By Sherry Qin

Lenovo Group's quarterly profit dropped for the first time in more than a year but revenue beat expectations, capping solid annual results for the world's largest personal-computer maker as it braces for tariff headwinds.

Net profit for the three months ended March slid 64% to $90 million, the company said Thursday, widely missing the $230 million estimated in a FactSet poll of analysts. Lenovo attributed the weakness to lower profitability in its infrastructure services group and losses on warrants.

Shares dropped 4.5% in Hong Kong afternoon trading, bringing the year-to-date loss to about 4%.

Adjusted net profit rose 25% to $278 million during the company's fiscal fourth quarter.

Revenue surged 23% from a year earlier to $16.98 billion, topping analysts' expectations as Lenovo's core business of PCs, smartphones and tablets delivered a 13% gain. The performance of the intelligent-devices segment was buoyed by record smartphone revenue and growth in AI computer sales.

"This has been one of our best years yet, even in the face of significant macroeconomic uncertainty," Lenovo Chief Executive Yang Yuanqing said in a statement.

For the full fiscal year, Lenovo's revenue rose 21% to $69.08 billion, its second-highest annual result ever. Net profit was up 37%.

Lenovo's non-PC business made up 47% of overall revenue in fiscal 2025, reflecting its continued push to diversify revenue channels. Revenue at the company's infrastructure-solutions segment, comprising server, storage and networking businesses in data centers, jumped 63% in the latest quarter but generated operating profit of only $3.5 million.

Analysts have identified Lenovo as one of the biggest losers of the U.S.'s shift to higher tariffs on countries and sectors. While China is the PC maker's primary manufacturing base, the Americas made up 34% of Lenovo's revenue in fiscal 2025.

Lenovo's PC shipments rose 11% in the first three months of 2025 from a year earlier, according to IDC data. That is likely due partly to some front-loading of orders as vendors and end-users raced to get ahead of U.S. tariffs, the market-intelligence firm said in a recent report.

While the commercial PC replacement cycle and demand for AI computers fuel demand for Lenovo's products, "the uncertainty surrounding U.S. tariffs and associated inflationary pressure could hurt PC demand in the subsequent quarters of 2025," IDC said.

Trade levies will inevitably affect Lenovo's product prices and could linger into the June quarter, Citi analysts said in a recent note. Adjusting prices on consumer models is relatively easy, but it could take time to negotiate prices on commercial PCs, which make up about 69% of the company's total U.S. PC shipments, they said.

In a reflection of the uncertain environment, Lenovo's Hong Kong-listed shares have made sharp swings over the past two months as trade tensions intensified over President Trump's hefty tariffs and then de-escalated.

Despite the geopolitical headwinds, Citi remains upbeat on Lenovo's outlook for the next fiscal year as key catalysts like the improving profitability of its server business remain intact.

Lenovo said it can adapt to a shifting landscape. A broad global manufacturing footprint and diverse supply chain "gives the group maximum flexibility and resilience to navigate through uncertainties," it said.

Write to Sherry Qin at sherry.qin@wsj.com

(END) Dow Jones Newswires

May 22, 2025 02:02 ET (06:02 GMT)

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