Lenovo mobile hopes threaten PC biz

Buyback of handset arm suggests computer maker harbors global intentions for Lenovo-branded mobiles, but analyst says this puts strain on core PC business.
Written by Vivian Yeo, Contributor on

Lenovo's purchase of the mobile phone arm it sold off last year signals its intention to penetrate the global market, but the move could dilute its core computer business, accordingly to a Shanghai-based analyst.

The Chinese computer maker last week announced it bought back Lenovo Mobile Communication Technology in a deal worth US$200 million in cash and Lenovo shares. The company had sold the business unit to a group of investors in early 2008.

In a statement, Lenovo said it plans to capitalize on combined synergies from the two companies in product innovation, manufacturing, channels and retail "to lead the market for new mobile handheld devices in China".

However, Shaun Rein, managing director of China Market Research (CMR), noted that Lenovo may be interested in more than just the local market, and its global ambitions could be driven by demands from its private investor shareholders.

According to news wire Reuters, private investment firm China Oceanwide Holdings Group purchased a 29 percent stake in Legend Holdings, Lenovo's parent company, in early September.

The PC maker does not deny plans to expand its mobile business outside of its home market. In an e-mail response to queries from ZDNet Asia, a Lenovo spokesperson did not elaborate on global expansion, saying instead "our first focus will be on the fast growing China market".

In a phone interview, CMR's Rein told ZDNet Asia that with the buyback, he expects the Chinese PC maker to eventually take its mobile business global, following in the footsteps of its PC and server products.

He questioned whether this added focus on the mobile phone market will eventually hurt Lenovo's PC business. The analyst explained that the mobile business could in future cannibalize PCs given that smartphones such as Apple's iPhone, were mini-computers.

Disgruntled PC customers
According to Rein, Chinese customers' perception of the Lenovo brand had already changed following the company's acquisition of IBM's former PC division of . Opinions recorded of the Chinese company in two separate studies--conducted five years ago and just before William Amelio's departure earlier this year as Lenovo CEO--revealed that customer satisfaction had fallen. Customers were unhappy with product design and quality, as well as customer service, he said.

The problems were the result of channeling its top talent to manage the integration process, he noted, adding that Lenovo was also hasty in its global endeavor. "It took Sony 30 years; Lenovo tried to do it in five."

Rein said Lenovo's mobile phone business will not pose much threat to foreign players, despite the company's foothold in China as the top domestic brand. This stems from the fact that Chinese mobile phone consumers, specifically, do not like domestic brands, he pointed out.

Within China's mobile phone market, "Lenovo just doesn't count" among the top players, which include market leader Nokia, Korean players Samsung and LG, and Apple, he said.

Lenovo, though, said it is ranked No. 3 in the China mobile market with a share of 4.5 percent.

Rein said: "When we interviewed [mobile] consumers, 70 percent of them said if money was not an issue, they would choose Nokia. [Apple's] iPhone has a 95 percent satisfaction rate."

Mobile phones, he added, is seen as a "prestige purchase" in China.

Lenovo needs to figure out their niche in this market segment, or it will fade away as a mobile player in the competitive landscape, he said.

"[Ultimately], the real money is not going to come from [selling] mobile phones, but PCs", Rein said, adding that Lenovo needs to focus on quality and design to regain customer loyalty in the computing segment.

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