Lenovo, which rose to prominence when it acquired IBM’s PC division in 2004, attempted to fast track its ambitions to become a major smartphone provider when it acquired Motorola off Google last year for US$2.91 billion. (That Motorola is not to be confused with the separate Motorola Solutions, which does mostly emergency services stuff).
Google had bought Motorola for the vastly inflated price of US$12.5 billion only three years earlier, so it took an enormous hit on the deal. Now it seems Lenovo can’t make Motorola work either. Despite its success with PCs, and with IBM’s Intel-based servers, which it has also acquired, Lenovo’s revenues grew by only 3.1% year-on-year last quarter.
It blames slowing PC sales and stiff competition in the smartphone market, especially in its native China.
Analyst Jack Narcotta from research firm Technology Business Research (TBR) says Lenovo implemented aggressive growth strategies on the assumptions it could rely on its lean organisation to outperform weakening PC and smartphone markets.
“But in mobile device markets, smartphone vendors such as Xiaomi, Samsung and Huawei attacked Lenovo with a flood of lower-priced, yet equally capable devices sold through retail channels that circumvent Lenovo’s carrier-centric smartphones sales, as well as negate the technical specifications Lenovo’s touts as part of its and Motorola’s value proposition,” says Narcotta. “Even with the addition of Motorola, Lenovo’s smartphone shipments climbed just 2% year-to-year after surging more than 30% in each of the previous five quarters.”
Narcotta says Lenovo has demonstrated an ability to move quickly in response to changing market conditions and reallocate its workforce and investments in order to stabilise its financial position and fortify its customer base against rivals.
“Lenovo will be in a state of transition as it works to bring its expenses and expectations in-line with PC and smartphone growth that did not materialise. Its margins are at risk as stronger competition take cues from Lenovo’s growth and embrace the lower margins will accompany market share gains at Lenovo’s expense, hampering Lenovo’s aims to establish mobile devices as revenue and profit centre on par with its PC segment.”