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China's Lenovo Has One Shot at Global Smartphone Domination

Photographer: ChinaFotoPress via Getty Images

The production line of smartphones at the Lenovo MIDH (Mobile Internet and Digital Home) Wuhan Operation Center on Dec. 19, 2013 in Wuhan, China. Close

The production line of smartphones at the Lenovo MIDH (Mobile Internet and Digital... Read More

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Photographer: ChinaFotoPress via Getty Images

The production line of smartphones at the Lenovo MIDH (Mobile Internet and Digital Home) Wuhan Operation Center on Dec. 19, 2013 in Wuhan, China.

Since taking the top spot in the PC industry, Lenovo Group has quietly become one of the biggest smartphone makers in the world. That's been built mostly on selling lower-end phones in China, where Lenovo is based, and in other emerging markets.

This year, Lenovo aims to bring its smartphones to developed countries, Liu Jun, a senior vice president at Lenovo and president of the company's business group, said in an interview. Don't expect the Chinese tech giant to be so quiet about that.

"For smartphones, we have covered all the major emerging markets, like Russia, India, Indonesia — I think we are going to launch in Brazil in this quarter," Liu told me this week at the International Consumer Electronics Show in Las Vegas. "We have covered half the world, and we hope we can launch in mature markets this year."

Lenovo is the fourth-largest smartphone maker by units, behind Huawei Technologies, another budget-phone company from China, according to research firm IDC. Emerging markets are good for pushing volume but not for amassing profit. Low-end phones have low-end margins. That's why, despite China's vastly larger population, developed markets such as the U.S. are crucial, Liu said.

"The U.S. is the most important market in the smartphone space," he said. "From day one, when we targeted the smartphone business, we thought that to be a global player, we must win in the U.S. But to be honest, we are very cautious in this market because we must do the right things the first time. We cannot keep trying and trying."

Winning in more competitive places often comes down to marketing, and Lenovo is trying to avoid overspending on it. Samsung Electronics, the biggest smartphone company, spends about $10 billion a year to promote its consumer electronics globally. That's almost as big as the market value of Lenovo's entire company. Most Americans don't know the Lenovo brand, and mobile carriers aren't making it easy on the Chinese company, Liu said. They want Lenovo to hire engineers in the U.S. to help them develop and test its products, he said.

PCs are on the way down, which explains Liu's urgency to take over another industry. But the same attributes that have catapulted Lenovo to No. 1 in PCs should help the company in smartphones, Liu said. Lenovo is building a large manufacturing plant for phones, which is targeted to produce 100 million units a year, he said. Lenovo buys components from nearby companies in Asia three weeks before building them into a phone, an unusually short turnaround that reduces costs.

"We have a very efficient R&D process to ensure we can be first to market," Liu said. "We can move faster than others."

Even as Lenovo solidifies its lead in PCs, the mobile business is taking precedent. Since Liu was moved from the head of the computer business to mobile three years ago, the company has put its top designers to work on phones and tablets.

"We assign the best teams to the mobile products," Liu said. "We are ready."

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