In the past ten years the China-based Lenovo has been moving persistently to hold a leading position in the computer and information technology markets around the world. After making strides in the personal computer global market (desktops and laptops/notebooks), Lenovo is set to take a leading role also in the market of mobile devices, smartphones and tablets, worldwide. Lenovo is ambitious and unrelenting — it does not want to be cornered to its home-base in China; instead, it aspires to be recognized as the brand that comes from China.
Lenovo already has a range of models of smartphones developed “in-house”, from entry-level and low-cost to advanced full-featured 5” screen models, which it markets mostly within China. They are doing well selling in China — Lenovo is in second position (13%) after Samsung Electronics (21%) . And with hardly any reach beyond the country and other emerging markets (e.g., BRICS), it is enough for Lenovo to be ranked fifth globally in 2013 (see chart below). However, that may not be enough for Lenovo to break out of its current markets and expand into markets of developed countries, as it did in the PC business.
As a reminder, in 2005 the company acquired IBM’s PC business, a startling move at the time, in order to make its way into Western markets. The most lucrative asset purchased was the ThinkPad brand of laptops, valued primarily by business users. Apparently in view of the success of that venture, Lenovo concluded in January 2014 its deal to purchase Motorola Mobility (MM) from Google for $3bn. The deal is still pending regulatory approval in China and the US, yet the debate on its ramifications is already widespread. As done before, Lenovo shows that in order to reach Western markets it is ready to stand, at least for a while, on the shoulders of Western well-known brands. The Wall Street Journal noted that considering how the acquisition of the PC business from IBM helped to take Lenovo out of the shadows around the world, and the company’s success in building a leading PC division, the latest deal should be worrying for Samsung Electronics.
Lenovo’s CEO Yang Yuanqing further declared recently that Lenovo is restructuring in order to focus on four main business groups: PCs (desktops & laptops), servers & storage, cloud computing, and mobile devices (smartphones & tablets). Notably, in late January this year Lenovo also bought from IBM its x86 server business ($2.3bn). Thus, Yang presents the company’s latest moves as part of a greater plan to expand its activities and market presence. As if to underline the company’s ambitions, Yang said in an interview to Fortune Magazine, he wished that Lenovo could sell 100 million smartphones in 2015 — that is twice the combined sales volume of Lenovo (45m) and Motorola Mobility (10m) in 2013. Thereby he made it Lenovo’s mission to surpass Apple and Samsung(2).
The motivation for Lenovo to invest in developing its mobile device business further should be clear. The market for PCs is declining: global shipments are dropping for the seventh consecutive quarter and IDC predicts that this trend will continue in coming years. Annual shipments of 2013 (316m) are expected to be 10% lower than in 2012 and 14% lower than 2011. Among the top five brands, only Lenovo may not see a decrease in PC shipments for the year. Lenovo just managed in 2013 to tie-in with HP, at around 16% market share each (3). Business enterprises and other organizations are more likely to continue to buy and use PCs, especially laptops, but consumers are moving more quickly to smartphones and tablets for satisfying their information and entertainment needs.
The global sales of smartphones (based on vendor shipments) meanwhile grew in 2013 by 38% year-over-year, surpassing one billion units, according to estimates of IDC. As seen in the chart below, Lenovo is currently in close contest with LG and Huawei, all three showing remarkable growth rates in 2013. Yet they are still a significant distance from the leading Samsung. The second-runner Apple enjoys a comfortable lead over the next three competitors, but its growth rate in 2013 has been the most modest. Apple might have more to worry about Lenovo’s plans than Samsung, given also Apple’s lingering penetration in China, largely because their handsets are considered desirable but not affordable enough for many young people (4).
Yang sounds confident that Lenovo can replicate with MM what it achieved with ThinkPad from IBM, based on many similarities he finds between the pairing of Lenovo-IBM PC and that of Lenovo-Motorola Mobility, and the companies being “definitely complementary” (5). However, MM may be in a weaker position than ThinkPad or IBM were at the time of acquisition. MM is already detached for a while from the mother-company Motorola, so it is not clear that it can still enjoy the privileges of that name as before. Motorola is not on Interbrand’s list of Best Global Brands, and neither is Lenovo; Apple is ranked first in 2013 and Samsung is in the 8th spot. Motorola, once a leader in mobile phones, was already seriously behind the competition in developing satisfactory smartphones when it sold its Mobility division in 2012 to Google , inherently a software and Internet company.
