Lenovo’s Profit Plunge Signals Industry-Wide Memory Squeeze as AI Reshapes Computing

The world’s largest PC maker faces a prolonged chip crunch that threatens to redefine consumer technology pricing and availability through 2027.

The global technology industry is confronting an uncomfortable truth: the artificial intelligence boom that promised to revolutionize computing is now cannibalizing the very hardware ecosystem that makes everyday devices affordable. Lenovo Group, the world’s largest personal computer manufacturer, delivered this stark message to investors on Thursday, reporting a 21% profit decline while warning that surging memory costs will persist throughout 2026—and potentially beyond.

The Beijing-based tech giant’s third-quarter earnings reveal a paradox that’s rippling across the electronics sector: booming revenue growth overshadowed by collapsing margins as memory chip prices spiral beyond what even industry veterans can recall. Lenovo posted revenue of $22.2 billion for the three months ending December 31, an 18% year-over-year increase that exceeded Wall Street expectations. Yet net income tumbled to $546 million, down from $691 million in the prior-year period, as the cost of memory components—the digital brains that power every laptop, smartphone, and server—more than doubled within a single quarter.

“This structural imbalance between supply and demand is not simply a short-term fluctuation,” Lenovo Chairman and CEO Yang Yuanqing told analysts after the earnings release. “It is likely to have a prolonged impact on the industry throughout this year.”

The Memory Supercycle: When AI Infrastructure Devours Consumer Supply

At the heart of this crisis lies a fundamental reshaping of the global semiconductor industry. The three dominant memory manufacturers—Samsung Electronics, SK Hynix, and Micron Technology—are redirecting vast swaths of their production capacity toward high-bandwidth memory (HBM) chips used in AI data centers, effectively starving the consumer electronics market of the conventional DRAM and NAND chips that have long been commodity staples.

The numbers tell a sobering story. According to TrendForce, conventional DRAM contract prices surged 55-60% in the first quarter of 2026, while server DRAM prices jumped more than 60%. Samsung and SK Hynix are now pitching first-quarter prices to cloud providers like Microsoft and Google that are 60-70% higher than the previous quarter, according to Korea Economic Daily.

For Lenovo, the impact has been immediate and severe. Yang revealed that DRAM costs increased 40-50% in the September quarter, then nearly doubled again in the December quarter “even with contract pricing.” This unprecedented acceleration has forced the company to absorb costs rather than immediately pass them to consumers—a strategy that squeezed margins but protected market share during the critical holiday shopping season.

The price trajectory shows no signs of moderating. Samsung warned in January that 32GB DDR5 modules rose to $239 from $149 in September, a 60% retail increase, while contract pricing for DDR5 modules surged more than 100%, reaching $19.50 per unit compared to around $7 earlier in 2025.

Why This Time Is Different: A Zero-Sum Game for Silicon Wafers

Industry observers are quick to distinguish the current shortage from previous cyclical supply-demand mismatches. This is not a temporary production hiccup or inventory miscalculation. Instead, it represents what IDC analysts describe as “a potentially permanent, strategic reallocation of the world’s silicon wafer capacity.”

For decades, smartphones and PCs drove memory production. Today, that dynamic has inverted. Each Nvidia H200 AI accelerator requires eight HBM3E modules, and Chinese customers alone have reportedly placed $3 billion in new orders since December, according to industry sources. The production of HBM consumes approximately three times the wafer capacity of standard DRAM per gigabyte, according to a Micron executive, forcing memory makers to make hard choices about capacity allocation.

SK Hynix reported during its October earnings call that its HBM, DRAM, and NAND capacity is “essentially sold out” for 2026. Micron has exited the consumer memory market entirely to focus on enterprise and AI customers. This leaves PC and smartphone manufacturers competing for a shrinking pool of conventional memory, often at prices that fundamentally alter their product economics.

“Every wafer allocated to an HBM stack for an Nvidia GPU is a wafer denied to the LPDDR5X module of a mid-range smartphone or the SSD of a consumer laptop,” noted an IDC research brief. The zero-sum nature of this reallocation explains why memory shortage concerns are persisting despite record semiconductor industry revenues.

Sassine Ghazi, CEO of Synopsys—a key semiconductor design tool company—told CNBC last month that the chip crunch will continue through 2026 and 2027. “Most of the memory from the top players is going directly to AI infrastructure, but many other products need memory, so those other markets are starved today because there is no capacity left for them,” Ghazi explained.

Lenovo’s AI Gambit: Banking on Premium Devices to Navigate the Storm

Despite the margin pressure, Lenovo executives project confidence that the company can navigate the turbulence through a combination of inventory management, product mix optimization, and strategic bets on the emerging AI PC category.

The company’s Infrastructure Solutions Group, which provides servers and storage hardware for data centers, posted a 31% revenue increase to $5.2 billion in the December quarter—a bright spot demonstrating that Lenovo is capturing meaningful share of the AI infrastructure buildout even as it struggles with consumer device costs.

