Lenovo's profit decreased for the first time in over three years due to weak demand for personal computers, prompting the company to issue a warning about impending layoffs.
As per South China Morning Post (SCMP), the corporation reported its first quarterly decline in net income since 2020 due to sales falling by 24.1% to $15.3 billion in the fourth quarter of 2022. In general, market analysts had predicted revenue of $16.4 billion.
Imminent Job Cuts
With a surge in home-based jobs during the Covid-19 pandemic, the world's biggest PC manufacturer has seen its sales fall. IDC reports that Lenovo, along with long-time competitors HP and Dell, was hit by a 28% quarterly drop in PC sales globally in the fourth quarter of 2022.
Yang Yuanqing, CEO of Lenovo, remarked on a conference call on Friday, Feb. 17, that the smart device industry is now experiencing the worst era.
Yang added that the corporation would have to reorganize its employees to save costs in certain areas while increasing headcount in fast-growing sectors like services.
While he did not specify how many jobs may be lost, Yang did say that layoffs would account for only a very tiny fraction of the total operating cost reduction.
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The PC Market
Lenovo, located in Beijing, China, expects the PC market to stabilize sooner this year and will increase efficiency and invest in innovation in the interim. As a result of these measures, Lenovo's quarterly net income fell by 32% to $437 million, less than projected.
Actual demand, as shown by consumers' activations of devices, was far better than industry shipping figures, said Yang. According to him, the market is still clearing out supplies left over before the outbreak. Apparently, he does not believe demand in the market is as severe as many people anticipate.
Nevertheless, Lenovo stock is down by its largest daily percentage in a month on Friday in Hong Kong, falling by more than 4.9%.
Analyst Steven Tseng from Bloomberg argues that Lenovo finds it harder to turn a profit as weaker corporate demand puts more of a dent in sales, and the company sees less money coming in from lucrative services solutions.
Road to Recovery
China's plan to increase customer spending may help electronics companies in the coming quarters. After numerous complaints, the nation finally relaxed its Covid limits at the end of last year.
Yet there may be hiccups on the road to recovery. Tseng and Sean Chen, in a separate document, predicted that although the smartphone industry should experience a minor comeback this year, PC sales could face additional issues due to lackluster demand from enterprises.
They said, "Companies might remain cautious in the near term and tighten spending on digital infrastructure ... Yet Lenovo could stand out as it's poised to be the major beneficiary of China's localization push to replace foreign-branded PCs in the public sector."
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