Lenovo mulls layoffs amid PC downturn and expects recovery in late 2023

Computer News Dylan Martin Feb 17, 2023 1:19 pm EST

“While the PC market still needs some time to bring inventories to healthier levels, we believe overall shipments are likely to stabilize at higher than pre-pandemic levels as early as the second half of this year,” Lenovo said -CEO Yang Yuanqing after the IT giant reported a big slump in PC sales and profits for the third quarter.

Lenovo is considering job cuts as part of a roughly $115 million cost-cutting initiative in response to a precipitous slump in sales and profits at the IT giant’s PC business, among other market shifts.

The Hong Kong-based company revealed the plan in its third-quarter earnings call on Friday, in which CEO Yang Yuanqing said a “severe downturn” in the PC and smartphone markets helped Lenovo’s revenue jump 24 percent year over year percent fell to $15.3 billion for the period ended December. The company’s net income fell even further, falling 32 percent to $437 million.

Lenovo had approximately 75,000 employees at the end of fiscal 2022.

The company’s share price fell 3 percent on Friday.

[Related: Lenovo CEO Confident In Capturing New Opportunities As ‘Hybrid Work Model Is Here To Stay’]

Yang noted that while Lenovo is experiencing the same sales slump as its competition, he believes the PC market “could stabilize sooner than many expect.” PC sales are expected to grow faster compared to 2019, before the COVID-19 pandemic led to an unprecedented IT spending frenzy and historical shortages of equipment and components.

READ :  Group of Information Services (NASDAQ:III) StockNews.com has upgraded it to "strong-buy."

“While the PC market still needs some time to bring inventories to healthier levels, we believe overall shipments are likely to stabilize at higher than pre-pandemic levels as early as the second half of this year,” Yang said .

However, Lenovo CFO Wong Wai Ming said the company is still facing a “confluence of global economic challenges and dynamic shifts in market demand.” Those factors, combined with the IT giant’s hopes of doubling its net margin in the next few years, are pushing the company to invest in “high-growth, high-margin engines” and “reducing runway operating costs by about $115 million.” dollars,” he added.

This cost-cutting plan includes “staff adjustments where necessary and appropriate,” Wong said.

How Lenovo’s businesses fared in Q3

The Intelligent Devices Group, which includes Lenovo’s personal computers and smart devices, reported third-quarter revenue that fell 34.2 percent year over year to $11.8 billion and operating profit fell 37.3 percent to $848 million -Dollar. Despite this, the company said it continues to lead the industry in terms of market share, profitability and gross margin, which was 7.3 percent for the period.

Lenovo’s other two businesses, on the other hand, grew at double-digit rates, helping non-PC sales account for more than 40 percent of total revenue in the third quarter, Yang said.

Revenue rose 48 percent year-over-year to a record high of $2.9 billion for the infrastructure solutions group, which includes Lenovo’s servers. Operating profit more than doubled to an all-time high of $43 million. Server growth hit a new record of 35 percent, while storage growth more than tripled and software growth grew 52 percent, also all-time highs.

READ :  IBM's vision for security in the quantum age

The Solutions and Services group, which includes Lenovo’s TruScale as-a-service offering, grew 23 percent year over year to $1.8 billion, while third-quarter operating income rose 12 percent to $370 million . Managed services revenue nearly doubled from the same period last year, driven by TruScale and leading non-hardware solutions, accounting for a record 53 percent of the group’s total revenue.

“Our diversified growth engines are running at full speed. Our operational resilience supports the results. Our healthy liquidity secures the overall needs of the company. And our investment in new intellectual property is building the next wave of our competitive advantages,” Yang said.

“As a result, we are confident of delivering sustained growth and improving profitability,” he added.

Dylan Martin

Dylan Martin is Senior Editor at CRN covering semiconductors, PCs, mobile and IoT beats. His coverage of the semiconductor industry features insightful interviews with CEOs and top executives; news and exclusives on product, strategy and personnel changes; and analytics that get to the bottom of the why behind the news. He can be reached at [email protected]