Lenovo Takes Slow Approach To U.S. Smartphones

| About: Lenovo Group (LNVGY)

Executives from China's top consumer electronics makers are laying out their road maps for 2014 at the world's top trade show happening this week in Las Vegas, with leading PC maker Lenovo (OTCPK:LNVGY,HKEx: 992) detailing a conservative but smart looking plan to build up its smartphone business in the Americas. The plan was detailed by Lenovo's Americas head, and will see the company target developing markets in Latin America first before gradually moving to the highly competitive U.S.

Lenovo Americas President Gerry Smith detailed his plan as his company jostles with other emerging Chinese brands including Huawei, ZTE (HKEx: 763; Shenzhen: 000063) and Coolpad for a piece of the booming global smartphone market. All of the Chinese players have a reputation for making smartphones that are reliable, but are also mostly low-end and lacking in differentiation. Most of the companies currently log the big majority of their sales in China, though all are embarking on campaigns to take their products global.

Of the Chinese firms, Lenovo certainly stands one of the best chances for success due to its existing strong presence in both developed and emerging markets for its PC business. The company will use that advantage for its push into the Americas, which will start with a focus on developing markets like Brazil where its brand is relatively well known, Smith said in an interview at the Consumer Electronics Show taking place this week in Las Vegas. Lenovo is particularly strong in Brazil, following its purchase of an asset in the market a year ago. The company is also relatively well known in other developing markets like Russia, where its brand enjoys a reputation for relatively high quality at affordable costs. But its reputation is far less stellar in developed markets like the U.S., despite its high-profile purchase of the PC assets of IBM (NYSE: IBM) in 2005 when it first began its global expansion.

Smith said Lenovo will spend heavily to raise its profile before making a major sales push into the U.S., indicating the company is in no rush to enter a fiercely competitive smartphone market now dominated by global leaders Apple (Nasdaq: AAPL) and Samsung (OTC:SSNLF, Seoul: 005930). His conservative, go-slow approach contrasts with more general plans given last year by Lenovo's talkative and more bullish CEO Yang Yuanqing, who said the company will enter western markets including the U.S.

In a high-profile move in that direction, Lenovo announced in November that U.S. movie star Ashton Kutcher would become its brand ambassador in the U.S (previous post). That deal looked somewhat ironic, since Kutcher portrayed Apple's legendary co-founder Steve Jobs in the 2013 film "Jobs", which detailed Jobs role in Apple's early rise to become one of the world's first major PC makers.

I personally find Smith's conservative approach refreshing and realistic, unlike Yang's more bullish talk that often seems overly aggressive. Whether or not the go-slow approach will work in the U.S. is another matter, and I have some doubts about whether the company can succeed there. Its most serious handicap is its Chinese roots, which don't exactly conjure images of high performance, cutting-edge technology and "coolness" enjoyed by Apple and Samsung.

But that said, Kutcher is certainly a good choice to try and change that image. Furthermore, fast-rising smartphone maker Xiaomi is proving that Chinese companies can still cultivate a cutting-edge, trendy image with the proper marketing. In this case, I think we'll need some time to see how Lenovo plays its cards before predicting how its smartphones will fare in their global expansion. I would give it a good chance of success in Latin America, but would add that it faces a much steeper climb to build the proper image and products to succeed in the U.S.

Bottom line: Lenovo is likely to quickly become an important smartphone player in Latin America, but will face a longer, tougher road for acceptance in the U.S. and other developed markets.

Disclosure: No positions