Lenovo: Being on Top in a Declining Industry
For the first time since the 2008 financial crisis, Lenovo, the world's largest PC maker, not only fails to increase its revenues and profits, but it has a net loss. Lenovo's market share is still growing, but the PC market itself is shrinking about 5% annually. Lenovo had hoped that the US$2.91 billion acquisition of the Motorola Mobility handset business in 2014 would prove as fruitful as the company's acquisition of IBM's Personal Computing Division a decade earlier. Such hopes proved to be too optimistic, however, as Lenovo faces strong competition in local and international markets. Its position in the Chinese smartphone market dropped from 2nd to 11th between 2014 and 2016, while its worldwide market share shrank from 13% to 4.6%. In 2016, its smartphones group showed an operational loss of US$469 million. At the same time, the global smartphone market quickly lost steam. In response, Lenovo devised a two-pronged strategy of consolidating its core PC business while broadening its product portfolio. The PC group, which focused on desktops, laptops and tablets, aims for improved profitability through market consolidation and product innovation. The smartphones group focuses on positioning the brand, improving margins, streamlining distribution channels and expanding geographical reach. It is not clear, however, how the company could thrive with PCs in decline. Nor is it obvious how it could compete in a tough smartphone market dominated by the international juggernauts Apple and Samsung, and strong local players such as Huawei, Oppo, Vivo and Xiaomi. How could Lenovo best deploy its vast resources?