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Rising memory costs impact Lenovo margins despite revenue growth
Friday, February 13, 2026 at 01:01 PM
Lenovo reported an 18% year-over-year increase in revenue for Q3, yet net income fell by 21% as rising memory prices significantly impacted profit margins for the hardware OEM.
Context
Lenovo reported record revenue of $22.20 billion for the quarter ending December 2025, up 18% year-over-year as demand for AI-ready hardware accelerated. Despite this top-line surge, net income dropped 21% to $546 million. This divergence highlights a deepening margin squeeze as a global semiconductor "storage super cycle" drove memory component costs up by 40% to 50% in a single quarter, with contract prices for some chips expected to nearly double throughout 2026.
The profitability gap is largely due to a structural imbalance where AI demand is siphoning production capacity away from standard DRAM and NAND memory. While Lenovo is raising device prices to offset these skyrocketing costs, the company remains caught between high component expenses and the need to scale its AI server business, which reached a record $5.2 billion this quarter. This transition toward AI-centric infrastructure remains a primary growth driver despite the immediate pressure on hardware margins.
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