Bottom line: Lenovo's (OTCPK:LNVGY) plans to turn around its struggling smartphone business lack focus and are likely to fail, which could ultimately result in the exit of longtime chief Yang Yuanqing this year.
Computer giant Lenovo was busy showcasing its latest PCs at a major trade show last week in Las Vegas, but industry watchers were far more interested in the outlook for its struggling smartphone business. That's because 2016 could easily become a make-or-break year for Lenovo, which desperately needs to turn around a smartphone unit that will be critical to its future growth.
In response to a flurry of questions focused on its smartphones, talkative CEO Yang Yuanqing said his company is making steady progress in the BRICs markets of Brazil and India, and that he's aiming to set Lenovo back on an upward track in its home China market. Lenovo also announced a vague new smartphone partnership with Google (NASDAQ:GOOG) (NASDAQ:GOOGL), and denied any plans to jettison its the famous bat-wing logo for its recently acquired Motorola brand.
Media described Yang as upbeat in his frequent discussions on the smartphone topic at this year's Consumer Electronics Show in Las Vegas. Perhaps that's true, but Yang also is under incredible pressure to improve a dismal performance that has left Lenovo's smartphones with a reputation as cheap and low quality. At the same time, the company's recently acquired Motorola brand has seen its sales drop sharply over the last year.
Let's begin with the big-picture comments, which had Yang saying Lenovo's smartphone unit will seek breakthroughs in mature markets this year, and will try to reverse its difficult position in China (Chinese article). Yang is a perpetual optimist, so it's not surprising to see him give such upbeat remarks even in times of extreme stress. But other comments late last year indicated his boss Liu Chuanzhi may be growing impatient with the poor smartphone performance (previous post).
Strength in Brazil, India
Next there's an interview where Yang says his company is gaining market share in Brazil, even though the broader economy there is slowing (English article). He also said growing demand for Lenovo's smartphones in Brazil and India will help offset slowing demand in the company's home China market.
It's hard to read too much from those comments, since they're quite vague. But India has become quite competitive over the last two years, as most major Chinese players including Xiaomi and Alibaba-backed (NYSE:BABA) Meizu moved into the market. Chinese giants Huawei and ZTE also are active in India, and Xiaomi has recently moved into Brazil, meaning Lenovo won't have an easy ride in any of those markets.
Then there are the quirkier stories, including Lenovo's denial of rumors that it's preparing to jettison Motorola's classic bat-wing logo (Chinese article). Those particular comments came from another Lenovo executive, China sales chief Wang Chuandong, who said there was no foundation to the rumors as his company tries to reinvigorate the fading Motorola brand. Motorola's logo is indeed one of its most identifiable features, though perhaps Lenovo should consider trying something new as part of its campaign to breathe new life into the storied but sputtering brand.
Last there's the announcement that Lenovo and Google are partnering for Google's upcoming Tango smartphone project (English article, Chinese article). That deal will see Lenovo manufacture Tango smartphones, which will have screens that are optimized for 3D viewing. The announcement is quite vague and doesn't include any dates or whether Google will make Tango phones with other partners as well. But at least it does look like a good move, which should be part of a broader campaign by Lenovo to shed its image as a cheap and low quality smartphone brand.
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