Lenovo Future Hinges On Four Letters: AI PC

By Lau Chi Hang

Shares of Lenovo Group Ltd. (OTC: LNVGF) (OTC: LNVGY) were under fire last month after it announced its latest results for its third fiscal quarter through December. The stock fell as much as 9.3% at one point in the next trading day, though it later pared some of those losses and ultimately closed down 3.3% at HK$8.55 for the day. Still, the loss made Lenovo a blue-chip dog for the day, behind only local developer Wharf Real Estate (1997.HK).

So, why all the jitters? After all, the PC giant pointed out its revenue of $15.7 billion for the three months to December was up sequentially for a third consecutive quarter, while its $337 million profit was up 35% from the previous quarter.

But the picture wasn’t quite as rosy on a year-over-year basis, with the latest revenue figure up just 3% from the year-ago quarter. Profit looked even worse, falling 23% on a year-on-year basis. Cumulatively, the company’s revenue was down 13% year-on-year during the first nine months of its fiscal year, while its profit slumped 49%.

Losing Investor Favor

The sequential revenue gains over the last three quarters may reflect some improvement in its performance, but Lenovo has yet to convince an analyst community worried about its longer-term prospects.

A number of those analysts lowered their price targets for the company anywhere from 4% and 19%. Bank of America made one of the biggest cuts, dropping its target from HK$11.20 to HK$9.10. CLSA cut its target by a smaller amount from HK$10.90 to HK$9.60, but also downgraded the stock from a “buy” to “outperform.” UBS maintained a “sell” rating on the company.