China’s Lenovo may reorganise mobile operations to gain edge over Xiaomi, other smartphone rivals

PUBLISHED : Monday, 06 July, 2015, 8:01am
UPDATED : Monday, 06 July, 2015, 8:01am

Intensifying competition from low-cost smartphone companies in China may compel Chinese computer giant Lenovo Group to pursue a revamp of its fledgling mobile business division.

Analysts said Lenovo, the world’s largest supplier of personal computers, has seen its smartphone sales “underperform” in mainland China and other markets worldwide in the first half of this year against the likes of China’s Huawei Technologies, Xiaomi and Meizu. 

“We expect Lenovo to soon announce organisational changes in the mobile business, following the [recent] management reshuffle,” Jefferies equity analyst Ken Hui said in a research note published this week.

Last month, veteran company executive Chen Xudong was named the new executive vice-president of Lenovo Mobile Business Group and chairman of Motorola Mobility. 

He replaced Liu Jun, who was appointed a “special consultant on mobile business and strategy” for Lenovo chairman and chief executive Yang Yuanqing.

The pressure is building on Lenovo after it completed the US$2.91 billion purchase of Motorola Mobility from Google last year. At the time, the deal made Lenovo the world’s third-biggest supplier of smartphones, behind Samsung Electronics and Apple.

READ MORE: Lenovo parent Legend Holdings generates US$2 billion in Hong Kong IPO

In May, Lenovo estimated that its total smartphone shipments rose 50 per cent year-on-year to a historic high of 76 million units during the company’s fiscal year ended March 31. 

Research firm IDC said Xiaomi, Samsung, Lenovo, Huawei and Coolpad Group were the top smartphone suppliers in mainland China last year, when total industry shipments reached 420.7 million units.

Hui said there was currently weak demand for Lenovo-brand smartphones in mainland China, while “Motorola is losing share in all key markets”.

He suggested that Lenovo was negatively affected when Beijing kicked off in January anti-corruption inspections at large state-owned enterprises. 

These included the three nationwide telecommunications network operators — China Mobile, China Unicom and China Telecom.

“The operators were reluctant to sign deals, including handset procurement, to avoid getting into trouble,” Hui said. 

“Smartphone makers, particularly Lenovo, with the heaviest exposure to operators suffered the most.”

In addition, Lenovo lacked new smartphone releases in the first quarter. That prompted distributors in mainland China to turn to competitors, such as Huawei, for new smartphone models.

READ MORE: At 71, Lenovo's Liu Chuanzhi is still a legend in the world of Chinese business

Hui said currency weakness in many overseas emerging countries, such as those in South America, and higher mobile phone import duties in India abruptly slowed demand for smartphones in those markets early this year.

“Motorola was very vulnerable given its large exposure to Latin America and India,” he said.

Jefferies estimated that Huawei, Xiaomi and Meizu likely came out ahead in mainland China’s smartphone market in the second quarter, while shipments declined for Lenovo and Coolpad. No shipment figures were provided.

Lenovo’s Yang, however, remained optimistic about the prospects for the company’s mobile business, which also includes media tablets.

“We are confident on the leadership of Chen Xudong in the mobile business division,” Yang told reporters after Lenovo’s annual general meeting on Thursday in Hong Kong.

He reiterated that Motorola would break even in about four to six quarters and that the overseas markets would help drive Lenovo’s smartphone business growth.

Hong Kong-listed Lenovo, which has operations in more than 160 countries, is targeting sales of about 100 million smartphones for its current fiscal year, which ends in March 2016.

READ MORE: China's Lenovo to make major smartphone push as CEO calls for company 'transformation'

Rival Xiaomi, which reported first-half sales of 34.7 million units, expects to ship 100 million smartphones by the end of this year, up from 61 million last year.

Lenovo’s efforts to develop a third smartphone brand, called ShenQi, could help it more aggressively compete against low-cost Chinese rivals.

ShenQi would serve as the company’s most affordable product range, while the Lenovo-branded smartphones targeted the low- to mid-priced market segments. Motorola would be positioned as the premium brand.

Alberto Moel, a senior analyst at Bernstein Research, has said the pressure would be on the other Chinese brands when ShenQi becomes widely available. 

“It doesn't have to succeed. It just has to help others not succeed in order for Lenovo to benefit,” he said.