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Lenovo Was Right To Buy Motorola - Just Look At ThinkPad

Feb 12 2014, 3:59pm CST | by

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Lenovo Was Right To Buy Motorola - Just Look At ThinkPad
 
 

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Lenovo Was Right To Buy Motorola - Just Look At ThinkPad

‘What were you thinking?!’

This summed up the collective view by the stock market after Lenovo bought Motorola Mobility for $2.9 billion earlier this month. Lenovo shares crashed 16% and widespread opinion was that Google had successfully managed to offload a doomed business having seen its usefulness expire as a key pawn in its battle with Samsung .

Closer analysis even suggests Google made a profit on its $12.5bn purchase in 2011. Surely Lenovo had been had – another sucker PC maker desperate to jump ship from its dying market and sure to fail like Acer, Asus and, most famously and disastrously , HP.

But not so fast. There is one word the doom mongers need to remember: ThinkPad.

Back in 2004 Lenovo bought IBM’s PC group for $1.75bn. The reaction was ‘Lenovo who?’ because, despite being a major player in China and India, the company had virtually no Western presence. The luxurious ThinkPad brand was seen as its ticket in, but having specialised in affordable models it was widely predicted to fail. Chewed up and spat out up by the new HP after its $25bn mega merger with Compaq.

In fact quite the opposite happened. While the Compaq merger threatened to tear HP apart, Lenovo not only maintained the quality of the ThinkPad range but evolved and grew it and in 2013 Lenovo became the largest PC maker in the world . This was no first-among-losers award either. While the PC sector in 2013 fell 11% Lenovo outperformed the sector–for the 17th quarter in a row. Revenues were up, profits were up, cash reserves were up.

In fact Lenovo was so confident in the computing sector in January it bought another big chunk of IBM: its x86 server business for $2.3bn. As with the PC group, Lenovo will keep on US workers and promises to maintain and build the reputation of the brand.

Yet something more important than the server purchase was hidden in Lenovo’s recent figures: it has become the world’s fastest growing smartphone maker and the fourth biggest. Sales were up 132% and it was now the second largest smartphone company in China . Remind me if this sounds familiar: major player in China has virtually no western presence – just like ThinkPad, this time around Motorola is Lenovo’s way in.

But has it bought a lemon? Recent Motorola losses would suggest so, but they overlook three key factors:

Firstly during its two years under Google, Motorola was heavily restructured and much of the fat cut away. It is still losing money, but the company is in far better shape going forward.

Secondly Google’s control has done a lot for Motorola’s handsets. Whereas previously a mishmash of RAZRs and DROIDs flooded the market in all shapes, sizes and varying degrees of pointlessness, now the company is focused around two thoroughbreds: the Moto X (above) and Moto G. Critical acclaim for the former has outweighed commercial success, but the company is on the right foot. It is also providing a near-stock Android experience to its customers and delivered the Android 4.4 KitKat update to its handsets months ahead of its rivals.

Thirdly Lenovo is set to benefit from what Google did with Motorola, namely use it to smack down Samsung – Twice .

Consequently Lenovo has inherited a company with brand awareness, acclaimed handsets and 6% of the global smartphone shipments which it can strap to its own burgeoning smartphone and tablet business in the East. This will make Lenovo the world’s third largest smartphone maker by volume (according to Strategy Analytics ) and it also has far healthier finances than the smartphone competitors it will be looking to pick off: HTC, LG, Sony and BlackBerry.

Not that this will be easy to pull off. Lenovo has supercharged itself just as Asian rivals Huawei, ZTE and Xiaomi are looking to make major international strides and Apple and Samsung will present far stiffer smartphone and tablet competition than either has put up in the computer market.

But make no mistake Lenovo is now a major player and it is noticeable Google has taken $750m of Lenovo stock options as part of the Motorola sale. If history tells us anything, it is Google rarely backs a loser…

Curious why Google sold Motorola and how it actually made billions? Read my post How Google Used Motorola To Smack Down Samsung — Twice

Source: Forbes

 

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<a href="/latest_stories/all/all/31" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

 

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