Lenovo defies chip shortage to post $512m profit

Admire Moyo
By Admire Moyo
Johannesburg, 04 Nov 2021

Chinese multinational tech firm Lenovo delivered significant year-on-year financial improvement, with net income growing 65% year-on-year to $512 million and its net income margin improving by 0.7 points, on track towards the group’s goal of doubling in three years.

The electronics company today announced record quarterly results for the group, with historic highs for profit and revenue, amid a global shortage of semiconductors.

Gartner recently said the worldwide semiconductor shortage will persist through 2021, and is expected to recover to normal levels by the second quarter of 2022.

The research firm noted the COVID-19 crisis resulted in chip shortages, starting primarily with devices such as power management, display devices and microcontrollers, fabricated on legacy nodes at 8-inch foundry fabs, which have a global limited supply.

With headquarters in Beijing, Lenovo designs, develops, manufactures and sells PCs, tablet computers, smartphones, workstations, servers, electronic storage devices, IT management software and smart TVs.

According to the firm, its operational excellence, innovation and strong execution underpin the improvements across all key business groups, despite wider industry supply challenges.

These, together with the opportunities created by accelerated digitalisation, intelligent transformation and IT upgrades in devices, infrastructure and applications around the world, continue to fuel the group’s long-term and sustainable profitability increases, it notes.

Pre-tax income was $742 million, up 58% year-on-year, and group revenue continued its strong growth trajectory, hitting $17.9 billion, up 23% year-on-year.

Operating cashflow doubled year-on-year to $1.6 billion, and at the same time, research and development (R&D) expenses for the quarter were up almost 60%, owing to increased investments in innovation.

Looking ahead, Lenovo says the strategy to drive sustainable profit improvements and growth will continue to focus on high-margin businesses and segments, at the same time doubling investments in R&D over three years as announced last quarter.

It notes this focus will support the group’s continued transformation, developing technology focused on the “new IT” opportunities and the technology architecture of “client-edge-cloud-network-intelligence” brought about by changing customer needs.

Lenovo’s board of directors declared an interim dividend of 8HK cents per share.

“Lenovo’s ‘new IT’ technology architecture of ‘client-edge-cloud-network-intelligence’ is gaining momentum and more accepted across the industry,” says Yuanqing Yang, Lenovo chairman and CEO.

“Through the strong execution of our 3S strategy (smart devices / IOT, smart infrastructure, smart vertical), last quarter, both our net income and revenue achieved new records, and we are on track to double our net margin in three years.

“At the same time, our R&D investment greatly increased by almost 60%. Looking ahead, we will continue to drive to our goal to double R&D spending over three years, and further drive our service-led intelligent transformation.”