Driven by PC and AI, Lenovo's revenue surged 15% in the third quarter, but rising storage chip prices eroded profits | Earnings Report Insights

Lenovo Group's latest financial report presents a mixed picture. Despite a strong recovery in the personal computer (PC) business and robust demand for artificial intelligence (AI) servers driving its quarterly revenue to exceed expectations, the decline in net profit and the rising costs of key components cast uncertainty on the future profitability of this tech giant. The latest financial data shows that Lenovo Group's revenue for the quarter ending in September increased by 15% year-on-year, reaching $20.5 billion, surpassing the average analyst estimate of $20.1 billion. However, the impressive revenue growth did not fully translate into profit, with the company's net profit declining by 5% year-on-year. The net profit attributable to shareholders was $340 million, significantly lower than the consensus estimate of $449.4 million compiled by LSEG. Market concerns have begun to surface. This week, Morgan Stanley analysts downgraded their ratings on Lenovo and Dell, citing rising storage chip costs as the reason. The surge in prices for this key component is expected to erode the profit margins of PC manufacturers. As a result, both Lenovo and Dell's stock prices performed poorly this week. Looking ahead, Lenovo faces a complex operating environment. On one hand, the strong demand for AI servers is expected to continue being a key driver of its growth; on the other hand, there is cost pressure from rising storage chip prices. Key financial data for Lenovo Group's second fiscal quarter: Net profit: $340.3 million, estimate: $434.2 million. Revenue: $20.45 billion, estimate: $20.12 billion. Net profit for the first half: $845.6 million, revenue: $20.45 billion. Revenue from smart devices business (IDG) for the first half: $28.57 billion. PC Business Market Share Surpasses Competitors Lenovo's core PC division performed exceptionally well this quarter, becoming an important pillar of revenue growth. According to consulting firm IDC, Lenovo's personal computer shipments achieved a year-on-year growth of 17.3% from July to September. This growth rate has allowed it to stand out in the global market. Data shows that Lenovo expanded its market share with strong shipments, outperforming major global competitors including HP and Dell. AI Servers Become Key Growth Engine In addition to the PC business, strong demand for AI servers is another major contributor to Lenovo's revenue exceeding expectations. As global enterprises accelerate their AI deployments, investments in computing infrastructure continue to rise, creating significant market opportunities for server suppliers like Lenovo. Analysts Steven Tseng and Sean Chen from Bloomberg Industry Research wrote in a pre-earnings report, "Although traditional enterprise IT spending remains weak, which may pose slight headwinds to desktop PC and data center hardware sales, the growth in sales to cloud service providers may help offset headwinds from other customers." This indicates that AI-related orders from cloud computing giants are becoming a key growth point for Lenovo's data center business. Chip Price Increases Erode Profits Despite strong performance on the revenue side, cost and macroeconomic pressures are posing challenges to Lenovo's profit margins. Among these, the most direct threat comes from the surge in storage chip prices. As a key component for PCs, smartphones, and servers, the rising costs of storage chips are widely impacting the entire industry. Analysts have already issued warnings about this trend. Morgan Stanley has downgraded its rating on Lenovo based on the judgment that rising storage chip costs will erode profits. This move directly reflects investors' concerns about the profit outlook for PC manufacturers