The opening line from Lenovo Group Ltd.'s business review beggars belief:
"During the three months ended June 30, 2017, the Group continued its focus on striking a balance between growth and profitability in its PC and smart device business."
It's hilarious because Lenovo delivered neither. Sales were down a smidgen and a $173 million profit for the three months through June 2016 turned into a $72 million loss for the fiscal first quarter this year.
The headline from its press release adds to the comedy: Lenovo Continues To Gain Momentum In First Quarter FY 2017/18.
Executives blamed supply constraints for the rising cost of some components, which squeezed gross margins by 1.7 percentage points. That's a fair complaint. Global DRAM and LCD makers have had a good year, as evidenced by Micron Technology Inc.'s 92 percent increase in June-quarter sales.
The company attributed an increase in operating expenses and the opex ratio to a disposal gain that depressed costs in the year-earlier period. Lenovo can say it's not to blame, but then again it could have foreseen that swing factor and adjusted expenses accordingly.
High component costs aren't easy to fix in the short term, Chairman and CEO Yang Yuanqing told Bloomberg News in an interview Friday morning.
What's also true is that Lenovo posted a decline in shipments that was double the scale of the wider market and as a result lost share. In theory, Lenovo faces the same supply constraints as everybody else, but in reality its size and market clout should afford the Beijing-based company priority supply over the commodity parts used in PCs.
Friday's announcement was a wonderful exercise in spin, accentuating the positives as though they were grand victories and glossing over negatives as if they were minor quibbles. The company used the word "momentum" eight times in its results announcement.
With revenue declining for a sixth time in seven quarters, investors might be hoping this sort of momentum doesn't continue.
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