Lenovo CEO admits phone business “has sunk to the bottom”

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“Lenovo phone business in China has sunk to the bottom, and thus we have no fear anymore” Yang Yuanqing, CEO of Lenovo, said to a Chinese reporter on May 24 (our translation). “But, we’re far from giving up. This is part of the strategy.”

In 2017, Lenovo Group’s revenue hit $45.4 billion, a 5.38% YoY increase. However, it’s mobile business revenue was $7.2 billion, a 16% decrease year-over-year.

Lenovo’s unsatisfactory phone business is not new news. The company acquired Motorola—a former tradition communication device giant—but found it hard to improve market performance.

According to data quoted by China’s mouthpiece Xinhuanet.com, in 2017, Lenovo sold 49.7 million smartphones worldwide. Among them, only 1.79 million smartphones were purchased by domestic consumers (in Chinese). During the first quarter of 2017, Xiaomi alone shipped 8.9 million smartphones in China. Huawei, in the same year, shipped over 153 million smartphones globally.

“We have voluntarily withdrawn from around 70 to 80 countries – mainly small countries. [But] we have similar thought on big markets, which is: we want to profit in every market [we choose to enter],” Yang said. “The Chinese market is the only one in the world that holds increasing rich investment. And because of this, players can survive even while losing money.” Yang added, “The Chinese market is too important, too big. Though we’re in a loss, we will increase investment.”

But Yang’s words are not simply marketing cliché. Firstly, Lenovo’s core business is not smartphones. The company’s profit and strength lie in PC and laptop unit. According to Lenovo, their PC business has overtaken HP as the new world number one. Meanwhile, Yang’s thoughts on China’s business context are not wrong. To secure the market and attract new partners, material sacrifice is part of the game.

The timing of when people shift attention to Lenovo is also interesting. Between high-end Apple and Samsung and middle-to-low-end Huawei, Vivo, Xiaomi, and now OnePlus, Lenovo’s phone has never been in an easy situation. If the weak phone performance is not new, why is the news now so hot?

Chinese media reported the company had an “unpatriotic 5G standards vote” during a meeting held in the US in 2016. Liu Chuanzhi, the founder of Lenovo and a man whom entrepreneurs in China call “Godfather”, responding to overwhelming criticism, said the unpatriotic charge was part of a broader conspiracy.

Though financial numbers have no connection with nationalism or patriotism, Lenovo has to face intensifying market attention directly.