Recently, Lenovo Group released its financial results for the first quarter of the fiscal year 2017/18, ending June 30, 2017. The report showed that the company incurred a net loss of $72 million, marking the first loss in six quarters. Analysts had expected a net profit of $32.9 million instead.
In the quarter, Lenovo's consolidated revenue dropped by 0.4% year-over-year to $10.12 billion, while gross profit fell 11% year-on-year to $1.365 billion. These figures reflect the challenges the company is facing in maintaining profitability amidst intense competition.
The PC and smart device business remained a significant part of Lenovo's revenue, contributing $7.05 billion, a slight increase of 0.2% year-on-year. Mobile business revenue saw a modest rise of 2% year-on-year, reaching $1.746 billion. However, the data center business struggled, with revenue dropping 11% year-on-year to $971 million. Other goods and services brought in $290 million in revenue. Following the release of these results, Lenovo shares dropped 3.39% to 4.56 Hong Kong dollars.
Just last month, Yang Yuanqing, Lenovo's CEO, announced plans to boost online sales, aiming to increase annual revenue by $12 billion over the next three years. If the goal isn't met, he vowed to step down. At a recent press conference, he expressed confidence in achieving this target and urged shareholders to remain patient.
Despite these ambitious goals, Lenovo faces numerous challenges. The PC market has become increasingly competitive and less profitable, while the mobile phone division has struggled domestically. In 2016, Lenovo's mobile phone sales in China plummeted from 15 million units in 2015 to just over 3 million units, placing them outside the top ten.
Lenovo's PC and tablet business remains crucial, accounting for around 70% of total revenue. However, the second quarter saw a 7% year-on-year drop in sales due to component shortages and rising costs, despite stable revenue at $7.05 billion. Profits in this segment fell 21% year-on-year to $291 million.
To address these issues, Lenovo has taken steps like bringing back Liu Jun to oversee the PC business and partnering with JD.com to boost online sales. Despite these efforts, the mobile business, particularly the Motorola brand, continues to face difficulties. While revenue increased 2% year-on-year to $1.746 billion, pre-tax operating losses persisted, though margins improved slightly.
The data center business has also been affected by internal restructuring. Lenovo's decision to merge PC and server sales teams impacted x86 server sales, previously a strong point after the acquisition of IBM's server business. This change caused a year-on-year decline in revenue of 11%, down to $971 million.
Looking ahead, Lenovo remains committed to its "three-wave strategy," focusing on maintaining its PC stronghold while investing heavily in new areas like cloud infrastructure and AI-driven services. Yang Yuanqing emphasized that while short-term losses are painful, long-term transformation is essential for survival in the AI era.
Yang Yuanqing, a key figure in China's tech industry, has faced numerous challenges since taking over as CEO in 2001. His bold moves, such as the acquisition of IBM's PC business in 2004, positioned Lenovo as a global player. Yet, recent quarters have seen setbacks, including a $714 million loss in Q4 of 2015, partly attributed to the Motorola acquisition.
Under Yang's leadership, Lenovo has grown into a multinational corporation operating in over 160 countries. However, his demanding style has earned him a reputation for being tough on subordinates. Despite this, younger employees often view him as approachable, addressing him informally as "Yuanqing."
As Lenovo navigates these turbulent waters, all eyes are on whether Yang Yuanqing can steer the company toward sustainable growth and reclaim its status as a leader in the evolving tech landscape.
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