On Tuesday, Morgan Stanley maintained its Equalweight rating and HK$8.80 price target for Lenovo Group (OTC:LNVGY) Ltd. (992:HK) (OTC: LNVGY), following recent media reports concerning a patent lawsuit and China's ongoing shift away from US chips in government computers and servers. Lenovo has not issued a statement regarding the patent litigation.
However, Morgan Stanley pointed out that similar lawsuits against Quanta and Wiwynn over the same patents were dismissed with prejudice in 2022, suggesting reduced risk for Lenovo in this instance.
The analysis also addressed concerns about China's efforts to eliminate US chips from its government PCs and servers, a trend that has been observed since 2019.
According to data, the use of non-Intel/AMD chips in government PCs has exceeded 60% in the fourth quarter of 2023, while servers have seen a rise to over 20% in the same period. Despite perceptions that Lenovo may not benefit as much as local Chinese brands from this policy, the company still holds a substantial market share of over 40% in China's government PCs, which has remained stable in recent quarters.
Lenovo also offers non-Intel/AMD chip solutions, which positions it to accommodate the Chinese government's preference for domestic technology. Morgan Stanley's commentary suggests that the market's reaction to Lenovo's share price movement the day before might have been exaggerated. The firm's reiteration of the price target indicates a steady outlook for Lenovo's stock amid these developments.
InvestingPro Insights
Lenovo Group Ltd. (OTC: LNVGY) has been navigating the shifting tides of the technology hardware industry with a strategy that includes share buybacks and a focus on shareholder returns, as evidenced by their high shareholder yield. According to InvestingPro data, Lenovo is currently trading at a P/E ratio of 16.25, with a market capitalization of 14.65 billion USD. Despite a challenging environment indicated by a revenue decline of 15.66% over the last twelve months as of Q1 2023, Lenovo has maintained a gross profit margin of 17.1%, underscoring their ability to retain profitability. Moreover, analysts have recognized Lenovo as a prominent player in the Technology Hardware, Storage & Peripherals industry, and the company has successfully maintained dividend payments for 26 consecutive years, boasting a generous dividend yield of 4.84%.
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