As Supply Shortages Extend To Batteries, China’s Lenovo Returns To Profit

China’s Lenovo Group Ltd said that the rising component prices could pressure its bottom line this year as supply shortages extend to batteries even as the company, the world’s largest personal computer (PC) maker, reported a return to profit on Thursday.

By just missing analyst estimates, profit reached $535 million in the year to March on revenue that fell 4 percent. Lenovo shares went up by as much as 6 percent in Hong Kong trade following the news.

Since the advent of tablet computers, PC market that has shrunk markedly and this result from Lenovo comes amidst such a market scenario that the company is trying to navigate. Dipping below 63 million units for the first time since 2007, global PC shipments fell for the 10th consecutive quarter in January-March, according to researcher Gartner.

With its share rising 0.4 percentage point to a record 21.4 percent, Lenovo’s annual shipments fell 1 percent versus a market decline of 3 percent. There was a fall of 2 percent in the revenue in its PC and smart devices unit – which makes up 70 percent of the total.

In addition to a difficult macro environment and component supply constraints, transition in its smartphone and data center businesses, were identified by the company as  the reasons behind the declines of the company figures.

Corporate President and Chief Executive Officer Gianfranco Lanci at an earnings briefing that memory shortage is likely to continue this year, particularly solid-state drives (SSD), pushing up parts costs.

“We are starting to see shortage in batteries,” Lanci added. “That is mainly because of cars consuming many more batteries than before.”

Having risen by a single digit percent so far this year, it could take a year for battery suppliers to catch up with demand and for prices to normalize, Lanci said.

Though the firm said it was enjoying strong growth in Latin America and Western Europe, Lenovo’s mobile business, which accounts for 18 percent of revenue, booked a loss which widened somewhat to $566 million.

Reorganizing its China business, announced last week, would not affect mobile, which will be a third line of business outside of PCs and smart devices, and data centers, Chairman and Chief Executive Officer Yang Yuanqing said in an interview.

“We need to improve our China consumer strategy … sharpen our brand, and transform our retail system,” Yang said to the media.

A loss of $343 million was booked by Lenovo’s data center business, which includes servers and enterprise services.

Profit fell 41 percent to $107 million on revenue that rose 5 percent for the three months through March.

(Adapted from Reuters)

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