the middle of the pandemic when every desktop and laptop it could produce was flying off the shelves.

"Last quarter, the macroenvironment presented challenges, and our hardware business remained in a phase of adjustment, but we persisted in executing our strategy," Lenovo chairman and CEO Yuanqing Yang said in a statement.

The strategy is to reduce $150 million in costs to counter the slowdown in the Intelligent Devices Group (IDG), which houses the PC biz; to grow other areas of the portfolio, such as infrastructure kit and services; and to invest in R&D to find the next killer hardware device.

IDG, which accounted for the lion's share of Lenovo's operations, declined 28 percent to $10.26 billion. It was a case of yet again trying to clear excess inventory across its channels. At points during the pandemic, Lenovo stock was one third of normal levels – how it would love to return to those business dynamics.

"Sell-in activity was affected but its rate of decline moderated compared to previous quarters. The channel inventory in most regional markets returned to a healthy level by end of quarter under review," Lenovo said. Efforts to expunge stock caused profit margins to dip considerably.

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Lenovo global shipments into the channel shrank 20.8 percent in calendar Q2, Gartner data shows. This allowed nearest rival HP to narrow the gap as it declined 0.9 percent. The general sentiment is that PC sales may start to grow again from the second half of this year or from 2024 as the economy lifts and refresh cycles kick in.

Reduced demand for smartphones also added to IDG's diminishing fortunes – nobody is growing in that market segment either.

As for the Infrastructure Solutions Group (ISG), it declined 8 percent to $1.9 billion. Lenovo said: "Refresh cycles are extending across Cloud Service Provider and enterprise and small and medium business efforts amidst efforts of enterprise customers to rein in spending."

"Together with slower than expected platform transition and economic headwinds, ISG's compute server revenue declined by double-digits year-on-year," it added.

The Solutions and Services group was up 18 percent to $1.7 billion, with Support, Managed, and Project & Solutions services all expanding.

Lenovo said it hopes pressures on the global economy will ease, and while PCs are "regressing" to pre-COVID-19 norms, it expects them to rebound to well beyond the annual 300 million mark in the medium term.

That sounds like wishful thinking. ®