Lenovo sets its hands on Motorola

Battle for smartphone market heats up; no change in Motorola's product launch in India

In what will be China's largest-ever technology deal, Lenovo Group said it had agreed to buy Google Inc's Motorola handset division for $2.91 billion. Lenovo buys its way into a heavily competitive US handset market dominated by Apple Inc.

This is Lenovo's second major deal on US soil in a week as the Chinese electronics company angles to get a foothold in major global computing markets. Lenovo, last week, said it would buy IBM's low-end server business for $2.3 billion.

With the announcement, the battle to gain market share in the fast-growing smartphone segment has become fiercer. China-headquartered Lenovo had emerged as the largest player in the global personal computer (PC) market in 2013, beating HP and Sony. However, the firm's entry into the smartphone sector has been a tad late, as reflected in its market share, a mere 5.1 per cent. Despite this, it is already third in the worldwide smartphone category, according to Gartner data for the third quarter of 2013.

The announcement is significant for India because of two reasons: India is the fastest growing smartphone market and is sensitive to price, and Motorola was set to re-enter India. It was getting ready to launch budget smartphone MotoG on February 5.

Amar Babu, managing director of Lenovo, India, said nothing would change. "Several approvals are needed and the integration will take some time, and so, there won't be any changes in the planned launches."

"The benefits that Lenovo would get from this deal will extend to its existing markets, including India, but will not be instantaneous. So (for now) apart from marketing leverage, I don't think this deal can help Lenovo in India or in any market overnight," said Faisal Kawoosa, lead analyst, CMR Telecoms Practice.

An analyst, on condition of anonymity said, "Samsung is today at a similar juncture as Nokia was in 2007-08. There are several players in India, but the one that can erode Samsung's market share will be one that has technological innovations and deep pockets…At present, Lenovo seems to be that player." So far, Lenovo was present in the higher segment of the smartphone segment. With the Motorola deal, it now has offerings at the entry and mid-segment levels, where growth is expected to be the highest in India.

"Most hardware vendors with small margins are bleeding. So, I think there will be consolidation in the industry," said Vishal Tripathi, principal research analyst, Gartner.

In terms of branding, Babu said it was too early to comment. The other area that will see an impact and be significant for Lenovo is the enterprise segment. Last week, Lenovo had acquired IBM's server business for about $2 billion. In India, Lenovo is a strong player in the enterprise segment, the reason for its initial market gain here. The Motorola deal will tighten the PC-tablet-smartphone dynamics for Lenovo.

Babu says Motorola is a perfect fit for the company. "We want to be a strong PC-plus player. The two large acquisitions announced in the last one week are absolutely in line with our strategy. We have been building our business in the emerging markets, and that has been on track. But we did not have business in the mature markets, which this acquisition will get us. Motorola and Lenovo are both geographically very complementary for each other," he added.

Analysts point out enterprises have emerged as big players for tablets.

Google strategy
Though global markets are talking only about Lenovo, Google is smartly changing the landscape of technology firms. With Samsung, and now Lenovo, it seems Google is making sure it has access to patents and innovation. It is also creating a consortium with like-minded players. This will divide the technology market with Apple, Microsoft and Sony on one hand, and Android backers on the other. "Looks like Google is creating a security layer. Not only is it trying to protect itself, but it is also creating an umbrella for those who are part of the Android world," said Shende. Experts say this will be significant, as some of its partners have some serious patent infringement cases coming up.