Lenovo Won’t Stop at No.3 in Smartphones After Motorola

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Lenovo Group Ltd. Chairman and CEO Yang Yuanqing
The transaction, which left most of Motorola’s patent portfolio with Google while Lenovo received a license to the intellectual property, would make the Chinese company “a global player,” Lenovo Chief Executive Officer Yang Yuanqing said when announcing the purchase in January. Photographer: Brent Lewin/Bloomberg

Lenovo Group Ltd. said its $2.91 billion purchase of Motorola Mobility from Google Inc. will help the company boost global smartphone sales and challenge market leaders Samsung Electronics Co. and Apple Inc.

“Lenovo will be number three in the global smartphone market, but definitely we will not stop here,” Chief Executive Officer Yang Yuanqing said in a telephone interview yesterday. “We want to become the leader in the smartphone and mobile devices area.”

The Motorola name will help Lenovo win sales in mature markets such as the U.S. and Europe, where its own handsets have made little headway, and serve as a premium brand in emerging markets, Yang said. The acquisition, completed yesterday, also gives Lenovo a new weapon in its battle for market share with Xiaomi Corp., which surpassed the Beijing-based company in third-quarter smartphone sales.

Lenovo boosted global smartphone shipments by 38 percent in the third quarter to 16.9 million units, ranking it fourth worldwide, International Data Corp. said Oct. 29. Its market share expanded to 5.2 percent, from 4.7 percent a year earlier.

Beijing-based Xiaomi surged to third place after more than tripling shipments to 17.3 million units, taking 5.3 percent of the global market, IDC said.

Samsung, based in Suwon, South Korea, remained the world’s largest smartphone vendor, with 23.8 percent, followed by Cupertino, California-based Apple with 12 percent, IDC said. Motorola wasn’t among the top five vendors in IDC’s ranking.

Lenovo declined 0.5 percent to HK$11.42 at the close of trade in Hong Kong. The stock has advanced 21 percent this year, compared with a 3 percent gain for the city’s Hang Seng Index.

Sales Boost

Motorola’s sales in Asia, Latin America and the U.S. would have boosted Lenovo’s global ranking to third in the period, Kiranjeet Kaur, a Singapore-based analyst at IDC, said yesterday. Their combined market share would have been 8 percent, Neil Mawston, executive director of researcher Strategy Analytics, wrote in an e-mail.

Lenovo has made inroads beyond China, with international markets accounting for 20 percent of third-quarter smartphone shipments, compared with 9 percent a year earlier, IDC said.

The payment for Motorola included $1.41 billion in cash and Lenovo stock at the completion of the purchase, and $1.5 billion in a three-year promissory note, Lenovo said yesterday.

Cash and Capital

Lenovo also paid Google about $228.5 million to account for cash and working capital remaining at Motorola at the close of the acquisition.

The transaction leaves most of Motorola’s patent portfolio with Google with Lenovo getting an intellectual-property license.

Motorola had operating losses of more than $1 billion last year, according to data compiled by Bloomberg. Lenovo can turn the unit around in four to six quarters, Yang reiterated yesterday. In the first year after the purchase, Lenovo will sell 100 million devices, he said.

With rising industry competition and continued losses at Motorola, integrating the two companies may not be as easy or smooth as Lenovo expects, Strategy Analytics’ Mawston said.

Acquisitions have become a strength for Lenovo, said Yang, who expressed confidence that Lenovo can help Motorola be more efficient and competitive.

Including Motorola, the CEO has closed $5 billion of acquisitions announced in January, following the Oct. 1 completion of the $2.1 billion purchase of International Business Machines Corp.’s low-end server unit.

While Lenovo can’t rule out further acquisitions if there is an opportunity, the company has its work cut out for now, Yang said.

“If we want to spend more, we must make more first,” Yang said. “In the short term, we need to focus on integration.”

— With assistance by Edmond Lococo

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