The chairman and CEO of computer giant Lenovo warned of the adverse impact of further US-Chinese tariffs on the electronics industry.
Yang Yuanqing said an escalation of the current tariffs in place between the United States and China would “have a big impact on the interests of consumers” if further extended to electronic goods such as phones and computers, according to reporting from Barron’s.
His comments came during the Hong Kong-based company’s conference call covering results for its first fiscal quarter ending June 30, 2018.
Yuanqing welcomed the results—above analysts’ expectations—in which group revenue increased 19% year-on-year and profitability improved across the same period.
“Lenovo has passed the turning point and entered a phase of “acceleration,” accelerating the execution of our transformation strategy and accelerating the rising momentum in business performance,” Yuanqing said.
He stated the company would work hard to maintain profitability in the PC sector and return its smartphone division to health. It purchased iconic handset maker Motorola from Google in 2014.
Lenovo delivered double digit revenue growth in its PC and smart devices division for the second consecutive quarter
He also signaled his firm’s intention to build Lenovo’s data center business “into a sustainable growth and profit engine,” after a rocky period following its acquisition of IBM’s x86 server business four years ago.
“We will continue executing our current strategy to improve our hyperscale business model by further expanding our in-house design and manufacturing capability, strengthen our leadership in high-performance computing and AI, grow storage and networking and continue to drive service attach and revenue growth.”
Kirk Skaugen, president of Lenovo’s data center group, said his team was focused on growing its customer base beyond the super hyperscalers.
“We’ve diversified the customer base beyond the top 10 to the next 50 or so, because about 40% of the volume in hyperscale is beyond the super 7.”
Lenovo is currently producing more than 30 custom products catering to the needs of the super 7, with a supply chain that sells into 160 countries, Skaugen said.
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Yuanqing’s comments come after the U.S. government announced its intention to consider a 10 percent tariff on a further $200 billion of Chinese exports, including printed circuit boards among a range of other items, in addition to the $50 billion of Chinese exports already subject to active or imminent tariffs.
Although some analysts downplay the likely impact on IT hardware companies in the U.S., the current environment is expected to make it more difficult for American technology firms to operate within China. Experts point to the difficulties U.S. companies already face winning patent infringement cases and pressing ahead with corporate acquisitions in China.
Uncertainty over tariffs is prompting some hardware manufacturers to move their supply chain around to ensure final assembly is outside of China.
“The tariff situation is throwing a kink in manufacturers’ supply chains, which could be good for WD who does not build in China compared with Seagate who does,” wrote Horizon Technology’s Stephen Buckler in his recent assessment of the storage hardware market.
For its part, the Trump administration insists the tariffs are necessary to address a long-standing structural imbalance in the trade relationship between the two countries and to counteract “China’s policies that coerce American companies into transferring their technology and intellectual property to domestic Chinese enterprises.”
Last week California-based custom PC case maker CaseLabs announced it would be closing permanently, claiming the tariffs had played “a major role raising prices by almost 80% (partly due to associated shortages), which cut deeply into our margins.” CaseLabs depended on aluminum imports, which are subject to tariffs as part of the dispute between the United States and China.
“The tariff situation is throwing a kink in manufacturers’ supply chains.” – Stephen Buckler
