Can Lenovo do an IBM with Motorola?

Photographer clicking a photo of Motorola phones Motorola Mobility is currently the third-biggest Android-based smartphone manufacturer in the US

Related Stories

Years down the line, whenever there is a discussion about Lenovo, 30 January 2014 is likely to get a special mention.

It will be seen as the day it took a big step towards becoming a dominant player in the smartphone sector.

Once completed, Lenovo's deal to acquire Motorola Mobility for $2.91bn (£1.8bn) will see it become the world's third-biggest smartphone maker.

That is a big achievement, not least because until just two years ago Lenovo's global market share was negligible.

"This is a great position for Lenovo to be in, as it looks to power the next chapter of its growth," says Manoj Menon, managing director of consulting firm Frost and Sullivan.

'Launch pad'

However, most of its growth in the sector so far has been fuelled by China, which, with nearly 1.2 billion mobile phone subscribers, is one of the fastest growing markets for smartphones.

It is also benefiting from the growing demand for low-cost smartphones from other emerging markets.

But it has so far failed to make a mark in developed economies such as the US.

Analysts say Lenovo's Motorola deal could help it crack these markets.

"This could be the launch pad that Lenovo so desperately needed to become a significant global player," says Melissa Chau, a senior research manager with research firm IDC.

Smartphone Global Market Share - 2013

Ranking Vendor Sales

Source: IDC Worldwide Mobile Phone Tracker
















Many mobile phone carriers subsidise handsets for consumers in developed economies, meaning manufacturers need to work closely with carriers to boost their sales.

This is where, analysts say, Motorola's brand image could help.

Lenovo's acquisition of IBM's PC business in 2005 - featuring the ThinkPad range - is seen as key to it overtaking Hewlett-Packard as the world's top PC maker in 2012.

"Using Motorola, just as Lenovo used the IBM ThinkPad brand, to gain quick credibility and access to desirable markets and build critical mass makes a lot of sense," says Frank Gillett, an analyst with Forrester Research.

Motorola is currently the third-biggest Android-based smartphone manufacturer in the US.

It also works with more than 50 mobile phone carriers across the globe.

PC-Plus strategy

The success of its smartphone business is key to Lenovo's future growth because of the decline in global PC sales - which have now fallen for six quarters in a row and are forecast to fall further.

Lenovo tablets being displayed Lenovo has been diversifying into fast-growing sectors such as smartphones and tablets

In an attempt to become the world's biggest computer maker, Lenovo has formulated a PC Plus strategy that includes manufacturing devices such as laptops, smartphones, tablets or servers.

Earlier this month, it announced a deal to buy IBM's low-end server division for $2.3bn.

Lenovo's combined sales of smartphones and tablets have now surpassed those of PCs for two straight quarters.

And its chief financial officer, Wong Waiming, says the Motorola deal will allow it to offer devices across various price ranges.

Growth hurdles

But Motorola's market share has fallen in recent years amid increased competition.

None of its latest products have generated a buzz among consumers being offered a range of new models by rival manufacturers.

"Motorola has not been shooting the lights out with designs or sales volumes in smartphones," says Mr Gillett.

Samsung smartphones on display Lenovo is also facing increased competition from rivals such as Samsung

There is also a huge gap between Lenovo and the market leaders Samsung and Apple.

Even after the deal is completed, Samsung's market share will be nearly five times that of Lenovo, while Apple's will be almost two-and-a-half times bigger.

It is unlikely that simply acquiring a brand name will help Lenovo close that gap.

Many analysts say product innovation, pricing and getting the marketing strategy right will be key to how successful this deal turns out to be.

The one thing going in Lenovo's favour is that it has shown in the past - with the IBM PC deal - that it can take on a loss-making business and turn it into a global leader.

The only question is can it do it all over again?

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

More Business stories


BBC Business Live

    MARKET UPDATE 08:37:

    So, half an hour into trading and European markets look flat.....again!! The FTSE 100 is up by a whopping 0.02%, or 1.62 points to 6,719.66. Meanwhile Germany's Dax is down 0.15%, or 14.76 points, to 9,793.44 and France's Cac-40 is down 0.19%, or 8.09 points to 4,351.75. The biggest riser on the FTSE, despite its concerns about the strength of the pound, is Burberry which is up 5% to 1474p.

