August 14, 2019 / 11:56 PM / 11 days ago

Lenovo warns of price hikes to absorb U.S. tariffs, shares slide

(Reuters) - China’s Lenovo Group, the world’s largest PC maker, warned it will have to raise product prices if U.S. tariffs increase, sending its shares tumbling 6.5% to two-month lows.

FILE PHOTO: A man uses his laptop next to Lenovo's logos during the Mobile World Congress in Barcelona, Spain February 25, 2016. REUTERS/Albert Gea

Lenovo’s warning amid mounting business uncertainty due to the U.S.-China trade war cast doubt on its sales outlook and took the shine off forecast-beating quarterly results where robust PC sales helped the company more than double its profit.

U.S. President Donald Trump said this week that he would postpone imposing an additional 10% tariff on Chinese-made products including tablets and laptop computers until December, but would still impose the tariffs on desktops from September.

“Retail prices for products like PC and smartphones will increase if (U.S.) tariffs increase,” Lenovo Chairman Yang Yuanqing told an earnings call on Thursday.

He also said shifting manufacturing from China to avoid U.S. tariffs would also lead to product price increases, although Lenovo’s global production footprint gives it flexibility in making adjustments, and it remains committed to China.

The global PC market grew 1.5% in the June quarter after falling for two consecutive quarters, as threats of increased U.S. tariffs on Chinese goods prompted some manufacturers to frontload shipments, industry analysts said.

Lenovo emerged as the biggest winner of the global PC market’s surprise rebound in the second quarter. Citing industry data, the company said it had a record 25.1% market share in the quarter.

Lenovo said it was the fastest growing PC maker among the top five manufacturers and its improved product mix also helped the business’ pre-tax profit margin rise to 5.4%, the highest margin ever attained in a fiscal first quarter.

Revenue from Lenovo’s personal computer and smart devices group grew 12%, while its mobile business group recorded a 9% fall in sales.

Its PC and smart devices business generates more than three quarters of the group’s total revenue, which rose 5%.

Net profit rose to $162 million in the quarter ended June, compared with an average estimate of $154 million by nine analysts, according to Refinitiv data. Revenue rose to $12.51 billion, in line with expectations.

Reporting by Rushil Dutta and Sijia Jiang; Editing by Stephen Coates, Miyoung Kim and Muralikumar Anantharaman

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