Macroeconomic Headwinds Hit Lenovo’s Sept Quarter; Revenue Dips YoY, Remains Flat QoQ

November 14 2022

Lenovo’s revenue fell 4.4% YoY and rose 0.8% QoQ in Q3 2022 (or Q2 2022 of Lenovo’s 2022-23 financial year) due to global macroeconomic headwinds, regional uncertainty and exchange rate hikes.

The company’s Solutions and Services Group’s (SSG’s) 26% YoY revenue growth, along with the 33% YoY revenue growth of the Infrastructure Solutions Group (ISG), took the non-PC sectors’ revenue share in the whole group's total revenues to 24% in Q3 2022. With a service-led transformation strategy, the company continued to improve profitability and scalability across the three sub-sectors.

In the sales mix, the Intelligent Devices Group (IDG) took the largest share of the Lenovo group’s revenue with a 76% contribution, compared to 82.2% in Q3 2021, given the overall slow recovery in smartphones. Lenovo/Motorola smartphone unit shipments were down nearly 15% YoY in Q3 2022 to take a 3.7% share of the global smartphone market, according to Counterpoint Research's Global Smartphone Market Monitor. Given the 12% YoY decline in global smartphone shipments, Lenovo has suffered worse than the average downtrend.

Commenting on Lenovo/Motorola’s smartphone segment performance, Senior Analyst Ivan Lam said, “Lenovo’s key markets such as LATAM and the US are facing macroeconomic and inflation headwinds. Lenovo/Motorola got a direct impact because their target consumer group suffered more than the high-end smartphone consumers. Although they tried to build up other markets like China and some emerging markets, this will not generate a significant portion of revenue in the short term. Lenovo/Motorola also launched high-end smartphones and XR products. However, these moves will still be more favorable for marketing and not provide concrete sales revenue for now.”

Lenovo’s PC and tablet shipments decreased 16.1% and 40.2%, respectively, in Q3 2022, according to Counterpoint Research's Global PC and Tablet Monitors. The company continued its leadership in the PC market and grabbed a 23.7% share globally.

Commenting on Lenovo's PC performance, Senior Research Analyst William Li said, “Despite a slight outperformance in PC shipments, industry headwinds due to the macroeconomic environment remain challenging for OEMs. Fortunately, Lenovo is seeing healthier demand in sell-out (end market), which is better than sell-in shipment data. The management also reiterates its self-design and manufacturing model could help Lenovo weather the industry downturn.”

Li added, “The management expects the total addressable PC market will likely decline in both 2022 and 2023, though overall shipment levels will be still higher than pre-COVID levels. In addition, the company has highlighted some bright spots amid the overall soft demand, like the gaming PC growth hitting 34% YoY and 65% commercial mix in the PC business, representing the #1 shipment volume in the industry.”

Commenting on the tablet market’s weak performance, Lam said, “After massive growth in 2020 and 2021, a decline in the tablet market was expected in 2022. The market is now experiencing a slowdown in demand. Besides, with the slow upgrade in hardware, consumer upgrade cycles will be extended longer. The penetration will be held at a steady level.”

Lam added, “Strong US dollar has already made a tangible impact on the revenue, which, as the quarterly brief mentioned, should be up 3% YoY in constant currency terms. The hardware business will be continuously facing the cost increase challenge.”

Lenovo Holds up Under Multiple Pressures, Outlook Uncertain

August 12 2022

Despite operational headwinds due to COVID-19, regional political turbulence, inflation pressure and currency exchange rate volatility, Lenovo reported resilient revenue growth of 0.2% YoY and 1.6% QoQ for Q2 2022 (or Q1 2022 of Lenovo’s 2022-23 financial year).

The company’s Solutions and Services Group’s (SSG’s) 23% YoY (4.3% QoQ) revenue growth in the quarter implied a successful strategic focus on service-led transformation. Along with its other two groups – Intelligent Devices Group (IDG) and Infrastructure Solutions Group (ISG), the company continued to improve profitability and scalability across the three sub-sectors with several growth drivers, including expansion from hybrid working and digital workplace upgrades.

ISG and SSG saw solid YoY revenue growth of 13.7% and 22.9% respectively in Q2 2022, offset by IDG's 2.7% YoY decline due to global consumer demand weakness. On the sales mix, IDG took the largest share of Lenovo group’s revenue with 80% contribution, though slightly diluted by ISG and SSG's double-digit sales growth.

Lenovo/Motorola smartphone unit shipments grew 0.3% YoY in Q2 2022 to take a 4.2% share of the global smartphone market, up from 3.5% a year ago, according to Counterpoint Research's Global Smartphone Market Monitor. Given the 9% YoY decline in global smartphone shipments, Lenovo has been marching against the downtrend. It performed well not only in its traditional American continental stronghold but also in the European and APAC markets, including China, to achieve 21% YoY revenue growth, highlighted by group chairman Yuanqing Yang.

