Analysis | Can ShenQi help Lenovo conquer the Chinese smartphone market?

If you are familiar with the early days of the Chinese internet, the name fm365 may ring a bell. Created with much fanfare by Lenovo and financially co-sponsored by AOL, the $20-million portal was once the hallmark of the rising PC maker’s lofty ambitions to foray into the dotcom industry.

But unfortunately, the result was a damp squib, thanks to the dotcom bust and a dysfunctional partnership. In a couple of years, the joint venture was reduced to nothing but a token existence on the internet. And in late 2003, the website even lost its domain name briefly to a small offshore firm because the administrator forgot to renew the registration.

A decade later, Lenovo, already the world’s biggest manufacturer of desktop computers and laptops, has quietly revived the URL fm365.com. What it links to this time is a company called ShenQi GongChang, a start-up that currently sells only three products—a wireless router, an air purifier and a 3D printer. However, the company is also building what it hopes to be one core of future smart appliances—a smartphone.

Today, people are connected more than ever by wireless networks that were non-existent 10 years ago; in 2014, 450 million smart handsets and tablets were shipped in China, more than seven times the number of PCs. The rise of internet-based and asset-light companies like Xiaomi are redefining hardware companies as design powerhouses that are also versatile in marketing, e-commerce and capital management.

Lenovo is also selling more smartphones than PCs, but the 30-year-old company is trailing behind local competitors who are either telecommunication experts or trendsetting marketers. Although the group is trying to right the ship by making itself a flatter and more innovative organization, the vessel is just too big to make quick turns. By releasing a speedboat—ShenQi, Lenovo is making a venture investment that it hopes will become a new pillar of the entire group.