Mobile devices overtake PC sales at Lenovo

Written by Eric Pfanner | Updated: Aug 19 2013, 16:50pm hrs
Lenovo, the worlds largest PC maker, now sells more smartphones and tablets than computers. That milestone, which the company announced last week, underlines the growing influence of Chinese companies like Lenovo in the shift from desktop to mobile computing. Now even Lenovo, which acquired IBMs PC business in 2005 and sells ThinkPad notebooks, is remaking itself for a post-PC era.

Lenovo said its sales of smartphones had more than doubled in the three months that ended June 30, to 11.4 million. The company also sold 1.5 million tablet computers. Executives said Lenovo had benefited from a structural shift in the smartphone business, where the high-end, dominated by Apple and Samsung Electronics, is showing signs of saturation. Sales of less expensive handsets made by Lenovo and other Chinese companies, like Huawei and ZTE, are growing more rapidly. The recent change in the market favors Lenovo and our business model, Yang Yuanqing, chief executive of Lenovo, said in a conference call with analysts. The market is shifting from the premium part to the mainstream. It is shifting from the mature markets to the emerging markets.

Lenovo was the fourth-largest maker of smartphones worldwide in the second quarter, according to IDC, a research firm, with a market share of 4.7%, up from 3.1% a year earlier. The companys smartphone business

relies heavily on China, which accounts for about 80% of sales, but Lenovo is trying to expand its global presence.

Lenovo executives declined to comment on speculation about a possible bid for BlackBerry, which has put itself up for sale. But Lenovo made it clear that it did not plan to rely on internal, or organic, growth alone. Given its solid financial position, the group will continue to actively look for inorganic growth opportunities which will supplement its organic growth strategy to accelerate future expansion, Lenovo said in its latest quarterly earnings report.

Analysts say acquisitions might be a way for Lenovo to

address some of the shortcomings of its smartphone arm,

including the low prices that its devices command an average of less than $100 in China, while devices like Apples iPhone 5 and Samsungs Galaxy S4 cost more than $700 in that country.

Because of the low prices, Lenovos smartphone and tablet arm generated only 14% of the companys revenue in the most recent quarter. The company remains heavily reliant on its PC division for sales and earnings, even though that business is shrinking.

Lenovo has managed the decline better than some of its

rivals. Its shipments of computers slipped 1.4% in the second quarter, to 12.6 million, compared with a decline of 11% in the overall market, according to IDC. As a result, Lenovo overtook Hewlett-Packard and become the worlds largest PC maker in the period. That helped Lenovo post a 23% increase in net income, to $174 million, for its financial first quarter, which ended in June. The results were above analysts expectations.

Despite the solid performance of the PC division, company executives have taken to calling Lenovo a PC-plus company. Yang stuck with a previous forecast that the company would sell 50 million smartphones and 10 million tablets in the current quarter. But he acknowledged that Lenovo still had work to do in getting out the message about its mobile devices in markets beyond China. We still need to invest in the branding, we still need to invest in the channel and network building, he said.

In China, Lenovos mobile business is growing rapidly. Canalys, a research firm, said it had shipped 10.8 million smartphones there in the second quarter, second only to Samsung, with 15.5 million. That is a strong base from which to develop new phones for other price-conscious developing markets, analysts say.

The whole dynamic favors Lenovo a lot, said Jenny Lai, an analyst at HSBC. If you are No. 2 in the largest market in the world, your suppliers will come to you.