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© enruta dreamstime.com Business | February 17, 2014

Implications of Google / Lenovo deal

In recent years, Lenovo has been strategically aggressive. With its wealth of financial resources and greater ambitions than its industry peers, it has focused its efforts on directly purchasing existing brands to expand its market share.
This provides Lenovo with the critical factor for it’s growth leaps, seen in its targeted purchases, ranging from the PC field, servers and to today’s smartphones.

The Lenovo Group announced today (January 30th) that it has purchased Motorola Mobility from Google with US$2.9bn, causing yet another large ripple effect in the already highly competitive smartphone market. According to TrendForce’s research, the tech industry innovations in recent years, whether the production chain or key components, are all focused on smartphones, known as most essential tech product for the most consumers. As a result of the explosive shipment growths in smartphones, unprecedented changes have occurred among panels, batteries, core processors as well as DRAM and NAND Flash components.

However, smartphones will eventually reach the product maturation period, starting from 2014, TrendForce projects that, while the total shipment will continue to grow, reaching 1.157bn phones, its 2013 to 2014 YoY would fall from 33.5% to 22.44%. The market has begun to exhibit a gradual slow down. And yet, Lenovo’s market share is increasing, going against the grain of the current market trend, and it has a projected growth leap and breakthrough in 2014.

In fact, Apple, Samsung, Microsoft and Lenovo will dominate smartphone market share. Armed with each brand’s software and hardware advantages and regional dominance, TrendForce believes that as Lenovo and Moto join forces, it will bring propel Lenovo’s shipment growth beyond what the two brands would be able to accomplish individually in 2014.

Further more, it will bring about the following advantages and changes to the current Lenovo Group:

1. Boosting the IPR: Moto’s greatest strength is not in its smartphone shipment volume, instead, it is the years of patent development that began from its featurephone era. It is precisely for this reason that Google (at the time) and today’s Lenovo both vied for Moto. When Google made the earlier purchase of Moto with US$12.5bn, it has significantly strengthened its company’s patent database in the field of Telecommunications Patents and Signal Processing.

Lenovo is considered a latecomer in the smartphone field, and the majority of the Moto’s patents remain to be owned by Google. Even though Lenovo only obtained approximately 2,000 patents through this purchase, it can quickly strengthen its technical ability in telecommunications, which can help the company avoid potential financial losses through lawsuits filed by competitors when Lenovo’s smartphone shipments begin to soar.

2. Propelling the Europe and U.S. Market Expansion: While Lenovo is a leading brand in China, due to its image as a state-owned enterprise, it needs to acquire other brands to further its foreign market expansion and brand identity. Not unlike its strategy when promoting its PCs to Europe, the U.S. and Japan through IBM and NEC, where it was able to leap from being a Chinese brand to sharing the No.1 rank with HP in merely two years, a similar strategy has been replicated in the servers and smartphones divisions.

By purchasing the IBM servers division, it was able to skip the lengthy learning curve and directly jump from producing low-end to high-end products. In the smartphones field, since Moto has lost its brand luster, it has limited contribution towards Lenovo’s actual mobile phone shipment growth, but it is deemed beneficial in strengthening the brand identity in the European and American markets.

3. Strengthening the group’s Bargaining Power: The most critical factor for getting ahead of fellow smartphone and server competitors is by getting access to lower production costs than the industry peers. Thus, under the premise that ASP (average selling price) will inevitably fall over time, cutting production costs becomes the key to maintaining profit.

Moto is the first smartphone brand that Lenovo has purchased, and it is expected that this deal would strengthen Lenovo and Google’s relationship, and it is believed that this is only Lenovo’s first strategic step in seeking to become a global brand. If there are no other surprises in store, this strategic model is expected to continue, and through a series of mergers and acquisitions, the company’s bargaining power when purchasing components will significantly increase.
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