Lenovo’s Revenue Growth Beats Expectations

The COVID-19 pandemic caused a decline in demand, but Chinese PC maker Lenovo Group (0992.HK), which opened a new tab, reported a 9% increase in fourth-quarter revenue to $13.8 billion on Thursday

According to LSEG data, revenue for the January–March quarter exceeded the average forecast of $13 billion by eight analysts. 

Lenovo has experienced five consecutive quarters of revenue declines due to the post-COVID economic downturn. However, this represents the company’s second consecutive quarter of revenue growth.

After nearly two years of decline, the global PC market eventually resumed growth in the first quarter of this year, according to research firm IDC, which reported last month. 

According to IDC, PC shipments increased 1.5% annually to 59.8 million during the quarter, with Lenovo maintaining its No. 1 position with a 23% market share. 

In contrast, Lenovo’s fiscal year-end revenue decreased by 8% to $56.9 billion, surpassing analysts’ projections by a narrow margin.

Ahead of analyst expectations, Lenovo’s net income for the January-March quarter increased 128 percent to $248 million, or $162 million. 

Lenovo’s stock declined 1% in afternoon trading on Thursday. 

In addition to its ongoing expansion of non-PC products (e.g., servers, smartphones, and information technology services), the organization is actively investigating prospects in artificial intelligence (AI). 

The quarterly revenue of its service business unit increased by 8.5% to $1.8 billion.

PC AI Boom

Lenovo’s stock reached its highest level in nine years on Wednesday, concluding the day up about 12 percent, following the company’s announcement of two new AI PCs, a novel category of computers designed to execute AI applications efficiently. 

In a client note, Morgan Stanley analysts predicted that Lenovo would be the primary beneficiary of the AI PC surge in Asia. While AI PCs comprise less than 5% of the market this year, they are projected to account for approximately 64% of new PCs by 2028.

They added that, as a result, AI PCs have the potential to generate 53% of Lenovo’s revenue by 2028, the most among all PC manufacturers, up from the current 2%. 

In a Thursday interview, Lenovo CEO Yuanqing Yang stated that introducing AI PCs will “drive the PC replacement cycle.” 

This month, the company commenced shipping AI PCs. 

“AI PCs will be the majority of people’s next PCs,” he predicted. “By the end of the year, 10% of our shipped PCs will be AI PCs… This figure could escalate to between 50% and 60% by 2026. 

The Chinese government severely restricts foreign AI services, so most of Microsoft’s AI features will not be accessible in China, even though Lenovo and Microsoft collaborate on AI PCs outside China. 

Yang stated, however, that this created an opportunity for Chinese firms, including Lenovo, to establish themselves as AI service providers in China. 

“Although we cannot use ‘Copilot’ in China,” he said, referring to Microsoft’s suite of artificial intelligence features. “However, we can provide our Chinese customers with a comparable or even superior experience in certain areas.”