    Shiva Ayyadurai and actress Fran Drescher

    So, this follows on from yesterday's 5Live discussion with Charles Elvin, CEO of the Institute of Leadership and Management about unplugging from our smartphones at the weekend. The Daily Mail refers to a Wall Street Journal interview (tucked behind its paywall unfortunately) with the man who invented email, Shiva Ayyadurai. He says: "When I tell people I invented email, the first thing they say is, 'I want to kill you,'"

    BURBERRY TRADING Via Twitter Kamal Ahmed BBC Business editor

    Tweets: Strength of sterling worrying Burberry: "If exchange rates remain at current levels, the full impact on profit in FY 2015 will be material"


    The luxury firm says a strong pound may make a "material" dent in 2015 profits if it continues to be so richly-valued. Sales at reported exchange rates rose 9% to £370m in the three months to 30 June.

    MOTHERCARE 07:50:

    Mr Newton-Jones has spent 30 years in the retail industry, including 18 years at Next. He first task is likely to be to continue to hold off the takeover bid from Destination Maternity, who offered 300p per share for the mother and baby retailer, valuing it at £266m. That was a significant premium to its share price. Mothercare issued a profit warning at the start of the year and is in the middle of a turnaround programme, but it still doesn't expect to return to profit until 2017.

    MOTHERCARE 07:35:
     general view of a Mothercare store

    Mothercare has announced that its interim chief executive Mark Newton-Jones has been appointed to the role permanently. He will officially take up his position and join the Mothercare board on 17 July. Last week, Mothercare rejected a takeover bid from US rival Destination Maternity.

    INDIAN BUDGET 07:20: Via Email Simon Atkinson Editor, India Business Report
    Indian Finance Minister Arun Jaitley leaves his office to table the budget in parliament in New Delhi.

    Simon Atkinson, editor of India Business Report, outside the Indian parliament in Delhi, sends this on the Federal Budget: "Early on, this is a budget appealing to foreign investors. Promise to scrutinise retrospective tax laws - something that put off some firms after high profile Vodafone case and allowing up to 49% overseas ownership of defence firms."

    INDIAN BUDGET Via Twitter

    Tweet from business reporter Shilpa Kannan: Fin min @arunjaitley "We cannot spend beyond our means - fiscal prudence is important for future generations"

    MARKET UPDATE 06:54:

    Tokyo stocks declined 0.24% after the US Federal Reserve signalled its widely-expected intention to end its long-running stimulus programme in October. The Nikkei 225 index slipped 36.89 points to 15,265.76. Hong Kong stocks rose 0.28%. The benchmark Hang Seng Index added 63.79 points to 23,239.86.

    PUBLIC SECTOR STRIKE 06:42: Radio 5 live

    Professor Gregor Gall of the Bradford University School of Management is on 5 live talking about today's proposed strike. Strikers should make sure this is the "beginning of something" rather than just a one-off, like the last major public sector strike in 2011, he says. Otherwise the strike may end up just being "letting off steam but not adding to their leverage at the bargaining table."

    A member of the general trade union GMB stands outside The Houses of Parliament in London on November 30, 2011

    More than a million public sector workers are due to walk out on strike later today in a series of disputes with government over pay, pensions and job cuts. Council staff, teachers, firefighters and civil servants are among those walking out. Someone is bound to tell us how much the strike is going to cost the economy later. In the meantime, if anyone wants to have a crack at it, send your answers to or @BBCBusiness on twitter.

    NEW INDIA GOVERNMENT Via Email Yogita Limaye Business reporter, BBC News

    Dozens of media vans are parked outside parliament as the new Indian government prepares to deliver its much anticipated first budget. A short while ago, the finance minister Arun Jaitley left his office to go to parliament, posing with the traditional 'budget briefcase' - a bag that carries the document. Bureaucrats have been locked in for days preparing this plan.

    SUNDAY TRADING 06:05: Radio 5 live

    Ewen Cameron-Watt, chief investment strategist of investment institute at BlackRock, is on 5 live, talking about Sunday trading for shops. "There's a law of diminishing returns for Sunday trading," he says. Will shops make back their costs, he asks? "Are we really going to be doing our weekly shop at 10 past 8 on a Sunday?" Not him, he says.

    06:00: Howard Mustoe Business reporter

    Good morning from the Business Live team. You can get in touch via or @BBCBusiness on twitter

    06:00: Matthew West Business reporter

    Morning folks, lots of news promised for today. It's the start of a new era at Sainsbury's under boss Mike Coupe; we have the monthly interest rate decision from the Bank of England, India announces its first Budget under new prime minister Narendra Modi; another house price index - this time from the Royal Institution of Chartered Surveyors - and a trading update from Burberry. So plenty to come.



BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.