Lenovo faces chance to become rare PC maker successful in phones

Lenovo is buying Motorola Mobility to shield itself from patent lawsuits, according to analyst

PC makers have often struggled when it comes to selling smartphones, but China's Lenovo could be on the cusp of making a breakthrough. The company's US$2.9 billion deal to buy Motorola Mobility from Google might end up paving the way for Lenovo to become one of the rare PC makers with a prominent handset business.

That's already been happening in Lenovo's home market of China, where the company is a top smartphone vendor. In last year's third quarter, it ranked second in the market, behind Samsung Electronics, with a 13 percent market share, according to research firm Canalys.

Outside of China, Lenovo's handset business has been contained to emerging markets such as Southeast Asia. But Wednesday's deal to buy the Motorola Mobility handset business, if completed, will give the Chinese company over 2,000 patents and a foothold in the U.S. market.

Lenovo has yet to decide how it will leverage both its own brand and the Motorola name, according to company CFO Wong Waiming. But the Chinese electronics maker plans to come out with an array of different products under both brands, he said in a call with journalists on Thursday.

Combined, Lenovo and the Motorola brand "will definitely challenge the smartphone leaders over the next few years," Wong said, later adding, "The smartphone is a key pillar for our future growth."

With Motorola Mobility, Lenovo would become the world's third-largest smartphone vendor, with a collective 5.4 percent market share, according to research firm IDC. However, this puts the company's shipments far behind that of Apple and Samsung, which have 15.8 percent and 31.5 percent of the market, respectively.

Like Lenovo, both Apple and Samsung have prominent PC businesses. But other PC makers trying to follow the same approach have often stumbled.

U.S. companies Dell and Hewlett-Packard have tried to launch smartphones, only to later exit the business. HP re-entered the mobile devices market this month, with two voice-enabled tablets for India.

Taiwanese vendors Acer and Asus are also developing more smartphones, as PC shipments continue to decline. But both companies have yet to drum up the same kind of sales Lenovo has for its handset business. Asus, however, plans to bring its smartphone/tablet hybrid, the Padfone, to the U.S. later this year through mobile carrier AT&T.

Unlike its competitors, Lenovo can rely on China to prop up its handset business. The country is the biggest market for smartphones and Lenovo has long reigned as the nation's top PC maker, using its extensive sales channels and strong brand recognition to sell products.

The same has gone for its handsets. In 2010, the company launched its first Android smartphone in China and called it the "LePhone." Since then, the company has expanded its smartphone profile, with dozens of different devices, and even hired NBA basketball player Kobe Bryant to promote its handsets.

But despite Lenovo's success in China, the company's smartphone business needs to expand internationally in order to sustain growth, said CK Lu, an analyst with research firm Gartner. About 97 percent of all Lenovo's smartphone sales come from China, he said.

Lenovo's deal to buy Motorola Mobility may indicate the Chinese company is ready to make a big entrance in the U.S. market, but the acquisition is more about Lenovo acquiring patents to shield itself from lawsuits, should it bring its phones to other markets, Lu said.

"This is not about stepping into the U.S., but more about stepping out of China," he said. "This is really about getting the patents in the countries they want to be in."

Even with Motorola Mobility, Lenovo will probably face hurdles selling phones in the U.S., given that Apple and Samsung already dominate the market. In last year's third quarter, Motorola Mobility was ranked sixth in the U.S. smartphone market, with only a 3 percent share, according to Canalys.

But for consumers, a bigger Lenovo presence in smartphones means more Android devices on store shelves. In China, Lenovo phones range from the high-end, at over $500 to phones as cheap as $114 without carrier subsidies. One of its newest high-end handsets,the Vibe Z has a 2.2 GHz quad-core processor from Qualcomm, a 5.5-inch full HD screen, and has 4G support.

"This deal gives Lenovo a shot to be able to challenge Samsung for dominance of the Android ecosystem," Lu added.

Motorola Mobility, which only has 0.2 percent share of China's smartphone market, will probably do little to help Lenovo in its home nation. But in the U.S., the acquisition will give Lenovo some much needed brand recognition, said Nicole Peng, an analyst with research firm Canalys.

"People don't associate Lenovo so much with phones," she said. "But with Motorola, people automatically think of it as a phone brand."

Tags business issuesGoogleconsumer electronicsAndroidsmartphonesLenovoMergers and acquisitions

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Michael Kan

IDG News Service

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