Lenovo is taking an unusual approach to grabbing market share in the smartphone business. The Chinese company is planning to launch a new brand in the People’s Republic just months after completing its $2.9 billion purchase of Motorola. Deploying different trademarks may be a quick way to segment the market while taking on upstarts like Xiaomi, now the leader in the world’s largest smartphone market. But Lenovo’s already thin margins could be squeezed further.
The Beijing-based group, best known for its personal computers, is becoming a serious contender in the global smartphone market. Though PCs still account for the bulk of its total revenue, Lenovo ranked third in global smartphone shipments in the fourth quarter of 2014, according to IDC. Better than expected sales from Motorola in the most recent quarter suggest the company is on track to turn around the loss-making brand it bought from Google last year.
The picture looks less rosy in China, however. The $17 billion hardware giant failed to keep up with domestic rivals Xiaomi and Huawei in the fourth quarter last year: sales of its Lenovo- branded phones grabbed less than 10 percent of the Chinese market, estimates IDC.
That may explain why Lenovo is planning to launch a new brand, ShenQi, which will aim to replicate Xiaomi’s model of selling handsets and other devices online. The new business will target internet-savvy consumers – the same demographic which helped Xiaomi sell 61 million handsets last year – three times as many as in 2013.
Such a multi-brand strategy is unusual in the fast-moving smartphone business, but could catch on in the People’s Republic. In a country which saw the launch of 1,659 new smartphone models last year alone, branding is vital. Appealing to new users under a different logo allows Lenovo to carry on selling its own-brand phones through retailers and partnerships with network operators.
The risk is that juggling three brands will strain resources. Lenovo-branded handsets are just breaking even, while Motorola, to be re-launched in China this year, needs at least a 2 percent market share in the People’s Republic to become profitable, Nomura reckons. Selling a minority stake in ShenQi would help Lenovo to lay off some of the risks. But by making an already-competitive and constantly changing business more complicated, the hardware giant risks overheating.