HONG KONG
(Reuters) - Chinese personal computer maker Lenovo Group Ltd (0992.HK) warned
of higher costs and margin pressure due to shortages of components
like memory
chips, as it posted its first quarterly loss in almost two years on Friday.
Lenovo,
which gave up its title as the world's largest PC maker to HP Inc (HPQ.N) in
the quarter through June, lost $72 million compared with a profit of $173
million for the same period last year.
It was the
company's first quarterly loss since September 2015 and lagged analysts'
average forecast of a $5.29 million profit, sending the stock down as much as 5
percent to a year-low of HK$4.52 during Friday morning trade.
The outlook
for the rest of the year was challenging as component shortages would dive
costs higher, possibly forcing the company to raise its selling price to
protect margins, executives said.
"Most
of the component cost is stabilizing except memory ... and the price is still
going up," Lenovo Chief Operating Officer Gianfranco Lanci said on an
earnings call.
Memory
prices rises would continue "at least until the end of the year",
albeit at a slower rate than the past two quarters, he said, a product of
exploding global demand for semiconductors.
Auto
industry demand was also pushing up the price of batteries, he said.
While
personal computer makers around the world are struggling as consumers switch to
mobile devices, Lenovo's core PC business is declining more rapidly than many
of its competitors'.
Lenovo
posted a 6 percent decline in PC shipments in the quarter, compared with a 3
percent fall globally. Its PC revenue was flat at $7 billion.
"Overall,
it will be very challenging for them to improve their PC performance in the
short-term with the component price rise that's here to stay," said
analyst Mo Jia, of industry consultancy Canalys.
MARGINS AND
MOBILE
Despite the
challenging outlook, Chairman and Chief Executive Yang Yuanqing was upbeat
about the prospects for margins and the struggling mobile business.
He pointed
to a $110 million sequential improvement in operational pretax income, which he
attributed to improvement in the mobile and data center businesses.
"Not
only did this gave me more confidence we will turn around our mobile business
in the second half of FY2018, I think the entire Lenovo is entering a new phase
of growth," he said.
Lenovo has
struggled with mobile since acquiring Motorola in 2015, and as Chinese rivals
such as Huawei and Xiaomi leapt to global prominence.
Losses from
its mobile business narrowed and revenue rose 2 percent to $1.75 billion in the
quarter. It was the only unit to post a rise in revenue, although it still
accounted for just 17 percent of the total. Total revenue was flat at $10
billion.
To protect
margins, Yang said Lenovo would focus more on fast-growing premium products
such as PCs tailored for gaming and millennials.
It had
dropped low-margin deals such as that with Google's Chromebook, and would raise
selling prices if component costs continued to climb.
Lenovo's
data center business group recorded an operational loss of $114 million, versus
a loss of $31 million a year ago. Despite a 11 percent drop in revenue, Yang
said he expected the group to turn profitable in two years.
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