Lenovo Secures Long-Term Memory Chip Contracts Amid Rising Prices Due to AI Demand
Lenovo announced on Thursday that it has entered into long-term contracts for memory chips to secure supplies amidst increasing memory prices driven by the surge in demand for artificial intelligence (AI). CEO Yang Yuanqing revealed that the company has signed optimal contracts with key component suppliers to ensure an adequate supply for the upcoming year.
The global memory chip prices have been on the rise due to the high demand from data center operators who are building AI servers. Chipmakers like Samsung Electronics have redirected their capacity towards high-bandwidth memory (HBM) for AI chipsets, leading to a shortage of less glamorous chips used in smartphones, computers, and gaming devices.
Chinese tech giant Xiaomi also warned consumers about potential hikes in smartphone prices next year due to the escalating costs of memory chips. In response to the fluctuating costs, Yang mentioned that adjusting prices, whether increasing or decreasing them, is a natural way to manage these fluctuations.
Lenovo reported a 5% year-on-year increase in overall revenue for the July-September quarter, reaching $20.5 billion, surpassing analyst expectations. The PC, tablet, and smartphone business line, which accounted for over 70% of the second-quarter revenue, saw an 11.8% increase in revenue.
The revenue for Lenovo’s digital infrastructure group, including its AI server business, grew by 24%, despite reporting a $118 million operating loss due to investments in scaling up AI capabilities. Yang expressed confidence in the future of AI, referring to the next stage as AI democratization, where industries will adopt AI technologies.
The company’s adjusted net profit for shareholders increased by 25% to $512 million. Lenovo’s shares rose by 1.97%, outperforming the Hang Seng Index’s 0.33% rise. However, the stock has experienced a 4.46% drop so far this year.
In conclusion, Lenovo’s strategic move to secure long-term memory chip contracts reflects its commitment to ensuring a stable supply chain amidst the rising prices driven by AI demand. With a strong financial performance and a focus on expanding AI capabilities, Lenovo remains optimistic about the future of the industry.
This article was reported by Che Pan and Brenda Goh, with editing by Himani Sarkar and Tom Hogue.
