Lenovo Profits And Sales ‘Severely Impacted’ By COVID-19

‘Our Mobile business was severely impacted by the pandemic, as our primary smartphone factory in Wuhan remained closed for much of the quarter,’ says Lenovo CEO Yang Yuanqing.

Lenovo was hit hard by the coronavirus pandemic during its fourth quarter which forced its Wuhan, China-based factory to close, causing net income to tumble 64 percent and total sales to drop 10 percent year over year.

“Our Mobile business was severely impacted by the pandemic, as our primary smartphone factory in Wuhan remained closed for much of the quarter,” said Yang Yuanqing, chairman and CEO of Lenovo during the company’s fourth fiscal quarter earnings call. “Our mobile business was on target for a breakthrough year until the impact in the fourth quarter.”

The Hong Kong-based PC and data center giant reported fiscal fourth quarter revenue of $10.6 billion, down 10 percent year over year, with a net income of $43 million compared to $118 million during the same quarter last year.

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Lenovo was forced to shut down the company’s primary smartphone factor in Wuhan, China – which is where the coronavirus pandemic first hit – due to COVID-19, which caused Lenovo’s Mobile Business Group (MBG) sales to decline 47 percent year over year with a pre-tax loss of $60 million in the fourth quarter. The closure also caused revenue in Lenovo’s bread and butter PC and Smart Devices group to drop 4 percent year over year, although the company did not provide a sales figure for PC and Smart Devices for the quarter, which ended March 31.

“MBG performance in fiscal Q4 was impacted by factory shutdown in Wuhan, China, for the most part of the quarter because of COVID-19,” said Wong Wai Ming, executive vice president and chief financial officer. “ MBG was able to leverage the support of our global footprint to deliver 6 million smartphone shipments. [However] the zero loading of Wuhan factory for most of the quarter resulted in a year-on-year revenue decline of 47 percent.”

Ming said the supply disruption resulted in a 4 percent decline year-over-year for its PC and Smart Devices (PCSD) business, which reported a 15 percent pre-tax income growth and pre-tax income margins of 6.2 percent. The PCSD’s healthy profit was offset by drops in mobile and data center losses “as COVID-19 caped the supply of MBG and [data center] profitability due to the rising freight and shipping cost,” Ming said.

Another factor on fourth quarter sales: declining data center revenue stemming from softer hyperscale demand and a “sharp commodity price drop,” said Yuanqing. Lenovo’s data center revenues declined 3 percent year over year to $1.2 billion.

Kirk Skaugen, executive vice president and president of Lenovo’s Data Center Group, said the reason the firm’s hyperscale business fell was because some customers were hesitant to buy.

“Some of our customers had paused buying as they were consuming inventory. We see that dramatically changing rapidly starting this quarter in units, but even more dramatically next quarter,” said Skaugen. “And revenue was impacted in hyperscale primarily because of sharp commodity declines in SSD (solid state drive) and memory. Those are over. So we should see now a tailwind in revenue as well from increased demand and increased commodity pricing.”

For its full year 2020, Lenovo generated $50.7 billion in revenue, down 1 percent year over year. Net income reached $665 million, up 12 percent compared to fiscal year 2019, while pre-tax income hit a historic high of $1.02 billion, up 19 percent.

Revenue for Lenovo’s PCSD group led the way with nearly $40 billion in sales, up 4 percent year on year. The company’s data center business saw sales decline 9 percent for its full fiscal year 2020, although the company did not provide a sales figure.

“Amid one of the most significant periods of global change and transformation we have ever seen, Lenovo significantly transformed its business over the past year. From achieving record pre-tax income of $1.02 billion to reaching near record revenue of $50.7 billion, I could not be prouder of our strong performance,” said Yuanqing. “While the world continues to face uncertain times, I’m confident Lenovo will leverage its operational excellence and global footprint to continue implementing our intelligent transformation strategy and fully grasp the opportunities our ‘new norm’ provides us.”