The world’s leading PC maker said it took a $285 million restructuring charge in its latest fiscal quarter related to its infrastructure unit that sells AI servers
Key Takeaways:
- Lenovo’s profit fell 21% in its fiscal quarter through December, as it took a big restructuring charge prompted by a major shift in the AI computing market
- The company’s gross margin fell 0.6 percentage points year-on-year during the quarter as it struggled with soaring memory prices
By Doug Young
A budding “AI democratization” and soaring memory prices were at the forefront of the latest quarterly results from Lenovo Group Ltd. (0992.HK), as both factors undermined profits for the world’s largest PC maker. The democratization, which we’ll explain in more detail shortly, hit Lenovo in the form of a $285 million restructuring charge for its infrastructure solutions group (ISG) during the three months through December, the third quarter of Lenovo’s fiscal year.
Put simply, the charge reflects an admission by Lenovo that it was slow to recognize a fast-moving democratization of AI, which is seeing the technology rapidly move from big data centers to computers and servers based at individual enterprises. Put differently, it’s a shift from the development of AI as simply a resource, to AI for use in practical applications. In that process, demand for AI computing is moving from big cloud facilities to smaller on-premises facilities at companies.
In more technical terms, the shift represents a move from AI training to AI inferencing, longtime Lenovo CEO Yang Yuanqing explained on the company’s earnings call.
“The infrastructure market is undergoing an important shift from AI training on public cloud to AI inferencing increasingly happening on-premises and at the edge for enterprises,” Yang said. “Thus, I would say, the restructuring we just made is more of a transformation towards the new trend of bringing AI inferencing closer to end users.”
Aligning with the latest AI computing trends is important for Lenovo as its infrastructure business grows faster than its core PC unit. The PC business lies at the center of the company’s intelligent devices group (IDG), which also includes its smartphone and tablet PC businesses and makes up about two-thirds of its revenue. By comparison, the infrastructure unit accounted for 23% of the company’s revenue in the latest quarter, up notably from 19.5% a year earlier.
All eyes were on the infrastructure unit as Lenovo released its latest quarterly report on Thursday, since that unit is rapidly emerging as the company’s most important growth engine as demand for its core PCs matures. The infrastructure unit’s revenue rose 31% year-on-year to $5.2 billion in the latest quarter on “solid” demand for AI servers, including a pipeline of $15.5 billion in additional business. While that growth was more than double the 14% rate for Lenovo’s IDG business, which includes PCs, it was also a notable slowdown from the 59% growth rate for the infrastructure business in the December quarter of the previous fiscal year.
Equally, if not more, important, this future growth engine slipped into the red as Lenovo got caught flat-footed by the shift from AI training to inferencing. The unit reported an operating loss of $11 million in the latest quarter, though that was a sequential improvement from the previous quarter. Lenovo said it expects the unit to return to operating breakeven in the current quarter through March, its fourth fiscal quarter. It added it expects that business to return to profitability in its next fiscal year, which starts in April.
Worried investors
Market reaction to Lenovo’s stumble in the important AI infrastructure business was predictably negative. Its stock fell 4.6% on Thursday after the release of the report, and is now down 30% over the last 52 weeks – a sharp contrast to strong rallies for most AI-related stocks over the same time. That could reflect the fact that investors still see Lenovo largely as a PC maker, rather than an AI company.
Lenovo has been the world’s largest PC maker for a while, and retained that position in 2025. Its PC shipments rose 14.4% year-on-year in the final three months of 2025 to 19.3 million units, outpacing 9.6% growth in the global PC market over that time, according to IDC. That lifted its share of the global PC market to 25.3% from 24.2% a year earlier. U.S. giant HP Inc. (HPQ.US) was second for the quarter with 20.1% of the global market, followed by Dell (DELL.US) at 15.3%.
Of that trio, Dell has the most AI-like valuation, though even its trailing price-to-earnings (P/E) ratio is relatively low at 15.1. Lenovo is next with a single-digit P/E of 9.5, while HP commands a ratio of just 7.1, showing this group is still known mostly for their PCs.
Returning to the infrastructure business, Lenovo said the restructuring entailed streamlining the company’s product portfolio, with added focus on its AI inferencing products. It said the overhaul was expected to result in $200 million in annual savings by its fiscal year that runs through March 2029.
The other factor undermining the company during the quarter looks more temporary, and is related to recently soaring memory prices, a key component for both PCs and servers, caused by a global shortage. Those rising prices boosted Lenovo’s cost of sales by 19.6% during the quarter, more than its 18.1% revenue growth for the period, causing its gross margin to fall 0.6 percentage points year-on-year to 15.1% in the latest quarter from 15.7% a year earlier.
The big restructuring charge, combined with the gross margin erosion, caused the company’s profit to drop 21% year-on-year during the quarter to $546 million. Excluding the restructuring charge and some other non-cash items, the company’s adjusted profit actually grew 36% in the latest reporting period to $589 million from $435 million a year earlier.
“Despite a challenging operating environment characterized by ongoing tariff uncertainties and rising component cost due to supply and demand imbalances, the group has demonstrated exceptional operating resilience, generating solid revenue and profit growth against this macro backdrop,” Lenovo said.
So, what does all this mean for Lenovo, and how should investors view the company? Lenovo pointed out that 32% of its revenue is now AI-related, though that includes AI models from its PC business, which have yet to prove themselves as the next generation of PC computing.
The AI server business looks much more promising, and the infrastructure unit’s restructuring, while costly, shows the company is closely watching industry trends and taking corrective action when it makes strategic missteps. Now, Lenovo just needs to show it can operate the infrastructure business profitably again, and accelerate the unit’s growth in the developing shift from AI training to inferencing.
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