The analysts said the downward revision was driven by rising components costs that could see Lenovo`s PC and mobile businesses face margin pressures. Citi expects modest seasonal price corrections with upside for DRAM (memory) in fourth quarter of calendar year 2017, while panels could see modest declines during the third quarter.
"Overall, we believe the margin pressure from component costs remains high," the analysts wrote. "Lenovo management believes (it) takes 1-2 quarters to adjust for the components costs, versus our view that it could be a mid-term issue."
Lenovo`s PC business, which comprises a bulk of its revenue, saw unit shipments decline 1 percent in the first quarter of 2017, smaller than the overall global market that saw a 2.4 percent annual decline, according to Gartner. But analysts mostly agree that the market has stabilized in recent quarters, even though users are spending more and more time on their smartphones.
The "install base of PCs, first of all, is not growing, maybe even declining a little bit," Gokul Hariharan, Asia tech analyst and head of Taiwan equity research at JPMorgan, told CNBC. "But the decline is starting to kind of become a much slower decline than it used to be."
Hariharan said JPMorgan`s view is that the days of double-digit declines in the PC market are probably done. Instead, the market has seen plenty of consolidation, where smaller brands have either exited or merged with more well-established companies. That has improved the profitability of existing players, including Lenovo, due to reduced price competition, he added.
For the full-year, Lenovo`s PC and smart devices business saw a 2.3 percent annual decline in sales but still brought in about $30 billion of the overall $43 billion in revenues.
Personal computers are "a very strong, cash-cow business (for Lenovo)," said Hariharan. "But mobile and server — the two acquisitions that they did — have not turned out as they hoped it would . both are actually losing money."
Previously, Lenovo bought Motorola`s phone business from Google and purchased IBM`s x86 server business.
The mobile business saw overall sales decline by 5.4 percent for the year to March 31. Lenovo will likely continue to face aggressive competition from other Chinese smartphone makers such as Huawei, OPPO and vivo — all three are currently among the top five vendors by shipments, behind leaders Samsung and Apple.
Meanwhile, the data center business —that includes servers, storage, software and services — is still undergoing transformation. It saw full year revenue decline 10.6 percent on total sales of $4.
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