Why Lenovo Saw Its First Quarterly Loss in Almost 2 Years



Lenovo posted a loss of $72 million

Chinese PC maker Lenovo (LNVGY) reported its fiscal 1Q18 numbers on Friday, August 18. The company reported a quarterly net loss for the first time since September 2015.

Lenovo attributed the loss to higher component costs due to a memory chip shortage, which was not passed onto its customers. Higher demand for the components pushed up the bottom lines of chip makers like Samsung (SSNLF).

What was more concerning was Lenovo’s fiscal 2018 outlook. The company noted that component shortages could drive costs higher. Lenovo stated that it could increase PC prices to protect its margins. However, increasing prices in a declining market could prove costly.

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Lenovo is struggling to cope in a declining PC market

Lenovo reported a net loss of $72 million in fiscal 1Q18 compared to a profit of $173 million in fiscal 1Q17. The company posted quarterly revenues of $10.01 billion in fiscal 1Q18 compared to $10.06 billion in fiscal 1Q17.

This loss comes at a time when the PC market is declining. PC sales comprise the largest source of revenues for Lenovo. The company had already been dethroned by Hewlett-Packard (HPQ) in the quarter ended March 2017 and lost more ground in the quarter ended June 2017. Lenovo’s PC business fell 7% YoY compared to a 3% global decline in the PC market, according to IDC.

Lenovo sold 14.5 million PCs and tablets in fiscal 1Q18. The acquisitions of Motorola and the low-end server business from IBM (IBM) have not positively affected the company’s numbers. Revenues from the mobile business rose just 2% YoY to ~$1.8 billion. The company’s stock fell more than 3% on August 18, 2017.


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