David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

If you bite into gristle, don't expect to taste juice. 

That's the lesson for Lenovo a year into its ownership of the once-great Motorola Mobility handset business.

Google stripped everything it wanted from its $12.4 billion buyout of the company in 2012: $8.04 billion in cash and spinoffs, plus a patent book to ward off further lawsuits from Apple. Lenovo Chief Executive Officer Yang Yuanqing, who made the Chinese company a global player with its 2005 purchase of IBM's PC unit, was left with scraps.

Lenovo's handset business was already a distant third behind Samsung and Apple when the $2.9 billion takeover was completed in October 2014. It's since slipped to fifth place after Huawei and Xiaomi, according to Bloomberg Intelligence:

Circling the Plughole
Lenovo's smartphone business is heading from third place to no place
Source: Bloomberg Intelligence

Yang knew what he was getting into. Motorola hadn't had a standout phone since the early 2000s. Its 2005 Rokr, designed with Apple as a platform for the iTunes store, was so bad it helped inspire Steve Jobs to create the iPhone out of frustration, according to Walter Isaacson's 2011 biography. But Yang also knew that Lenovo's core PC business was in decline, and with a $2.3 billion purchase of IBM's x86 server business under his belt he was determined to cultivate more growth outside China.

It's proving tough going. Yang promised to turn Lenovo's mobile business around in four to six quarters and sell 100 million phones by now. With the company's second-quarter results today marking four quarters since the deal completed, he's racked up $816 million of pre-tax losses and sits about 12 million handsets short of his shipment target. There's not much consolation for shareholders in the fact that the shipments slump appears to have stabilized, either. With 8.1 cents of pre-tax losses on every dollar of revenue in the business, extra sales are a distinctly mixed blessing.

Deep in the Hole
Even selling handsets at a loss isn't resurrecting Lenovo's sales volumes
Source: Company reports, Bloomberg data

Lenovo's shares rose as much as 5.9 percent on today's results, probably due to the company's forecast of $650 million in cost savings over the next two quarters. That will put the company well on the way toward meeting its plan to trim $850 million of fat from the mobile unit. Yang also reaffirmed his commitment to end the run of losses by March.

It's not enough. Even if Motorola succeeds in crawling back to profitability, it will find itself a bit-player in a market where even Samsung is being squeezed between Apple and a host of bottom-feeders. Its route to sustainable earnings is built on a hope and a prayer.

The $3.2 billion in patents, trademarks and goodwill that Lenovo inherited as part of the deal are worth more than all the equity on its balance sheet right now, so any deviation from the game plan would be painful for shareholders. But they should prepare themselves for the worst.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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