MORRISVILLE – Yang Yuanqing, chair and CEO of tech conglomerate Lenovo, warned Wednesday night that the continue trade war between the U.S. and China isn’t “good for the entire society” and that tariffs could lead to price increases.
“[T]he trade war, so it’s not good for the entire society. It’s not good for the entire management of the company,” Yang told Wall Street analysts in a conference call.
“So we wish China and the U.S. can resolve this and reach an agreement as soon as quarter four.”
Lenovo operates two headquarters, one in Morrisville and the other in Beijing. Its shares are traded in Hong Kong. Most of its operations are concentrated in China although it operates multiple facilities from manufacturing to research and development and distribution across much of the world. That diversification is an advantage for the company, he explained.
“But even with the worst scenario, I think the Lenovo businesses are in a better positioned than our competition because we actually have a globally diverse manufacturing footprint with multiple manufacturing facilities around the world. So we should have a lot of flexibility compared with our key competitors,” Yang explained.
“Actually, most of our key competitors do their in-house manufacturing by themselves. But we think that, that will give us much more flexibility.”
Lenovo is the top PC manufacturer in the world and is a global leader in servers with its Data Center Group based in the Research Triangle. It is tops in supercomputer marketshare and its Motorola smartphone business recently launched one of the world’s first next-generation 5G devices.
But a new round of tariffs promised by President Trump could hit Lenovo since PCs would be hit. Trump has delayed tariffs on laptops and tablets until December but tariffs kick in on desktop PCs next month.
“Retail prices for products like PC and smartphones will increase if (U.S.) tariffs increase,” Yang warned.
Yang also went out of his way to say Lenovo is deeply invested in China, where the company was launched. The company has faced considerable pushback in China – especially in social media – when executives have talked about diversifying its manufacturing base.
“We definitely remain committed to China,” Yang told the analysts. “So we will further invest, buying small manufacturing facility in China. So we’re raising the [indiscernible]. So actually, we are even manufacturing in other locations. So we are increased the total cost. So that means we are impacted by the consumption. So that’s why we think it will be better for us if we have that agreement.”
So far, Yang explained later, the tariffs haven’t hurt much. In fact, orders for PCs in general surged in the most recent quarter as companies built up stockpiles against future increases in tariffs and prices.
“Our view, I would say, our last quarter performance today, there has been negligible — material impact on our business and our results,” Yang said.
“Our last quarter result has showed we continue to fighting these headwinds. And also, we have built up efficiencies to offset the U.S. — the tariff increase. So that means we’re paying year-to-year, so we have less impact in our business.”
Yang then returned to what he sees as Lenovo’s strengths yet again stressing investment in China.
“Meanwhile, I wish you [to] know, Lenovo has a globally diverse manufacturing footprint,” he said.
“We reside in multiple locations around the world, which give us a lot of flexibility compared with our key competitors in that atmosphere.
“Meanwhile, we remain committed to China as part of that strategy. So in fact, we recently decided to invest more than USD 300 million in new smart manufacturing facility in Shenzhen, Southern China. So that … will not be changed.”
In the financial report, Lenovo reported a 12 percent growth in PC and smart device revenue while mobile sales declined 9 percent. Overall revenue grew 5 percent with profits of $162 million exceeding analysts’ expectations polled by Refinitiv of $154 million. Revenue of $12.51 billion met expectations, Reuters noted.