Lenovo said surging memory prices are likely to weigh on global PC and smartphone unit demand in 2026, prompting the company to double down on diversified sourcing, premium product mix and dynamic pricing to protect margins, even as AI becomes its fastest-growing revenue engine.
AI becomes core growth engine
During its fiscal third-quarter earnings call, Lenovo reported record quarterly revenue of US$22.2 billion, up 18% year-on-year, with double-digit growth across all business groups. Adjusted net income rose 36% to US$589 million, outpacing revenue growth.
AI-related revenue surged 72% year on year and now accounts for 32% of total group revenue, positioning AI as a multi-year growth driver across devices, infrastructure, and services.
Chairman and CEO Yuanqing Yang said Lenovo's hybrid AI strategy—combining personal AI and enterprise AI—will underpin long-term growth. At CES 2026, the company introduced Lenovo Qira, a cross-device AI "super-agent," alongside new AI-enabled PCs, smartphones, and enterprise solutions. Lenovo also highlighted its collaboration with Nvidia on the AI Cloud Gigafactory and expanded its enterprise AI offerings under the Hybrid AI Advantage framework.
Management emphasized that AI demand is shifting from large-scale training workloads in public clouds toward inference workloads deployed on-premises and at the edge, particularly in vertical industries. Lenovo sees this transition as a structural opportunity rather than a cyclical spike.
Segmental performance shows broad-based growth
Lenovo's Intelligent Devices Group (IDG), which includes PCs and smart devices, generated nearly US$16 billion in revenue, up 14% year-on-year. Global PC market share expanded to 25.3%, widening its lead over competitors. PC revenue grew 17%, marking the tenth consecutive quarter of outpacing market growth.
Motorola, under the Mobile Business Group, delivered record volumes and activations. Management said premium smartphone launches, including foldable and ultra-premium models, are improving the product mix.
The Infrastructure Solutions Group (ISG) reported record revenue of US$5.2 billion, up 31% year-on-year, driven by demand for AI servers and cloud services. Lenovo disclosed a US$285 million one-time restructuring charge aimed at streamlining its compute portfolio and accelerating its pivot toward AI inferencing. The restructuring is expected to deliver more than US$200 million in annualized savings over three years, with ISG targeting profitability as early as next quarter.
The Solutions & Services Group (SSG) continued to expand margins, posting 18% revenue growth and an operating margin of 22.5%. Managed services, project-based solutions, and AI-enabled enterprise offerings led growth. Lenovo said services tied to AI workloads and TruScale "as-a-service" models are seeing strong customer uptake.
Responding to memory price rises
A central theme of the call was the sharp rise in memory costs. Management acknowledged that DRAM prices increased significantly in the previous quarter and are expected to remain elevated throughout the year due to structural supply-demand imbalances.
Lenovo said it is addressing cost pressure through broad, diversified sourcing, long-term supplier partnerships, and its global-local supply chain footprint. The company stressed that its scale enables it to secure components even during shortages.
Executives indicated that while higher bill-of-material costs could constrain overall unit demand, especially in entry segments, Lenovo expects higher average selling prices (ASPs) and a richer premium mix—particularly AI PCs and premium smartphones—to help offset margin pressure.
In addition to dynamic pricing, Lenovo is focusing on design-to-cost engineering, tighter expense management, and growth in non-PC adjacencies, such as services and margin-accretive accessories. Outside memory and certain advanced silicon components, other commodity inputs remain relatively stable, according to management.
PC and smartphone outlook cautious on volumes
For 2026, Lenovo expects the global PC market to decline by mid-single digits in unit terms due to inflationary pressures and higher component costs. However, management believes market value will remain stable, supported by mid-single-digit ASP growth and an ongoing upgrade cycle tied to Windows 10 end-of-service.
Lenovo aims to outperform the market by gaining share in premium segments while maintaining disciplined margin management.
In smartphones, management forecasts a high-single-digit decline in global unit shipments in 2026. Nevertheless, revenue is expected to grow as the mix shifts toward higher-end models. Motorola is targeting above-market performance across key geographies, supported by premium launches.
In infrastructure, Lenovo expects continued double-digit growth driven by AI servers and enterprise inference deployments, despite potential component constraints.
Overall, management expressed confidence that Lenovo's operational resilience, diversified supply chain, and AI-focused portfolio will allow it to navigate memory-driven cost inflation while sustaining revenue growth and profitability in a volatile hardware environment.
Article edited by Joseph Chen
