Lenovo reportedly has shifted back some of its component orders from China-based suppliers to Taiwan-based ones in the second half of 2016 in order to improve its profitability, since China makers are still less competitive in terms of product quality, delivery time and production capacity, according to sources from the upstream supply chain.

Lenovo originally planned to nurture a China-based supply chain to save costs, but the vendor has turned less aggressive about the idea as it has actually seen increased costs from receiving supply from China-based makers, the sources said.

The sources pointed out that the PC market is already mature and pushing shipments is no longer a viable choice for increasing profits. Lenovo is the largest PC vendor worldwide, but its profits are still weak despite its big shipment volumes.

In addition, to improve its profitability, Lenovo also turned its focuses to ultra-thin and gaming models. However, these products' components require high crafting capability and therefore Lenovo has turned to Taiwan-based component suppliers as most China-based one are still unable to handle related component supply, the sources said.

Lenovo's notebook manufacturing joint venture with Compal Electronics, which has been offering quotes higher than outside ODMs, has also been giving pressure to Lenovo, the sources said.

With the PC business contributing 80% of its revenues, plus an about 21% market share worldwide and an over 37% share in China, Lenovo is facing difficulties achieving further growth. Since Lenovo's enterprise product and smartphone businesses are currently still suffering from losses, the China-based vendor has been aggressively looking to generate more profits from its operation via better supply chain management.

Lenovo is planning to reduce its costs by US$1.35 billion and axe its staff by 3,200 every year and the company is also looking to cut its R&D expenses, the sources said.