China’s Lenovo signs long-term component-supply deal for next year

[BEIJING] Lenovo said on Thursday (Nov 20) that it has signed long-term contracts for memory chips to ensure supplies amid rising memory prices because of surging artificial intelligence (AI) demand.

“We signed the optimal contract with key component suppliers to ensure we have enough supply for next year,” CEO Yang Yuanqing said after the release of Lenovo’s second-quarter results.

Global memory chip prices are climbing due to demand from data centre operators for building AI servers. Chipmakers such as Samsung Electronics have shifted capacity towards high-bandwidth memory (HBM), used in AI chipsets, tightening the supply of less glamorous chips used in smartphones, computers and gaming devices.

China’s Xiaomi on Tuesday warned that consumers would likely see further hikes in smartphone prices next year because of the soaring costs of memory chips.

Yang said adjusting prices, raising or lowering them, is a natural way to manage cost fluctuations, without elaborating.

Overall revenue for Lenovo’s July to September quarter climbed 5 per cent year on year to US$20.5 billion from the same period a year earlier, beating analyst expectations of US$20.3 billion, according to LSEG data.

Lenovo’s PC, tablet and smartphone business line, which accounted for over 70 per cent of its second-quarter total revenue, reported an 11.8 per cent revenue increase over the period.

Revenue for its digital infrastructure group, which comprises its AI server business, grew 24 per cent, although it reported a US$118 million operating loss due to investment to scale up AI capabilities.

“Overall, we do not see a bubble because the next stage will be AI democratisation,” Yang said, referring to the adoption of AI by industries.

The company’s adjusted net profit for shareholders grew 25 per cent to US$512 million.

Lenovo shares rose 1.97 per cent, outperforming the Hang Seng Index’s 0.33 per cent rise. The stock has dropped 4.46 per cent so far this year. REUTERS