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January 31, 2013

Lenovo Looks Outside China for Smartphone Business Boost

Lenovo Group Ltd., China’s leading maker of personal computers and number two in the world, is hoping to capitalize on its success to get (even more) into the smartphone business.

The PC company has experienced solid growth in China, but has seen a slowdown in the traditional PC sector, so the idea is to shift its focus overseas and boost business for its smartphones.

Lenovo is the second-biggest smartphone vendor in China, also selling well in Russia, Indonesia, the Philippines, and Vietnam.

Even in those areas, however, Lenovo has faced major competition from the likes of Samsung and Apple.

“It’ll be quite difficult for Lenovo to be as successful as say, Samsung, in overseas markets,” warned Audrey Chiu, manager at Truswell Securities Investment Trust, the firm which invests Lenovo’s shares.

Eve Jung, analyst at Nomura Equity Research, also has doubts.

“In my opinion, Lenovo’s strategy in mobile devices is that it will focus initially on the overseas markets that it’s most familiar with and this includes emerging markets. However, it will face challenges in the sector as companies like Acer and Asustek roll out cheaper tablet PC models to aggressively target markets, such as China, which is Lenovo’s traditional stronghold,” said Jung.

Lenovo shipped approximately nine million smartphones in its 2012 third quarter, mainly in China, which helped the company’s smartphone business turn profitable for the first time.

Now, Lenovo is hoping to continue this trend, or at least to make its smartphone business sustainable, despite the difficulties involved.

“For the rest of the emerging markets, we will continue to invest in the smartphone business to drive market share,” said Yang Yuanqing, chief executive of Lenovo. “When we have enough market share, we can shift to (focusing on) profitability.”

The competition is rough, but Lenovo could swing it--the company’s shares rose 36 percent in 2012, outpacing a 23 percent rise in the Hang Seng Index and beating rivals Hewlett Packard, Dell Inc and Acer Inc, whose stocks fell last year.

Additionally, the company’s quarterly profit has been reported at $204.9 million, which is up by about a third from the same time a year ago in a surprising turn that exceeded expectations from Reuters and others.

The bulk of Lenovo’s business is still in the PC sector, but PC demand growth is slowing, and the company wants to cushion the blow by boosting its other businesses. Smartphones and tablets are showing the most promise, both in China and overseas, so Lenovo’s plans have a good chance at success. 

Edited by Brooke Neuman

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