Lenovo profit beats estimates despite lockdown-sapped demand

LENOVO Group's profit beat market estimates after the world's biggest personal computer maker widened its lead over longtime rival HP.

Net income of the Chinese PC giant jumped 58 per cent to US$412 million in the first 3 months of the year, a company filing showed, higher than analysts' average estimate of US$354 million. Sales were US$16.7 billion in the same period, compared with the average expectation of US$17.6 billion.

Shares of Lenovo fell slightly in Hong Kong on Thursday (May 26) morning before the results were announced.

Lenovo held on to its top spot in the worldwide PC market in the first quarter with 22.7 per cent market share. HP, its biggest rival, saw its market share slump below 20 per cent following supply chain and logistics challenges, research firm IDC said.

PC vendors are now searching for new growth to replace demand from remote work and online learning as economies resume pre-pandemic activity. Beijing has ordered central government agencies and state-owned enterprises to scrap foreign-branded PCs for local names in the next 2 years. That creates demand for at least 50 million PCs from local manufacturers such as Lenovo, Bloomberg News reported earlier this month.

"The macro landscape remains challenging due to factors as varied as climate change, the digital divide, the ongoing pandemic and newly emerged geopolitical risks," Lenovo said in its earnings announcement.

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The company sees growing headwinds as China's severe Covid-19 containment measures erase retail demand and cripple manufacturing and logistics. In Shanghai, authorities barred its 25 million residents from leaving the city for nearly 2 months, erecting metal barriers outside residential compounds. Carmaker Toyota Motor suspended further production due to parts shortages caused by the lockdown covering the city, a sign of persisting supply-chain bottlenecks in manufacturing.

The recent lockdowns have led to order cuts across the consumer electronics and infrastructure sectors, potentially hurting Lenovo more than other brands due to its higher sales exposure at home, JPMorgan analysts including Albert Hung wrote in a note. BLOOMBERG