After Apple and Samsung Electronics, is there room for one more smartphone-tablet-PC powerhouse? Chinese computermaker Lenovo has had the Big Two in its sights for a while now, and today the company showed it’s becoming a more serious challenger. Lenovo’s July-to-September earnings jumped 36 percent, to $219.7 million, as sales climbed 13 percent, to $9.77 billion.
The results were better than many analysts expected at a time when the PC industry continues to shrink. Just two days ago, Acer, Lenovo’s longtime rival from Taiwan, announced a record loss and the departure of its chief executive officer. Unlike Acer, Lenovo has been able to rely on its dominance in a big home market. More than 33 percent of PCs shipped in China are Lenovo computers, and the company has been able to use its name and distribution network to push into the smartphone and tablet businesses. Lenovo’s mobile division, No. 2 for smartphones in China, posted sales of $1.5 billion for the quarter, more than double the total of a year earlier.
But can Lenovo take this show on the road? Lenovo is finally gaining some traction in PC sales in the U.S., with its market share breaking into double digits for the first time, but the company is still getting started introducing its smartphones to consumers outside its home market. Lenovo sells phones in 10 markets; CEO Yang Yuanqing says it will add “at least 20 more countries” in the next few quarters.
For all its success building sales in the U.S. and other countries, Lenovo still relies on China for more than 40 percent of its sales, and it’s still primarily a PC company, relying on laptops for 51 percent of its revenue and desktops for another 28 percent. China’s smartphone market is a lot more evenly matched than its PC market. Samsung, Apple, and domestic brands such as Coolpad, Xiaomi, and Huawei Technologies present strong competition.
Lenovo needs to strengthen its mobile hand and expand globally, since the company may not be able to count on the same kind of growth in China much longer. According to Gartner, Chinese PC sales fell more than 16 percent in the most recent quarter and have dropped for six quarters in a row.
Being No. 1 in a shrinking market isn’t a good strategy for long-term success, especially when you’re trying to take on Apple and Samsung. That’s one reason Lenovo seemed to be interested in buying BlackBerry. But with a deal for the Canadian smartphone company off limits because of security concerns, Yang seems to be focused instead on building sales of Lenovo’s own smartphones in developing markets.
With results like today’s, Yang can afford to take it slow for now. If the Chinese PC market continues to shrink at double-digit rates, though, Lenovo might have to hurry.