Lenovo Takes on Apple and Samsung in Smartphone Market

The PC maker is now the world’s No. 4 smartphone manufacturer
Photograph by Imaginechina via AP Photo

Pandu, a 25-year-old mobile phone salesman at Oke Shop in a mall in central Jakarta, has noticed a change in his customers’ tastes. Indonesian consumers who used to prefer BlackBerry or Samsung Electronics devices have started asking for products made by Lenovo. The world’s No. 1 PC maker is expanding into smartphones, and Indonesia is one of its most important targets. “We can get Lenovo smartphones with almost the same specifications as the Samsung brand for almost half price,” says Pandu, who like many Indonesians has one name.

Keeping salesmen like Pandu busy is an important part of Lenovo Chief Executive Officer Yang Yuanqing’s plan to transform the Chinese PC maker into a credible rival to Apple and Samsung. Lenovo is the world’s No. 4 smartphone brand, according to data released by market research firm IDC on Jan. 27. Its market share for the fourth quarter of 2013 was 4.9 percent, up from 4.1 percent in the same period in 2012. That’s tiny compared with Samsung’s 28.8 percent and Apple’s 17.9 percent, but Lenovo’s shipments jumped almost 50 percent for the quarter. It could make further strides: Google announced on Jan. 29 that it’s agreed to sell Motorola Mobility to Lenovo for about $3 billion.

Since Jan. 23, after announcing plans to pay $2.3 billion for IBM’s x86 server business, Lenovo’s Hong Kong-listed stock price has jumped 6 percent and hit its highest level in more than 13 years. The company’s stock price has surged 53 percent in the past six months, beating Apple’s 10 percent rise and a flat performance by Samsung.

Yang is trying to wean the company off its reliance on the Chinese PC market and diversify with new products and in new markets. Worldwide PC shipments contracted 10 percent last year, and the company has struggled to gain ground among U.S. computer buyers. The PC market in Asia (excluding Japan) shrunk 10 percent in 2013, IDC says, the first ever double-digit drop.

While other PC brands such as Hewlett-Packard, Dell, and Acer have had little success with mobile devices, Lenovo now trails only Samsung, Apple, and Chinese competitor Huawei. In December, Lenovo opened a production, sales, and research and development complex in central China focused on tablets and smartphones. One of five factories it’s opened since 2011, the complex took five years to complete and cost 5 billion yuan ($826 million).

Gerry Smith, Lenovo Americas Group’s executive vice president in charge of the servers group, said on Jan. 23 that the company also sees opportunities in servers, which have margins about double those of Lenovo’s current businesses. “This is a bigger margin pool for us than PCs, so we’re excited,” he said. Worldwide, the server market was $51.3 billion in 2012, or one-quarter of the global market for PCs. The growth of cloud computing is increasing demand for servers in data centers. After the IBM acquisition, Lenovo will be the world’s third-largest server brand, up from No. 6, with a 14 percent market share. Currently its share of the server market is less than 2 percent. “The server business will become an effective future earnings driver,” say Daiwa Capital Markets analysts Steven Tseng and Jason Chen in a Jan. 23 report.

Analysts surveyed by Bloomberg expect 12 percent sales growth for Lenovo in the last quarter of 2013. Earnings for the fiscal year ending in March are expected to jump 27 percent, to $803 million, and sales are projected to grow 12 percent, to $38 billion, according to the analysts.

On Jan. 28, Lenovo announced it was restructuring into four main business groups: PCs, mobile, servers and storage, and cloud services. The new structure “will help us be even faster, more focused, and more efficient,” Yang said in a statement. Lenovo will need to be if it wants to catch up to Apple and Samsung.

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