Google, on its part, can take the credit for re-invigorating the Motorola Mobility business by producing up-to-date improved models Moto G and Moto X, reliant on advantages of Google’s Android operating system, now passed-on to Lenovo. It also brings to Lenovo a talented, highly capable staff. Nonetheless, the effort to grow MM within Google ended unsuccessfully after less than three years. Google did gain an access to more than 2,000 patents of MM that it has already utilised and will be allowed to continue to use to improve and enhance Andorid.
The keywords for Lenovo are (perceived) quality and credibility. The company remains concerned with raising the perceived quality image of products it develops on its own. Its advanced smartphone models, for instance, are targeted primarily for audiences in Western countries but those smartphones will be difficult to get accepted without the endorsement of a familiar and trusted brand in this product domain. Lenovo could rely on its achievements in the PC-laptop domain, yet its management, justifiably, does not believe this would be sufficient to extend to the fiercely competitive smartphone market. The greater strength of its corporate brand today, and specifically of its laptop brands for business (ThinkPad) and home-leisure (IdeaPad) should in the very least provide a solid support to build upon, although a brand like Motorola is expected to be the door-opener in developed economies.
It may be noted that in the US PC market Lenovo was ranked fourth in Q4 of 2013 (holiday season) with a market share of 10%, quite behind HP (26.5%), Dell (23%), yet closer to Apple (14%); in Europe, the Middle East and Africa its status is relatively better, second (15%) to HP (20%)(6).
Forrester Research’s analyst Frank Gillett is in opinion that Lenovo does not quite require MM for technological capabilities as a phone company; it is specifically after the brand name. He explains: “Buying Motorola Mobility is a much quicker way for Lenovo to access the premium smartphone market. Motorola has not been shooting the lights out with designs or sales volumes in smartphones, so the value is simply in brand recognition.” Nicole Peng, analyst with research firm Canalyst, essentially agrees while emphasising that the name “Motorola” is meaningful and should help in entering Lenovo’s smartphones mainly to the US; it would be useless in China where the presence of “Motorola” is currently miniscule (0.2%). She adds: “People don’t associate Lenovo so much with phones. But with Motorola, people automatically think of it as a phone brand.” That is, Lenovo was seeking “Motorola” as an intangible asset.
Still, one may rightly get the impression, vis-a-vis the chequered record of Motorola Mobility in recent years, that the potential contribution of this brand to Lenovo is overrated. In his interview to Fortune (7), Yang admitted that he was interested in MM even before its acquisition by Google, and he had told Page about it. Eventually Page returned to Yang and offered Lenovo to take MM over, and they did. Yang suggested that lately the time was ripe for Lenovo for making the handover. The question is, whether both sides did not lose precious time, letting the MM division “cook” at Google instead of being repaired by a company that is rooted in the business of hardware equipment and handsets. It could have been a much more swift transition from Motorola with better prospects for capitalizing on its brand equity. Lenovo is contemplating how to balance between the Lenovo brand and Motorola Mobility. Yang suggests that in regions like the US and Western Europe it will focus at least in the first stage on leveraging Motorola while in China it will maintain the Lenovo name for its models. However, at some point it may introduce a combined-endorsed branding like “Motorola by Lenovo” to push forward the brand in China. That may be even a better strategy to implement in the West soon enough, as it did with “ThinkPad by Lenovo” to establish the linkage with the new parent. Nevertheless, it seems that Yang is aware of the state of MM when he says that Lenovo will have to grow the Motorola brand.
Suspicions about quality of products from emerging markets is a disturbing issue that concerns companies such as Lenovo. It may be infiltrating consumer attitudes even in China with regard to domestic products — Lenovo has recruited American celebrities NBA player Kobe Bryant and Hollywood actor Ashton Kutcher for its China advertising in attempt to portray their brand as more American or global (8). Deepak Advani was Chief Marketing Officer of Lenovo in 2005-2008 (brought in from IBM). In an interview to marketing professors Dhar and Sudhir of Yale University School of Management in 2009, after returning to IBM, he suggested that the difficulties of companies from countries like China and India with low perceived or expected quality are similar to those that were facing companies in Japan in the 1970s or in South Korea before the 1990s. Henceforth he proposed: “What Samsung and Sony and Toyota did was shift the focus away from where they came to what they did. And what they did was really exceptional.” Indeed a lesson worth considering: Should Lenovo leverage its country-of-origin currently, or postpone it to a later stage when the excellence of its products is already established?