Commenting on the continuous growth of Lenovo/Motorola's smartphone segment, Senior Analyst Ivan Lam said, “With its low penetration in the Chinese and European markets a year ago, Lenovo was able to avoid the headwinds from these two markets. Major Chinese smartphone brands suffered significant drops, with both vivo and Xiaomi seeing declines of over 20% due to their exposure to the Chinese and European markets. Lenovo/Motorola is continuing with its cost-effective, or ‘affordable high-end’, product strategy. Therefore, its entry seems to be facing less resistance from the channels and target consumers. However, its comeback has just started and challenges remain. Its US and LATAM markets will also have more powerful rivals on the battlefield, such as Xiaomi in LATAM.”

Lenovo’s PC and tablet shipments decreased 13% and 20% respectively in Q2 2022, according to Counterpoint Research's Global PC and Tablet Monitors. The company continued its solid leadership in the PC market, shipping 17.4 million units in the quarter to grab a 24.4% market share. The brand’s shipment decline was mainly due to weak consumer demand, partly offset by moderate commercial orders. Lenovo’s management team also held a cautious tone on 2022 PC shipments but stayed positive on a flat-to-slight increase in 2023.

Commenting on Lenovo's PC performance, Senior Research Analyst William Li said, “Lenovo’s PC business suffered weak consumer demand amid global inflation pressure. Unstable order visibility and relatively high inventory levels will have a negative impact on the overall global PC market. Therefore, we had lowered our 2022 shipment forecast in Q2 2022 to reflect the weakening PC demand. We expect order adjustments to continue even as the average selling price (ASP) plateaus on easing supply constraints.”

Commenting on the outlook for Lenovo’s second half, Lam said, “Macro headwinds, inflationary pressure and strong US dollar may impact the demand for PC, server and other consumer electronics goods that Lenovo offers. At the same time, issues such as manufacturing cost and channel inventory may pop up if timely actions are not taken.”

Lenovo Reports 17.9% YoY Revenue Growth in FY 2021-22; ‘3S strategy’ Working

Jun 13, 2022

Lenovo has reported solid revenue growth of 17.9% YoY for FY2021-22 (Lenovo’s financial year starts in April). But Q1 2022 (January-March) saw its revenue falling 17.1% QoQ and rising 6.8% YoY.

In April 2021, Lenovo adopted a new organizational structure under its ‘3S strategy’. In the new structure, it has three major business groups — Intelligent Device Group (IDG), Infrastructure Solutions Group (ISG) and Solutions & Services Group (SSG). Lenovo’s latest financial numbers indicate the ‘3S strategy’ is working to re-energize this giant enterprise.

IDG is still taking the biggest share of Lenovo’s global revenues. The three business groups – IDG, ISG and SSG – saw acceptable YoY increases in the last financial year, at 17.5%, 13.3% and 29.8% respectively.

Commenting on IDG, Senior Research Analyst Ivan Lam said, “Lenovo has made constructive progress in its PC and tablet business, but its smartphone business has seen a phenomenal bounce.”

According to Counterpoint Research’s Global Smartphone Market Monitor, Lenovo achieved a 53.2% YoY smartphone shipment increase in CY 2021 by units. In terms of Lenovo’s financial year, its smartphone shipments grew 33.5% YoY in 2021-22.

Lam added, “Motorola contributed to Lenovo’s smartphone growth. LG’s exit from the smartphone business gave Motorola a great chance to improve performance in the North America and LATAM markets. With its good fusion of hardware specifications and fair pricing, Motorola broke through the market. In the mid-range of smartphones in LATAM markets, Motorola‘s devices have higher-pixel main cameras and bigger ROM, making them attractive for LATAM consumers.”

Based on Counterpoint Research’s Smartphone Market Monitor data, Lenovo’s smartphone shipments in North America and LATAM took up 79% of its total sales in Q1 CY2022.

According to Counterpoint Research’s Global PC and Tablet Monitors, Lenovo’s PC and tablet shipments decreased 9.5% and 20.2% respectively in Q1 CY2022. Lenovo continued its leadership in the PC market, shipping 18 million units in the quarter to grab a 23.1% market share. The 9.5% YoY decline in PC shipments was mainly due to component shortages and a relatively high base in Q1 CY2021.

Commenting on Lenovo’s PC performance, Research Analyst William Li said, “Lenovo’s PC business is one of the biggest beneficiaries of hybrid working environments. However, global inflation and regional conflict brought uncertainties to PC demand, and the order visibility and outlook are not as good as they should be at the beginning of the year. In addition, consumer demand has largely slowed down since H2 CY2021, while commercial demand remains strong and could be the key support for PC shipments in CY2022.”

During its earnings call, Lenovo mentioned that the group would continue to invest in new innovative and advanced products, which is reflected in its latest interest in XR and the Metaverse. Also, Lenovo chairman and CEO Yang Yuanqing highlighted that the group faced challenges from the supply chain and macroeconomic environment.