Lenovo Vows New $1B Investment In AI As PC Slump Drags Revenue
Building upon a foundation of existing AI products and capabilities, Lenovo plans to spend $1 billion on new AI devices, infrastructure and solutions over the next three years as the Chinese IT giant continues to deal with “unfavorable macroeconomic conditions” that has caused a large slump in PC sales and a smaller one in server sales.
Lenovo CEO and Chairman Yuanqing Yang
Lenovo has vowed to invest an extra $1 billion in AI devices, infrastructure and solutions over the next three years as the Chinese IT giant’s sales decline continued due to “unfavorable macroeconomic conditions.”
The Beijing-based company announced the AI investment plan in its Thursday earnings report, where it said revenue decreased 24 percent year-over-year to $12.9 billion due to a large slump in PC sales and a smaller one in server sales for the first quarter of its 2023 fiscal year, which ended June 30.
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“The booming of the intelligent technologies such as AI-generated content is propelling the wider adoption of AI, accelerating digital and intelligent transformation across industries,” said Lenovo CEO and Chairman Yuanqing Yang in the company’s earnings call.
According to Lenovo, the planned investment builds upon the company’s existing AI products and capabilities across its three business units, from AI hardware infrastructure in the Infrastructure Solutions Group, to AI-powered device intelligence for predictive support in the Solutions and Services Group, to the use of AI for the entire lifecycle of client devices in the Intelligent Devices Group.
“For many years, Lenovo has been driving our transformation to become a full-stack intelligent solution provider, and we are well positioned to capture the significant growth opportunities ahead,” Yang added.
How Lenovo Performed In The First Quarter
Lenovo’s biggest business, the Intelligent Devices Group, saw revenue decline 28 percent year-over-year to $10.3 billion in the first quarter due to a challenging market that Yang said brought down the average unit revenue of PCs as a result of “declining component price and intensified competition.”
But he pointed out that the company continued to hold its position as the No. 1 PC vendor by market share and inventory levels “normalized to a healthy level” during the three-month period.
Yang added that Lenovo hit a new 10-year record for smartphone activations with its Motorola business.
In Lenovo’s server and storage business, the Infrastructure Solutions Group, revenue fell 8 percent year-over-year to $1.9 billion due to lower demand from cloud service providers as well as GPU supply constraints that prevented the company from delivering more AI systems.
Yang also cited the “industry’s slower than expected transition to the next-generation platform” for another reason Infrastructure Solutions Group sales were down.
However, he added, the business achieved “hyper growth in storage, software, services and high-performance computing,” with storage and AI hardware infrastructure growing in the triple digits in the first quarter from the same period last year.
The bright spot in Lenovo’s first-quarter earnings was the Solutions and Services Group, whose revenue grew 18 percent year-over-year to $1.7 billion. Yang said this was driven by “significant progress” the company made in expanding its managed services and project and solution services while its support services business remained the “core profit engine.”
“Despite a challenging market with unfavorable macroeconomic conditions, our service-led business achieved strong growth and sustained profitability,” Yang said.
Non-PC Revenue Mix Grows As Yang Is ‘Cautiously Optimistic’ About Future
Yang said Lenovo’s services growth, which helped the company’s non-PC revenue mix grow by 4 points to 41 percent, continued to prove its “effectiveness” in “building diversified growth engines.”
Lenovo’s performance in the first quarter resulted with $191 million net income, down 66 percent year-over-year, and an earnings per share of $1.48. The company’s $12.9 billion of revenue in the quarter missed the expectations of financial analysts by $610 million.
Yang said he’s “cautiously optimistic” about Lenovo’s business recovering in the next two to three quarters, adding that the client device may recover and resume growth in the second half of the year.
“Looking ahead, we will more effectively control expenses and mitigate risks so that we can deliver sustainable profitability improvement and continue to drive transformation and innovation to build our smarter future for all,” he said.
Lenovo’s stock price fell 2.5 percent after reporting earnings on Thursday.