June 24 (Bloomberg) -- To offset falling PC sales and reduce its reliance on ThinkPad notebooks, Lenovo Group Ltd. is adding a gaming service that the computer maker says can help it overtake Samsung Electronics Co. in smartphones in China.
Lenovo Game World will include social-networking features, software reviews and gameplay tips when it starts in the third quarter, offering popular titles like “Fruit Ninja” for devices such as the computer maker’s Ideaphone K900 that run Google Inc.’s Android operating system.
Software and services underpin Chief Executive Officer Yang Yuanqing’s push to sell more handsets as demand for personal computers slides. While Lenovo’s app store has logged more than 1 billion downloads since it opened in 2010, the company is looking to Game World for an edge in the biggest market for handsets, where mobile-game sales of $1.6 billion this year will rise about 50 percent annually for the next three years, researcher Analysys International predicts.
Unlike the U.S., where Google and Amazon.com Inc. dominate sales of Android applications, China has hundreds of companies offering mobile software. Lenovo wants to set itself apart from that crowd with features like those available on Apple Inc.’s Game Center, such as global leader boards that let players see how they compare to the world’s best.
“A mobile platform for entertainment is becoming more and more important in today’s handset industry,” said Ricky Lai, an analyst at Guotai Junan International Holdings Ltd. in Hong Kong. “The more fans Lenovo can get on their own platform, the more customers will want to use that kind of handset.”
Sales of mobile games in China will rise 55 percent to 9.6 billion yuan this year, Analysys forecast in a report last month. Users of mobile games will rise 30 percent to 280 million this year, Analysys says. While there is no comprehensive ranking of mobile application sellers in China, Lenovo’s store is among the largest. China Mobile Ltd., the world’s largest wireless carrier, says its Mobile Market is the leading Chinese-language app store, with 600 million downloads last year. The company reported mobile gaming revenue of 869 million yuan ($142 million) for 2012.
Lenovo is expanding into smartphones, tablets, TVs and home entertainment systems such as the Horizon Table PC, a 27-inch touchscreen panel unveiled in January that lets multiple users play games like air hockey and Monopoly. The coffee table-sized Horizon, which uses Microsoft Corp.’s Windows 8 operating system, comes with accessories such as electronic dice and joysticks.
Lenovo plans to boost smartphone shipments 72 percent to 50 million units this year and start selling handsets in the U.S., CEO Yang said last month. With more than $3 billion in cash, Lenovo would consider acquisitions to help build its smartphone and software businesses, he said.
“Mobile devices are not just hardware,” Yang said. “There’s a combination of hardware, software, applications and content. We will further strengthen this area.”
Reducing its reliance on ThinkPad personal computers is already paying off for Lenovo, which defied a slump in industry demand to post higher earnings last month. Net income jumped 90 percent to $127 million in the quarter ended in March, while global PC shipments fell 13.9 percent, according to researcher International Data Corp.
The company’s shares have a buy rating from 27 analysts, and eight rate them hold or sell. Lenovo, headquartered in Beijing and Morrisville, North Carolina, has gained 1.4 percent this year in Hong Kong trading, compared with an 11 percent decline in the city’s benchmark Hang Seng Index. Samsung shares are down 13 percent this year, compared with an 8.7 percent decline for South Korea’s benchmark Kospi index.
Samsung buttresses its handset lineup with a Mandarin-language app store in China offering free downloads such as Tencent Holdings Ltd.’s WeChat instant-messaging app and Rovio Entertainment Oy’s “Angry Birds Star Wars” game. The site also sells games like “Where’s My Water” and “Temple Run: Brave” for 6.08 yuan ($0.99) each.
Until recently, Android users haven’t had a site like Apple’s Game Center, which was introduced in 2010 with multiplayer games that include social features linking players. Google began offering similar functions last month with Google Play Game Services, but it hasn’t been released in China. Google declined to say when it might be available there.
To mount its challenge to Samsung and Google, Lenovo teamed up with Shenzhen iDreamsky Technology Co., a software publisher backed by the investment arm of Lenovo’s parent, Legend Holdings Ltd. IDreamsky has distribution rights in China to popular games such as “Temple Run 2,” “Fruit Ninja” and “Jetpack Joyride.”
Games need “deep localization” to make money in China, where few players are willing to pay for app downloads, according to Phil Larsen, chief marketing officer at Halfbrick Studios Pty, the maker of “Fruit Ninja.” A key strategy is to add market-specific backgrounds, weapons and objects that give characters extra powers, which players pay extra for.
“China is so unique,” Larsen said. “The business works totally differently.”
Even if Lenovo can’t get users in China to pay for app downloads, the game center can help the company strengthen its brand by creating a strong association between its handsets and the services that run on them, said Jean-Louis Lafayeedney, an analyst at JI Asia in Hong Kong.
“It is important to retain people on the hardware,” Lafayeedney said. “So when they upgrade, they stay with Lenovo.”
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