Despite the recent headaches (explosive phones and disappointing debuts), Samsung and Apple comfortably lead the world’s smartphone market share, having cemented their places as the top two brands for half a decade. But Chinese companies are taking over the rest of the top spots. The world’s five largest smartphone makers besides the South Korean and American companies now based in China.
Huawei held onto the world’s No. 3 spot even without the U.S. market, and aims to top the list within the next five years. BBK Electronics’ Oppo and Vivo, both largely unknown in the West,broke into the top five this year.
Yet one major Chinese smartphone maker is missing from the conversation—Lenovo .
(Photo credit: Philippe Lopez/AFP/Getty Images)
The world’s largest supplier of personal computers, Lenovo was the second-largest smartphone maker in China as recently as the beginning of 2014, according to data from Gartner. But in just two years, Lenovo dropped to No. 11.
What happened?
In January 2014, Lenovo bought the iconic smartphone brand Motorola from Google for $2.91 billion. The Chinese company was hoping to expand across the global smartphone market armed with Motorola’s leading mobile technologies, patent protection and strong presence in Latin America and India, Gartner said in a report last month.
(Photo credit: Scott Eells/Bloomberg)
Expectations were high, especially considering how well Lenovo’s acquisition of IBM's PC business in 2005 turned out. But the tech giant failed to integrate Motorola as quickly as it needed to, says Ben Stanton, an analyst at Canalys, and missed out on two major trends.
“The first is the shift away from carrier-led smartphone sales to direct and open market sales,” he said. “Its competitors have successfully leveraged alternate sales channels to beat Lenovo.”
Huawei, for example, only uses online sales for its Honor brand to deliver a lean, low-cost distribution process, said Stanton. Another example is Oppo’s 200,000 retail stores in China, which, despite being costly to operate and maintain, “gives the vendor an opportunity to upsell customers in-store and develop long-standing direct relationships,” he explains.
This shift hit Lenovo hard as it was dependent on carriers to sell most of its smartphones, says Xiaohan Tay, a senior analyst at IDC, which slumped when smartphone subsidies by carriers were slashed.
In 2014, Chinese government regulators ordered state-run carriers to reduce their marketing expenses, which includes smartphone subsidies, by a combined 40 billion yuan ($6.45 billion), or by 20%, within three years.
“Lenovo could no longer depend on the subsidy from telcos to push its phones,” said Tay. “It suffered because it did not have a strong branding, and given that consumers now had to pay more, they preferred to purchase phones from other brands who have a stronger branding.”
This weak branding, together with a lack of distinguishable features—commoditization—was the second major trend the Chinese smartphone maker missed, says Stanton. “Lenovo’s competitors innovated faster to differentiate their products,” he said, citing examples of Samsung’s curved glass displays and Apple’s larger screened smart phones in the past two years. “Lenovo and Motorola were not ready for this, and were exposed to a price war with the low-end of the market.”
Gartner’s report also shared similar views, commenting that Lenovo is perceived as a “mass-market brand” and its products are “not viewed as innovative or having cutting-edge design.” The report cited Oppo’s R9 series as a successful example, which posted 7 million sales in less than three months in the first half of 2016, thanks to its unique fasting charging feature “ingrained into Chinese consumers’ minds.”
Lenovo did not respond to a request for comment for this article.
Motorola launches Moto Z Droid with Moto Mods at High Line on August 4, 2016 in New York City. (Photo credit: Paul Zimmerman/Getty Images for Motorola)
But Lenovo has hopes of bouncing back. The company has owned up to its mistakes and its “Moto Mods initiative, compatible with its new Moto Z Play line, shows that Lenovo recognizes it has to differentiate,” says Stanton.
This summer, Lenovo and Motorola followed LG and Google’s lead and took a leap into modular smartphones, an experimental smartphone concept which allows users to customize hardware features, such as cameras, speakers and batteries.
“I think some market share is there for the taking, though Oppo and Vivo will prove strong competition in its home market,” said Stanton. “There is growth potential for Lenovo, but against this competition, it will have to fight very, very hard to achieve it.”
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