Lenovo Posts Surprise Loss as PC Sales Crater and Costs Climb

Lenovo Posts Surprise Loss as PC Sales Crater and Costs Climb

Lenovo posted a surprise quarterly loss after losing its grip on the global personal computer market, while its smartphone unit continues to bleed money, according to Bloomberg.

China’s largest PC maker reported a net loss of $72 million in the three months ended June, its first in six quarters and well below projections for income of $32.9 million. That drove its stock down as much as as 4.2 percent in Hong Kong to its lowest intraday level in more than a year. Revenue for the period slipped a tad to $10 billion, a whisker above predictions for $9.9 billion.

Lenovo lost its position as the world’s top PC maker as HP and Dell win back customers with new models. Its smartphone and server businesses, bulked up through multibillion-dollar acquisitions, again struggled to make money amid supply constraints, rising costs and aggressive pricing from competitors. COO Gianfranco Lanci told reporters he expects costs for essential components such as memory chips to keep rising throughout the rest of the year, albeit at a slower pace.

Its dismal quarter contrasts with HP, which has reported revenue in excess of projections for four straight quarters and this year overtook Lenovo in market share despite lagging its rival in China. Chairman Yang Yuanqing is exploring ways to rejuvenate core PC business, including a potential tie-up with Fujitsu that he said last month is still under negotiation. The company has reenlisted former mobile-unit head Liu Jun to oversee its Chinese business and has joined with e-commerce site JD.com in a bid to push its annual online revenue to 80 billion yuan ($12 billion) in three years.

Lenovo is betting on the Motorola brand and innovative modular designs to revive its mobile unit, and remains outside the top five in its home market, according to IDC. Sales in the division rose 2.4 percent to $1.75 billion. Its datacenter business, which saw revenue shrink 11 percent in the quarter, is on track to become profitable in about two years. They're also sinking money into an effort to catch the next wave of computing gadgets. Lenovo said it’ll invest $1.2 billion on research into artificial intelligence, IoT, VR and other emergent fields over the next four years.