Lenovo, RIM: You two should probably still talk
"He said", "she said." The RIM-Lenovo acquisition talk took another turn today. By that, Lenovo all but squashed it.
Bloomberg last week ran a story that cited Lenovo's chief financial officer Wong Wai Ming as saying regarding Lenovo's rumored acquisition of troubled BlackBerry maker Research In Motion (RIM): "We are looking at all opportunities--RIM and many others." But it turns out that Bloomberg may have prompted Wai Ming with a question about RIM, rather allowing him to mention the company under his own steam.
In spite of Lenovo's smartphone bid and RIM apparently being open to licensing, "there would seem little to be gained for Lenovo by such a union," said ZDNet's Jo Best.
While a "union" may not be easy, feasible, or even sensible considering RIM's current claw-back to the mobile market, Lenovo's smartphone business could flourish if it were able to get its hands on the Canadian smartphone giant. It's not as simple as Lenovo saying, "let's buy RIM," but the computing giant shouldn't rule out a bid for the smartphone maker in the future.
While there may be some regulatory issues in a RIM-Lenovo deal--either in BlackBerry 10 platform licensing, or a division buy-out--here are a few scenarios in which Lenovo could snatch up RIM.
Lenovo wants smartphones and PCs
Lenovo's chief executive Yuanqing Yang said a few weeks back that we are entering the "PC-plus" era, not the "post-PC" era. He said that the post-PC world is only for companies that do not innovate in the PC market.
A Lenovo spokesperson told ZDNet today that Yang believes "the PC remains central to the digital lives of millions of people and businesses as well as at the heart of an ecosystem of tablets, smartphones, and smart TVs." On an enterprise front, he believes that "the cloud, services, and infrastructure hardware--such as storage and servers--are powering the PC-plus era."
The problem is Lenovo doesn't have much smartphone market mojo outside of China. What it has is great, but it could have so much more.
Lenovo's spokesperson said that sales of its smartphone have increased significantly in each quarter since the launch. "Last quarter, we remained the number-two vendor of smartphones in China, closing the gap with the number-one player, with 14.5 percent market share."
Compare this to IDC worldwide figures and Lenovo doesn't even enter the top five global mobile phone or smartphone vendors' list. RIM has a declining share of 4.6 percent at the end of 2012, but it still has brand value.
Huawei, Lenovo competition heats up
And then there's Huawei, another Chinese smartphone giant. According to IDC, though the Samsung and Apple duopoly will likely retain the top spot for quite some time, the Chinese super-powers are edging in.
Huawei saw a near 90 percent year-over-year rise; pegging the firm in at number three in the top smartphone vendors by shipments and market share. ZTE, also in the smartphone game, landed in fifth place in the top five global smartphone vendors. While its market share is rising quickly, it's not rising as fast as Huawei's, and ZTE's profits are falling quarter over quarter.
Lenovo, Nokia, and RIM were nowhere to be seen in the rankings. Although Lenovo's share is rising marginally thanks to its market stronghold in China, RIM and Nokia continue to see declines year over year. Lenovo knows that it has to compete with those at home in China before it can really take on the rest of the global market, particularly if it wants to give Samsung and Apple a run for its money.
But that's a distance away yet, and likely not yet Lenovo's main priority. Instead, it will probably have to grow organically, or more likely through strategic mergers and acquisitions as the firm's financial boss already noted.
It could make a bid for Nokia--another ailing phone maker--but it makes little sense as the Finnish phone giant already has a strategic deal with Microsoft, and it doesn't offer any "PC-plus" services--such as the cloud--which would be crucial to its existing PC and post-PC business.
Canada doesn't want to sell, let alone to China
There is a hitch that could trip over Lenovo: the Canadian regulators.
A Chinese company buying out a maker of enterprise-grade secure smartphones could provoke some controversy in the Western market. It could even lead to a panic among governments and enterprises that use the BlackBerry platform, amid concerns that the Chinese government could potentially access secure messages.
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Last year saw a report by the US House Intelligence Committee that alleged that Huawei and ZTE had links to the Chinese government. Both companies deny that they are spying for the Chinese or engaged in espionage, but it sent the heebie jeebies among US-based network equipment buyers.
Still, it's effectively ruled out the two companies bidding on major US contracts and dealing with US businesses--let alone the US government--and this has a knock-on effect to other Chinese firms, which might face scrutiny as a result of the China connection.
The Canadian government recently hinted that it would prefer RIM to remain a Canadian company, but hinted that any sale of the firm would likely have to go through the country's regulators, due to the sheer size of the company.
But there is one option should RIM fall flat on its face after the BlackBerry 10 launch.
If BlackBerry 10 fails, split and divide the business
Split and divide, command and conquer; although it's not as though we haven't discussed this before.
RIM has two major business units: Its hardware smartphone unit, and its back-end data-network infrastructure. The data network is what governments certify as being the secure element of the BlackBerry ecosystem, rather than just the phones.
RIM's already expressed interest in licensing out the BlackBerry 10 platform to others--something Lenovo may be interested in broadening out its smartphone portfolio with. Lenovo already has Android-based smartphones and recently announced its move at CES 2013 to support a Windows Phone 8 device. The company is keeping its options open.
Should RIM play its cards right with BlackBerry 10, a platform license deal with could emulate the Microsoft-Nokia deal with the Lumia, which hasn't yet taken off, but could at least stave off disaster for RIM at least for a few more quarters.
But, if it doesn't...
Because of the China connection, RIM could not sell its data-infrastructure business to Lenovo, even if Lenovo wanted it. If a Chinese company bids to buy the data network that government, businesses, and enterprises use to wirelessly send encrypted and high-sensitivity data to clients, customers, and each other, alarm bells will start ringing across all sectors.
However, with Lenovo's merger and acquisition plan, it could easily snap up RIM's hardware smartphone business should the bankers looking after the Canadian smartphone maker offer it up at a discount. There would likely be little antitrust concern seeing as Lenovo's market share outside China is negligible--despite Canada's regulatory oversight, as mentioned--and Lenovo would be kept away from the data-network infrastructure, which would appease those still wanting to use the secure messaging platform.
As for the data-network infrastructure, Microsoft, Google, IBM, or even Nokia--if that survives--could snap it up as a rainy day investment.
It would not be an ideal solution, but should RIM not make it past the make-or-break BlackBerry 10 launch, Lenovo could be the next big thing if the BlackBerry crumbles.