China’s Lenovo Group has been looking for a way into the smartphone market at least since early this year, when the company was reported to be eyeing Research In Motion, now known as BlackBerry (NASDAQ: BBRY). Those discussions, if any existed, went nowhere, and now the Chinese PC maker is reported to be looking at Japan’s struggling NEC Corp. for help.
Lenovo is the world’s number two personal computer maker, behind Hewlett-Packard Co. (NYSE: HPQ) and ahead of Dell Inc. (NASDAQ: DELL). In the United States, however, the company ranks only fifth in PC shipments, behind HP, Dell, Apple Inc. (NASDAQ: AAPL) and Toshiba.
Lenovo has a strong position in China’s smartphone market, where it trails only Samsung Electronics in market share, with 11% compared with 17% for Samsung. Lenovo also has entered the smartphone market in emerging markets like India and Indonesia, but it has made little or no headway in mature markets like the United States and Europe.
Acquiring NEC will not help. To grab a position in mature markets, Lenovo will have to acquire BlackBerry or Nokia Corp. (NYSE: NOK), both recognizable names. In emerging markets, the dominant name is “Android,” the smartphone operating system from Google Inc. (NASDAQ: GOOG).
A report from Canalys earlier this year indicated that no-name smartphone makers — of which there are more than a thousand in China — sell Android-powered phones for as little as $80, compared with the cheapest Apple iPhone that starts at around $495. Lenovo, which sells an Android-powered phone in China, could easily be in a position to displace Samsung at the top of the heap in China, without acquiring any other phone maker.
The firm’s desire to play in mature markets may be misguided, and acquiring NEC as an entry to these markets is surely misguided. But NEC would cost Lenovo just a third to a half of what Nokia or BlackBerry would cost, and the Chinese firm may figure that it could spend heavily on promotion to gain share in the mature markets. That is beyond risky and, in fact, borders on the hopeless.