Lenovo Profit Drops Stunning 75% in New Normal PC Market

big picture: The PC market is adjusting to the post-pandemic world, forcing companies to grapple with the fact that customers no longer need to upgrade their machines as often as they have in recent years. The pace of the PC business is slowing down, and Lenovo is particularly hurt by this new normal.

The current PC market is melting Lenovo’s profits. The Chinese manufacturer recently published its financial results in the fourth quarter of fiscal year 2022/23, choosing to highlight the positive results of the supporting business units, while the PC group is experiencing a significant downsizing.

For the three-month period ending March 31, Lenovo’s revenue was $12.6 billion, down 24% from the same period last year. Pre-tax profits fell a staggering 75% to just $130 million, largely due to labor restructuring costs.

The Lenovo Intelligent Devices Group, the PC and smart devices business unit, recorded a 33% decline in revenue year-over-year, falling from $14.69 billion to $9.79 billion. The traditional PC business has experienced an unprecedented comeback during the Covid-19 pandemic as customers need to upgrade their machines to work, play and communicate from home.

The period of high demand seems to be largely over, while Lenovo’s PC inventory is glutted and people don’t upgrade their machines as often. In 2021, PC shipments soared to 350 million and manufacturers were unable to adequately meet the unprecedented demand for new systems. Gartner estimates that in the first quarter of 2023, which coincides with Lenovo’s fourth quarter, PC shipments fell 30% to 55.1 million units.

Despite the downturn, Lenovo says actual end-user sales indicate a “more moderate decline” in demand. The company continues to hold its position as the world’s largest PC manufacturer. However, the Chinese corporation reported the first decline in profit in three years in the third quarter. The company also incurred one-time restructuring costs of $249 million in the fourth quarter.

Despite the sobering performance of the Intelligent Devices Group, Lenovo is still trying to impress shareholders with more positive results from its other business units. The Infrastructure Solutions Group, responsible for enterprise and server sales, increased 37% to $2.2 billion in revenue. Meanwhile, the Solutions and Services Group, which oversees managed services, recorded a 22% increase in revenue and a 16% increase in operating profit.

For the full fiscal year, Lenovo reported a 14% decline in revenue to $61.9 billion, while pre-tax profit fell 23% to $2.13 billion.