Lenovo Group Ltd. (HKSE: 0992) (LNVGY)

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Lenovo CEO on How It Plans to Grow With Smartphones

Last year, Lenovo Group became the world’s largest personal-computer maker, overtaking Hewlett-Packard. Now, the Chinese company is trying to repeat the success with smartphones, competing head-on with Samsung Electronics in emerging markets.


Lenovo Chairman and Chief Executive Officer at a press conference. Reuters
Lenovo said Thursday its net profit for the quarter through June rose 23% from a year earlier, while revenue increased 18%. Solid growth was thanks in part to a jump in smartphone sales in Southeast Asia, Eastern Europe and Latin America, according to the company.Lenovo, the world’s fourth-largest smartphone maker in the second quarter according to IDC, is in the process of buying Google’s Motorola Mobility handset business for $2.91 billion. At the same time, the company is trying to complete a $2.3 billion deal to buy International Business Machines’ low-end server business.

In an interview with The Wall Street Journal, Lenovo Chief Executive Yang Yuanqing talked about the company’s smartphone strategy and how Motorola will help it become more competitive. Below are edited excerpts of the interview.

WSJ: China’s smartphone market is crowded and very competitive. How will Lenovo compete?

Yang: In the second quarter, we became the No. 1 smartphone vendor in China for the first time, according to IDC. While selling our phones through carriers, we have been expanding open-market (non-carrier channels) and online sales channels. We are also using more social media for marketing.

I would say China is the most competitive market in the world. There are so many local players, and some of them are not logical in how they do business. They don’t want to make money in the short term. We definitely don’t want to lose our leadership position in China, and we must balance growth in market share with profitability. Our smartphone business in China make a little bit of money, but not so much.

WSJ: How is Lenovo doing outside China?

Yang: Although China is still the most important market for our smartphone business, we think we have even more opportunities outside China, particularly in emerging markets. In the quarter through June, our smartphone shipments grew almost 300% in Southeast Asia and more than 500% in Eastern Europe. Those are our future potential markets, so we definitely put more effort and more resources into those markets. Profitability in those markets is actually better than that in China. Not only can those markets give us growth, but they can also give us profit.

WSJ: How will Motorola help Lenovo?

Yang: With the Motorola acquisition, we can become an even stronger global player. Motorola’s business is very complementary to Lenovo’s smartphone business. They are strong in North America and Latin America. Their new products are showing some strong results in Western Europe and India too. When the two companies are combined we will definitely become a more competitive player in most of the key markets.

We are encouraged by Motorola’s improvements. Their results for the latest quarter are much better than the previous year. Our commitment is we will turn around Motorola in four to six quarters. Today, I’m even more optimistic about meeting that target.

WSJ: Other Chinese smartphone makers like Huawei are also expanding overseas. How will you compete against them?

Yang: We have some unique advantages. We have a stronger brand than other Chinese players because of our core PC business. In mature markets, our Motorola acquisition can also help by giving us access to intellectual property.

WSJ: What’s Lenovo’s advantage against Samsung?

The smartphone market’s focus is shifting from premium products to mainstream and entry-level products. We have seen this before in the PC market, and we have a lot of experience in these kinds of transitions.

We know how to develop products for mainstream and entry-level markets. We have good supply chain management. We know how to balance innovation with efficiency.

WSJ: You have said before that you expect to close both the Motorola and IBM server business acquisitions by the end of this year. Any updates?

Yang: We have no change in our schedule. We are working with multiple governments to get their approvals. We are making a lot of progress and we are still on track to close those deals this year.

http://blogs.wsj.com/digits/2014/08/14/qa-lenovo-ceo-on-how-it-plans-to-grow-in-smartphones/