More significantly, Lenovo is accelerating its pivot toward AI-powered personal computers, betting that premium pricing and enhanced functionality can offset memory cost headwinds. In the second quarter of fiscal 2026, AI PCs reached 33% of Lenovo’s total PC shipments, with the company holding a 31.1% share of the global Windows AI PC segment, according to Futurum Group analysis. AI device revenue mix within the Intelligent Devices Group increased to 36%, up 17 percentage points year-over-year.

Industry forecasts suggest this strategy could pay dividends. Gartner predicts that AI PCs will account for 54.7% of total PC shipments in 2026, with the AI PC penetration rate surging from 31% in 2025 to majority market share within months. The global AI PC market is projected to grow from $61 billion in 2025 to $992 billion by 2035, representing a compound annual growth rate exceeding 32%, according to market research.

“Given the higher pricing and the market shifting to the premium segment because of AI PCs, we believe the overall PC revenue market will still grow year-over-year,” Yang told analysts, even as he acknowledged that high material costs would “likely constrain demand for PCs and smartphones later in 2026” from a unit volume perspective.

The Panic Buying Paradox: How Stockpiling Distorts Market Signals

An often-overlooked dimension of the current crisis is the behavioral feedback loop it has triggered across the supply chain. As memory prices continue their ascent, original equipment manufacturers and channel partners have resorted to panic buying and double ordering—tactics last seen during the pandemic-era chip crunch.

Lenovo itself disclosed in November that it had lifted its inventory of memory and critical components to roughly 50% above normal levels, according to Yahoo Finance reporting. CFO Winston Cheng described this as a defensive position for “an era where AI data-center demand is pushing parts prices higher at a pace its CFO called unprecedented.”

The fourth quarter of 2025 saw PC shipments rise 9.6% to 76.4 million units, according to IDC data—a robust growth figure that analysts attribute in part to “stockpiling by buyers and brands ahead of anticipated price increases in 2026 due to memory shortages.” Lenovo retained its market-leading position with 19.3 million shipments and a 25.3% market share.

However, this stockpiling behavior distorts demand signals and risks creating over-allocation in some sectors while leaving critical shortfalls in others. Buyers are placing speculative orders to hedge against future availability gaps, feeding into a cycle of volatility that makes rational capacity planning nearly impossible for suppliers.

Price Hikes Loom: What Consumers and Enterprises Can Expect

The cost pressures that have crushed Lenovo’s margins are beginning to flow through to end-user pricing. Dell issued price-hike alerts in mid-December, raising prices by 15-20%, while Lenovo notified customers that all quotations and prices would expire on January 1, 2026, citing memory cost pressures and unprecedented AI infrastructure demand.

Several major vendors including HP, Asus, and Acer have indicated that meaningful price hikes are likely as 2026 progresses. HP CEO Enrique Lores warned that the second half of 2026 could be “especially tough,” with prices potentially rising if needed to protect margins.

For consumer devices, the impact is asymmetric and particularly harsh on the mid-market segment. Memory can represent 15-20% of total bill-of-materials costs for a mid-range smartphone, and that proportion is climbing rapidly. Xiaomi warned that it expects mobile device prices to rise in 2026, joining a chorus of device makers preparing customers for higher prices.

IDC’s downside risk scenarios project that the PC market could contract 4.9% in a moderate case or 8.9% in a pessimistic scenario, compared to the baseline forecast of a 2.4% decline. Average selling prices could increase 4-6% in the moderate scenario and 6-8% in the pessimistic case. The smartphone market faces similar headwinds, with Android manufacturers particularly vulnerable given their reliance on multiple memory suppliers and high-volume, price-sensitive markets.

“For a mid-range device, memory can represent 15-20% of the total bill of materials,” noted IDC. “As memory prices continue to surge, OEMs will likely have to raise prices significantly, cut specifications or both.”

The Winners and Losers: How Scale Determines Survival

The memory supercycle is creating a bifurcated market where scale and supply chain sophistication increasingly determine competitive outcomes. Lenovo’s global diversified supply chain—with 30 manufacturing plants across the world and long-standing relationships with all three major memory suppliers—positions it better than smaller players to weather the storm.

“As there is high demand for memory chips, I am very confident that the cycle would be such that we could pass on the cost,” CFO Cheng told reporters, noting that Lenovo’s scale gives it preferential access to constrained supplies.

Smaller PC manufacturers and smartphone brands, particularly those without significant bargaining power or pre-positioned inventory, face existential challenges. Channel partners and system integrators are already seeing supply constraints and longer lead times. The automotive sector, which has historically been deprioritized during chip shortages, is warning of potential production impacts.

Semiconductor Manufacturing International Corp. (SMIC) has warned that the memory crunch could constrain both car production and consumer electronics in 2026, underscoring how the supply tension is spreading beyond servers and PCs into adjacent markets.

On the flip side, the three major memory manufacturers are experiencing a profitability bonanza. Shares in Micron surged 240% in 2025, while Samsung more than doubled and SK Hynix’s market capitalization nearly quadrupled. Samsung’s fourth-quarter operating profit is forecast to jump 160%, with SK Hynix and Micron expected to double profits in upcoming earnings disclosures.

