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Lenovo will get Motorola Mobility profitable again within four to six quarters after the PC maker’s $2.9 billion deal for the struggling business with Google closes, according to Lenovo’s top executive.
Speaking to Bloomberg at the Mobile World Congress 2014 show in Barcelona, Spain, Lenovo CEO Yang Yuanqing said his company—the world’s largest vendor in a shrinking PC market—will be able to turn that profit without cutting any jobs.
Lenovo will be able to leverage its expertise in building systems to do what Google was unable to since buying Motorola Mobility in 2012 for more than $12.5 billion, Yang told the news site.
“Don’t be scared by the $1 billion-a-year loss,” he said. “We will improve that even from day one. Google is very good at software, ecosystems and services, but we are stronger in the manufacturing of devices.”
Lenovo announced the Motorola deal in January as it looks to fuel its PC-Plus strategy, in which the company expects to move beyond PCs to become a leader in all computing segments. That includes industry-standard servers, which Lenovo officials are planning to rapidly grow after announcing the company’s intention to buy IBM’s x86 server business for $2.3 billion, an acquisition that was announced last month a week before Lenovo unveiled the Motorola deal.
Lenovo executives are hoping to see results similar to those that came from its $1.25 billion acquisition in 2005 of IBM’s PC business, a move that propelled the company past Hewlett-Packard and Dell into the top spot in that market.
Once the Motorola deal closes—something Yang said will take six to nine months—Lenovo will become the third largest smartphone vendor, trailing Samsung and Apple. Those two companies dominate a smartphone market that continues to grow—968 million units were sold in 2013, a 42.3 percent increase over 2012, according to Gartner, though the analysts are predicting a coming slowdown in revenues as the average selling price for the devices falls.
Lenovo saw smartphone sales in 2013 that jumped 102.3 percent, Gartner analysts said, while Lenovo officials this month said the company in the fourth quarter 2013 had smartphone sales that grew almost 50 percent from the same period the year before. Lenovo CFO Wong Mai Ming told Bloomberg that Lenovo intends to become the world’s top smartphone maker.
“We want to do it as soon as we can, and do it in a sustainable way,” Wong said. “Motorola is a very strong brand, a very well-known brand with great technology, great products and great business relationships with the carriers. Together with our existing smartphone business, we will achieve what we set out in our strategy.”
CEO Yang said that Lenovo will make Motorola profitable by increasing production and sales, and targeting emerging markets. In announcing the fourth-quarter earnings this month, Lenovo officials said the company sold a record 2 million-plus devices in China, a key emerging market and Lenovo’s home country. Anshul Gupta, principal research analyst at Gartner, earlier this month reiterated the importance of emerging markets, saying that “mature markets face limited growth potential as the markets are saturated with smartphone sales, leaving little room for growth with declining feature phone market and a longer replacement cycle.”
Despite the continued decline of PC sales—which Gartner analysts said dropped by another 10 percent last year—Lenovo continues to add new products to the portfolio, and Lenovo COO Gianfranco Lanci, who heads up Lenovo’s PC unit, said the worldwide PC market will return to growth over the next couple of quarters. Lanci said consumers are beginning to see that while tablets are great for consuming content such as video, creating content on them is more difficult.
Despite the optimistic outlook for PCs, Yang said the company needs to expand its reach into other markets.
“A company should focus on not just the short-term performance, but also long-term sustainable growth,” he said. “If we only focus on PCs, one to two years later we cannot further grow, so we must find a new area so we can help our shareholders make more money and see more growth.”