(Feb 12): Lenovo Group Ltd expects the memory crunch to affect the global hardware industry for the rest of the year, chief executive officer Yang Yuanqing said on Thursday.
The company earlier reported a 21% decline in net income over the December quarter, pushing its shares down 4.7% and underscoring concern about the pressure on margins from rising memory costs that have hit every corner of the electronics industry. That overshadowed a better-than-expected rise in revenue to US$22.2 billion ($28.0 billion).
“This structural imbalance between supply and demand is not simply a short-term fluctuation,” the CEO said in an interview. Memory costs increased by 40% to 50% for Lenovo over the last quarter, and even the contract price could be doubled in the current quarter, Yang said.
Holiday sales and advanced orders placed before widely expected price hikes are lifting the PC sector, with the market expanding 9.6% last quarter, according to consultancy IDC. Alongside Lenovo, fellow category leaders HP Inc and Dell Technologies Inc each recorded double-digit shipment growth. But appetite for AI is squeezing availability of memory chips and other essential components. The impact of that global shortage is expected to grow in the coming months.
“We expect the pulled-forward demand to somewhat persist in the March quarter, but we believe the cheaper inventory should be largely depleted during the first quarter. As such, we are likely to see more price hikes going forward, eventually affecting end-demand, especially for consumers,” UOB Kay Hian analysts wrote in a report.
Larger industry players like Lenovo are better positioned to negotiate with suppliers for priority, and the company reported strong momentum for its developing AI server business.
See also: SoftBank swings to profit on valuation boost from OpenAI bet
Lenovo’s infrastructure solutions group, which provides servers and storage hardware, generated US$5.2 billion in revenue, up 31% to a quarterly record. Major suppliers to the AI boom, from Nvidia Corp to Taiwan Semiconductor Manufacturing Co, have issued upbeat outlooks for continued demand in the face of concerns about a potential bubble in the sector.
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