Bank of America defines 2026 as a “supercycle similar to the boom of the 1990s,” forecasting global DRAM revenue to surge 51% and NAND by 45% year-over-year, with average selling prices rising 33% and 26%, respectively. The South Korean Kospi index hit record highs in January, lifted by Samsung Electronics and SK Hynix shares.

What Comes Next: Navigating a Multi-Year Adjustment

The consensus among industry analysts points to memory constraints persisting well into 2027, with the timeline for relief dependent on three critical factors: the pace of new fab construction, the evolution of AI infrastructure demand, and potential technology breakthroughs that could improve memory efficiency.

Samsung announced plans to build a new memory production line at its Pyeongtaek, South Korea plant, but mass production won’t begin until 2028. SK Hynix is building the Cheongju M15X fab and establishing dedicated HBM organizations, but bringing meaningful new capacity online requires a “minimum of two years,” according to Synopsys CEO Ghazi.

Meanwhile, AI infrastructure investment shows no signs of slowing. Nvidia’s confirmation at CES that all six Rubin chips are back from manufacturing partners and set for 2026 launch signals another wave of HBM demand. Chinese firms have reportedly ordered more than 2 million H200 units for 2026, while Nvidia currently has only 700,000 chips in stock, according to Reuters.

For device makers like Lenovo, the path forward involves several strategic imperatives:

Product Mix Optimization: Accelerating the shift toward premium AI PCs where higher prices and enhanced functionality can justify memory cost pass-throughs. Lenovo’s 33% AI PC penetration rate is a foundation, but competitors are racing to match this transition.

Supply Chain Fortification: Leveraging scale advantages to secure multi-quarter allocations from memory suppliers, even as those suppliers resist long-term agreements. Lenovo’s 50% inventory buffer and diversified manufacturing footprint provide competitive advantages that smaller players cannot replicate.

Technology Efficiency: Investing in device architectures that extract more performance per gigabyte of memory, potentially through more aggressive compression, smarter caching, or alternative memory technologies that could ease DRAM dependency.

Market Segmentation: Accepting that universal device affordability may be temporarily compromised, with entry-level segments potentially seeing reduced specifications or delayed refresh cycles while premium segments command higher prices.

Implications for the Broader Tech Ecosystem

Lenovo’s warning carries implications that extend far beyond quarterly earnings. The memory crunch represents a fundamental test of how the technology industry manages resource allocation when transformative technologies like AI compete directly with established markets for finite manufacturing capacity.

The democratization of computing—a multi-decade trend that made powerful devices accessible to billions of consumers at declining prices—is facing its first significant reversal. Average selling prices are rising, specifications are being trimmed, and product refresh cycles are extending. This inflection point could reshape everything from enterprise IT budgets to consumer purchasing patterns to the competitive landscape of device manufacturing.

For policymakers, particularly in regions without domestic memory manufacturing, the crisis highlights strategic vulnerabilities in technology supply chains. The concentration of advanced memory production in South Korea and Taiwan—and the industry’s aggressive capacity reallocation toward AI—raises questions about supply security for critical sectors like defense, automotive, and telecommunications.

For investors, the memory supercycle presents a stark bifurcation: extraordinary profitability for the oligopoly of memory manufacturers, offset by margin compression for the hundreds of companies downstream that depend on memory as a production input. Evaluating tech hardware investments now requires careful parsing of supply chain positioning, inventory strategies, and pricing power.

Conclusion: An Industry at a Crossroads

Lenovo’s 21% profit decline, occurring against a backdrop of strong revenue growth and market share gains, encapsulates the paradox facing the technology industry in 2026. The company is executing well operationally—capturing share, pivoting toward higher-margin AI products, and positioning itself for the next computing era. Yet it is simultaneously being crushed by exogenous forces beyond its control: a memory market that has fundamentally restructured around AI infrastructure, creating what may be a multi-year period of cost inflation and supply uncertainty.

Yang Yuanqing’s warning of “prolonged impact throughout this year” may prove conservative if capacity constraints extend through 2027 as many analysts expect. The memory supercycle, driven by the insatiable appetite of AI data centers, has set in motion a complex adjustment process that will redistribute value, consolidate market share, and force painful trade-offs across the technology ecosystem.

For consumers, this translates to higher prices and potentially reduced choices in the devices they rely on daily. For enterprises, it means more careful procurement planning and potentially constrained technology refresh cycles. For device makers like Lenovo, it demands operational excellence, strategic foresight, and the financial strength to navigate a multi-year transition where the rules of hardware economics have fundamentally changed.

The AI revolution that promised to enhance every aspect of computing is, paradoxically, making the computing devices themselves more scarce and expensive. How the industry navigates this tension—whether through accelerated capacity investment, technological innovation, or market-clearing price adjustments—will shape not just Lenovo’s fortunes, but the future accessibility and affordability of the digital tools that underpin modern life.