Lenovo Group Ltd., the personal computer maker of China, warned about the margin pressure and higher costs due to lack of elements such as memory chips. This warning was give as it posted its initial quarterly loss in around 2 Years last week.
Lenovo, which gave up its title as the largest PC maker in the world to HP Inc. in the quarter that ended in June, had a loss of $72 Million which is unfortunate as compared to the profit of $173 Million last year for the same period. It was the first quarterly loss of the company since September 2015 and proved wrong the average forecast of the analysts for a $5.29 Million profit. This resulted in sending the share down as much as 5% to a year-low of HK $4.52 during the morning trade last week.
The viewpoint for the remaining year was demanding as shortages of component would drive the prices higher, probably forcing the firm to lift its trading price to defend margins, executives claimed to the media in an interview. “Most of the elements price is turning out to be stable apart from memory and the cost is still elevating up,” Gianfranco Lanci, the Chief Operating Officer of Lenovo, claimed to the media on an earnings call.
“Memory costs elevation would carry on at least till the end of 2017, even though at a slower rate as compared to the last 2 quarters,” he claimed, referring memory as a product of igniting international need for semiconductors. Demand from auto industry was also pushing up the cost of batteries, he further added. While personal computer producers across the globe are grappling since users shift to mobile devices, core PC trade of Lenovo is dropping more quickly as compared to the business of many of its competitors.
Lenovo reported a 6% drop in shipments of personal computers in the quarter, than a 3% fall all around the globe. Its revenue for personal computers was down at $7 Billion. “In general, it will be very demanding for them to enhance the performance of their PC in the short-term with the cost rise of component, which is here to last long,” claimed industry experts.