Anything that goes on in the competition between smartphones cannot be dissociated from the battles of the operating systems (OS). Software companies are fighting for the number of handsets that will run with their respective OS. Google’s Android is practically the undisputed “lord” with 79% market share in 2013 (up from 69% in 2012), followed remotely by Apple’s iOS (15% down from 19%) and Microsoft’s Windows Phone (3.3% rising slightly from 2.4%)[BlackBerry is effectively pushed out with 0.6%; source: IDC]. Apple is in a unique position because it voluntarily restricted its iOS to its own iPhones, and that rather seems to constrain the company more severely as time passes in marketing its iPhones.
Google on the other hand works to get Android installed on as many smartphones as possible from different sources, particularly of the major device manufacturers. And that is almost obviously behind the deal with Lenovo: Google’s objective to expand the operation of more smartphones using its Android OS; Wall Street Journal notes however that Google signed new contracts with both Samsung as well as Lenovo to solidify their reliance on its OS. Larry Page, CEO of Google, congratulated the deal with Lenovo and complimented their expertise in hardware and global reach and expressed confidence that they will preserve the distinct brand identity of Motorola Mobility; he sees the deal as a stage in a long-term partnership with Lenovo. This approach is welcome, though it may have been possible to launch earlier.
It is appropriate mentioning here the acquisition of Nokia mobile business by Microsoft last September. Nokia, like Motorola, was once a champion of mobile phones that trailed behind in smartphones. Microsoft was already in relations with Nokia for two years to replace the latter’s Symbian OS with Windows Phones on their smartphones. Yet, the deal to hand over Nokia phone division to Microsoft ($7.2bn) has become disputable. The motivation of Microsoft is sensical, to push forward its Windows Phone with the aid of handsets of a company it managed to capture and get under its control as owner. That sounds alarmingly familiar. Following the experience of Google with Motorola Mobility, it is legitimate to question whether Microsoft as a software company (notwithstanding its Surface tables) will be able to do better.
Lenovo is taking upon itself a complex challenge before it dares to challenge the major competitors Samsung and Apple. Because the brand it purchased may have to be salvaged before it really proves productive in expanding Lenovo’s smartphone business, particularly in Western countries. On the one hand, the company has a very good record in building its PC (mainly laptop) business with the aid of ThinkPad from IBM, which works in its favour and increases its chances of success. On the other hand, Motorola as a smartphone brand could be less ready to employ and more difficult to benefit from than expected. It will be interesting, and important, to follow how Lenovo deals with these internal and external challenges, and especially how smartly it succeeds in combining between the brands.
Ron Ventura, Ph.D. (Marketing)
(1) “King of PCs, Lenovo Seeks to Dominate in Smartphones”, Eric Pfanner, International New-York Times, 28-29 December 2013 (figures for China from Canalyst research firm).
(2) “Lenovo CEO on Apple, Samsung: ‘Our Mission is to Surpass Them'”, Fortune Magazine (Online with CNN), 30 January 2014 (excerpts from an interview Miguel Helft with Yang Yuanqing). http://tech.fortune.cnn.com/2014/01/30/lenovo-ceo-on-apple-samsung-our-mission-is-to-surpass-them/
(3) Press Release: “Garter Says Worldwide PC Shipments Declined 6.9% in Fourth Quarter of 2013”, Gartner Research, 9 January 2014; also Ibid. 1 (global market estimates of IDC). http://www.gartner.com/newsroom/id/2647517?fnl=search
(4) “Can Apple Win Over China?”, Bill Powel, Fortune Magazine (Europe Edition), 29 December 2012, 166 (7), pp. 33-38.
(5) Ibid. 2.
(6) Ibid. 3 — Gartner Research Press Release.
(7) Ibid. 2.
(8) Ibid. 1.