One year ago, Lenovo’s proposed acquisition of Motorola Mobility from Google rocked the tech world. An old mainstay of the radio business and an enduring brand would survive… but with an overseas owner. Three months ago, the $2.9 billion acquisition was officially closed and now, Lenovo is the world’s third largest smartphone maker after Apple and Samsung, with about 60 percent of Lenovo’s handsets (including Motorola brand) shipped to countries outside China in the 4th quarter of 2014.
Lenovo’s smartphone business strategy is obvious: gain a foothold in handset markets outside of China. China is still a large smartphone market, but the hyper growth of the past couple of years is beginning to slow. The Chinese smartphone market is now flooded with many low-priced devices, making it a more fractured space. Like many other players, such as Xiaomi and Huawei, Lenovo is looking to expand the handset business map overseas. So far, Lenovo’s chance of long-term success seems higher than that of other local Chinese suppliers.
Here’s why we think Lenovo is ahead of the game:
First, out of all the Chinese smartphone brands, Lenovo is the most well-known brand outside China. Its strong position in the global PC market, as well as the good reputation among major distributors, enhances Lenovo’s chances to expand the smartphones business.
Strategic Alliance with Google
Second, while Lenovo is investing in R&D and expanding its patent portfolio to make market-leading mobile devices, it has also secured a long-term cross-licensing agreement with Google that will allow it to use its technology and avoid patent infringement issues—especially in countries where intellectual property rights are strongly asserted.
Wireless Operator Network
The final and the most important reason is Motorola’s long and established relationships with wireless operators in markets like North America and Europe. This advantage opened the door for Lenovo to ship smartphones in Western markets. Without wireless operator access, these markets would be essentially closed.
While progressively expanding overseas, Lenovo still considers the Chinese market important. In addition to promoting Lenovo brand mobile phones in foreign markets, it recently reintroduced Motorola brand smartphone to the Chinese market through e-commerce channels. Unlike Western markets, online purchasing of phones is popular and many Chinese smartphone makers, such as Xiaomi, have found success in this low-cost distribution channel. Lenovo also lets customers customize their Motorola phones through the “Moto Maker” website. In addition, the high-end Moto X and Moto X Pro (the Chinese version of Nexus 6) completes Lenovo’s product line up with a high-end smartphone tier that may appeal to an elite consumer.
After years of shrinking mobile phone sales that led Motorola to spin off the mobile phone division, it looks like the Motorola brand may have a new lease on life. In the meantime, Lenovo gets to check off a few “international strategy boxes” that puts it ahead of its Chinese competitors in the race to build a market outside of China. Whether or not the union will save the Motorola brand is not yet known. But given the alternatives and the benefits to Lenovo, all-in-all, not a bad international marriage.