Lenovo, With PC Sales Hot, Looks to Drive Smartphone Sales

Lenovo posted its highest-ever market share during the quarter and grew PC sales by 24 percent. True to its attack-and-defend strategy, it's sacrificing profits to drive mobile device sales, says TBR.

Lenovo has been racing to catch up to global PC market leader Hewlett-Packard, and during its fiscal 2013 first quarter, it made notable strides toward overtaking the stumbling Palo Alto–based PC maker.

Hong Kong-based Lenovo announced revenue of $8 billion for the quarter, as sales increased 35 percent year-over-year. While the industry was down 2 percent, Lenovo's PC shipments increased by more than 24 percent; for the 11th quarter in a row, it grew faster than any of the top-four vendors; and it achieved its highest-ever quarterly market share of 15 percent, it said in an Aug. 16 statement.

Going forward, Lenovo will work to gain traction in new markets, such as with small and midsize customers, and in emerging markets. And feeling strong in the PC segment, it will continue to sacrifice profits in order to drive momentum in the mobile device segment, according to Technology Business Research (TBR) analyst Beau Skonieczny.

"Smartphones, which saw units grow 44 times that of the year-ago quarter to nearly 5 million units in 2012, remained the leading contributor to Lenovo's mobile device growth," Skonieczny wrote in an Aug. 17 research note.

Research firm Canalys earlier this month reported that China accounted for 27 percent of the smartphones that shipped during the quarter, compared to the 16 percent that went to U.S. subscribers, and that Chinese consumers tend to favor domestic vendors. Behind Samsung, ZTE, Lenovo and Huawei are all thriving.

TBR's Skonieczny added that Lenovo has posted triple- and quadruple-digit smartphone unit growth over the last five quarters, though its devices are for now limited to China. With the world open to Lenovo's expansion, "TBR believes Lenovo is in a strong position to maintain its growth momentum, which continues to be fueled by aggressive smartphone prices to drive share gains."

In the Philippines, Lenovo is testing its ability to expand the model it successfully established in China. According to TBR, it will target local customers with entry-level smartphones, as well as a few higher-end devices.

Lenovo's business strategy is all about attack and defense-defend established territory, attack in new areas.

The U.S. consumer represents an attack-Lenovo has been up-front about its lack of brand, or even name, recognition in the United States, but has been working to change that. It's likely to make good progress on that front with skinny-minnie devices like its ThinkPad X1 Carbon Ultrabook and the ultra-flexible IdeaPad Yoga, a very untraditional, eye-catching convertible notebook.

At an Aug. 9 event in New York City celebrating "20 years of innovation," Lenovo also introduced the Tablet 2, a Windows 8 device that could be a natural extension for its PC enterprise customers. Lenovo called the Tablet 2 "the tablet the industry has been waiting for."

Roger Kay, a principal analyst with Endpoint Technologies and a consultant to both Lenovo and Dell, say that, as Lenovo looks to swap its title with HP's, even the IT suppliers can play a role in "tipping the field in favor of one OEM to another over time, changing the power structure to their benefit."

In the PC industry, "beware of what you wish for," laughed Kay. "Every incumbent has had a win that washes away eventually. So, enjoy it while the sun shines."