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Lenovo boss talks of a PC rebound in second half

Talking around the firm’s third-quarter numbers was an opportunity to provide an update on the prospects of the vendor’s core product area

The CEO of Lenovo has indicated that after a challenging end to 2022, the PC market will rebound in the second half of this year.

After a tough fourth quarter and amid ongoing economic headwinds, the demand for PCs has decreased, and the toll has been seen in financial results from the large hardware players.

But as he spoke to analysts about its Q3 results, Yang Yuanqing, chairman and CEO at Lenovo, said there were reasons to be optimistic about the prospects for the market in the longer term.

“We believe the PC market might stabilise sooner than many expect, and we continue to drive the efficiency in our already linked operations, maintain healthy cash position and invest in innovation and sustainability,” he told analysts.

“Despite the low IT market growth in the short-term, total IT spending is expected to recover to our moderated growth rates in the mid- to long-term.”

In terms of the timetable, the expectation is that the current conditions will start to ease and demand will pick up the deeper we move into 2023.

“While the PC market still needs some time to digest the inventory to a healthier level, we believe total shipments are likely to stabilise at a higher-than-pre-pandemic level as early as the second half of this year,” said Lenovo’s CEO. “Looking ahead, while the industry cycle still needs some time to run its full course, strong execution can make a big difference. Our diversified growth engines are firing up. Our operational resilience is supporting the results.”

Wide portfolio

Despite the dampening of demand, Yuanqing pointed out that the vendor had been able to maintain its number-one position in the PC market and had also benefitted from a wide portfolio that saw growth in servers and services.

When quizzed on his projections, he went into more depth about the PC market, indicating that shipments were one measure but so were activation rates, and those indicated that the rest of the year would improve.

Yuanqing said that using 2019 as the base, the activation rate increased by 15% in 2020, although shipments were lower, sparking supply chain issues. Activation was flat in 2021, but the channel was working through inventory.

“In 2021, channel definitely started to push inventory,” he said. “The shipment increased by 15%, but the actual device activation was actually flat to 2020. That’s accumulated a lot of inventory. In 2022, you can see the channel started to digest the inventory, so the shipment declined significantly – but the real device activation did not decline as much as shipment last year, probably only 6% year-on-year.”

Yuanqing added that the channel probably needed a couple more quarters to digest inventory, but activation rates were coming more into line with shipments, and it felt that tracking the market over the past three years gave it the confidence to predict an upturn in its fiscal year 2024.

In terms of the Q3 numbers, the firm reported a 24% decrease in revenues to $15.3bn and a 32% drop in net income to $437m. One positive was the shift in the balance of the business, with the non-PC business now accounting for 41% of turnover.

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