Price hikes would cover PCs, mobile devices, and other products
In a conference call this week to discuss Lenovo’s quarterly financial numbers, Chairman Yang Yuanqing told analysts and journalists that prices of the tech vendor’s PCs, smartphones, and other products will rise if the Trump administration follows through on threats of additional tariffs on Chinese goods.
The Lowdown: Despite strong revenue and profit numbers for Lenovo’s fiscal first quarter, the company’s stock price took a hit due to the warning on prices and the ongoing trade dispute between the two economic powers.
The Details: The trade war between the United States and China has sent ripples through the global economy, stoking fears of an approaching recession. The Trump administration, which already has placed tariffs on hundreds of millions of dollars of Chinese goods, has delayed an additional 10% tariff on products made in China – including laptops and tablets – until December. That would impact many tech vendors, including China-based Lenovo.
Yang said that for Lenovo to absorb such tariffs, the company would have to raise prices of its computing products. This comes at a time when Lenovo continues to see growth across most of its business units and sits atop a global PC market that IDC and Gartner analysts said grew in the second calendar quarter. Lenovo holds about 25% of the market, according to the analyst firms.
Yang didn’t elaborate on what type of price hikes could come should the United States increase tariffs, though he was clear that “retail prices for products like PCs and smartphones will increase.” He also said, however, that Lenovo was in a good position to weather the storm, given a broad and balanced revenue mix around the world, a footprint in 180 markets, and a globally diverse manufacturing operation. That said, Yang also said Lenovo remains committed to China, having recently invested $300 million in a new manufacturing facility there.
The Impact: The U.S. tariffs have had an impact on various parts of the U.S. and global economies to date – in high-profile segments such as agriculture and automotive, for example. Given how many commercial and consumer tech products are made in China and distributed around the world, further tariffs on such Chinese-made goods most likely will result in higher prices for users, which will be felt in all areas of the IT channel.
Background: Lenovo’s overall revenue reached $12.5 billion, marking the eighth consecutive quarter of growth, and net income more than doubled, hitting $162 million. The PC and Smart Devices Group grew revenue 12%, though sales for its Mobile Group fell 9%. Profits for the Data Center Group grew for the eighth consecutive quarter.
The Buzz: “We wish China and the U.S. can resolve this and reach an agreement as soon as quarter four,” Yang said. “But even with the worst scenario, I think the Lenovo businesses are in a better position than our competition because we actually have a globally diverse manufacturing footprint with multiple manufacturing facilities around the world. We should have a lot of flexibility compared with our key competitors. … We definitely remain committed to China, so we will further invest.”