Lenovo Group Ltd. (992), the world’s second-largest computer maker, said it will bring smartphones to India, the Philippines and Indonesia to gain more heft and experience before entering developed markets such as the U.S.
After starting smartphone sales 2 1/2 years ago in China, Lenovo is ready to expand outside its home market, Milko Van Duijl, president for the Asia-Pacific and Latin America regions, said in an interview. Lenovo has already found distribution partners in the three developing countries, he said.
The company will draw on its experience selling devices in rural parts of China, the country where Lenovo’s smartphones overtook Apple (AAPL:US) Inc.’s iPhone for the second-biggest market share in the second quarter, according to researcher IDC. Moving to emerging markets first will help the company expand its smartphone business while avoiding expensive marketing and intellectual-property hurdles in the U.S. and western Europe, Van Duijl said.
“The U.S. is a carrier-driven market which implies subsidies and churn rates are more important as well as brand, and while Lenovo has a PC brand, the smartphone brand is still unknown,” Kishore Suratkal, an analyst at Religare Capital Markets in Hong Kong, said in an e-mail today. “It makes sense for Lenovo to perfect the product portfolio in emerging markets where distribution matters more than carriers, establish a brand, and then attack the U.S. market.”
The PC maker has been stepping up development of smartphones, tablets and Internet-ready televisions to offer a wider variety of products to consumers, following the strategies of Apple and Samsung Electronics Co. Smartphones would eventually be the company’s principal product in emerging markets as the devices take on more of the functions of televisions and PCs, Van Duijl said.
“When we enter a market, we want to be in the top,” he said at Bloomberg’s New York headquarters. “You won’t see us for a while in mature markets.”
Lenovo, which splits its headquarters between Beijing and Morrisville, North Carolina, fell 0.6 percent to HK$6.30 at the close in Hong Kong. The shares have advanced 22 percent this year, compared with a 5.7 percent increase in the Hang Seng Index.
In the U.S., Lenovo would have to change consumers’ perception of its brand, known for ThinkPad computers, not smartphones, Van Duijl said. Negotiating and securing rights to use other companies’ intellectual property is also more difficult in the U.S., he said.
“You have to do so much with the IP rights,” he said. “It would take too much time and too much investment to lead in the U.S. with phones. We’d have to lead in price, which is not our strategy.”
Lenovo said Aug. 16 it posted a 30 percent increase in fiscal first-quarter profit on a worldwide expansion of market share. Sales in the Asia-Pacific and Latin America regions overseen by Van Duijl increased 72 percent to $1.72 billion in the period, the company said.
In China, Lenovo still trails Samsung in smartphone sales. Hewlett-Packard Co. (HPQ:US) is the only PC maker larger than Lenovo.
“In the context of the type of smartphone business Lenovo has, I don’t actually see much option but to aim for emerging markets at this point,” said Jean-Louis Lafayeedney, an analyst at JI Asia in Hong Kong. “Lenovo wants to grow scale quickly, and capitalize on its best-selling smartphones in China, which are mostly in the cheap range.”
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