Pressure mounts for Lenovo after Microsoft-Nokia deal

Takeover of devices and services business brings uncertainty and poses market challenge for the mainland computer giant in smartphone sector

PUBLISHED : Wednesday, 04 September, 2013, 12:00am
UPDATED : Wednesday, 04 September, 2013, 11:12am

Investors may cast a bearish eye over the prospects of Lenovo after Microsoft's €5.4 billion (HK$55.2 billion) takeover of Nokia's devices and services business, which leaves the mainland computer giant looking isolated as a top smartphone supplier without its own dedicated software platform.

"The impact [of the Microsoft-Nokia deal] on Lenovo is short-term neutral - on the downside," Alberto Moel, a senior analyst at Bernstein Research, said yesterday.

Lenovo saw its shares inch up 0.79 per cent yesterday to close at HK$7.61. The stock has underperformed, despite the company's record earnings in the past quarter as well as its climb to become the world's largest personal computer supplier and fourth-biggest smartphone vendor.

Moel said the acquisition of Nokia's devices and services business "puts into question the Lenovo-Microsoft collaboration on Windows phones, which has been a source of free research and development to Lenovo".

He warned that Lenovo could be affected if Microsoft used its Nokia-branded phones to double down on smartphones and "focuses on market segments where Lenovo competes".

Sandy Shen, Gartner's research director for consumer services, said Nokia's brand was still strong in Europe and Asia.

Forrester Research analyst Clement Teo said "the future looks bright" for Nokia-Microsoft competing against Google-Motorola and Apple, each of which has a closely integrated software and hardware platform.

Meanwhile, certain Asian electronics companies which supply to Nokia saw their share prices push higher yesterday in the wake of the Microsoft-Nokia deal's announcement.

Dale Gai, a technology hardware analyst at Barclays, said: "This is a definite positive for the Nokia supply chain because it removes the uncertainty that had been present beforehand."

Shares of handset manufacturer FIH Mobile rose 5.8 per cent, while those of components supplier BYD Electronic International climbed 7.25 per cent. Taiwan's Compal Communications, another handset assembler, gained 6.94 per cent.

Moel also saw an upside for Lenovo. "The turmoil of the transaction and integration, and Microsoft's poor track record at major acquisitions may mean this is Nokia's swan song, which is good for Lenovo," he said.

A Lenovo spokeswoman declined to comment on the Nokia deal and the firm's own acquisition plans, but said: "Microsoft will continue to be an important partner for Lenovo."

Technology research firm IDC said Windows smartphone shipments this year would reach about 40 million units, compared with about 1 billion in total global smartphone shipments. Mainland shipments of Windows smartphones are forecast to hit about 7 million units this year.