Matthew Klein remains puzzled by Lenovo's recent announcement to buy the Motorola handset business from Google. The money wonderment:
The (Motorola) division has cost Google hundreds of millions of dollars in losses each quarter since the search giant bought it, so it's no surprise that Google is eager to sell. The mystery is why Lenovo is buying.
The mystery is really no mystery for Lenovo's decision as Bruce Einhorn explains. Lenovo sees growth for handset market offerings especially smart devices in Asian markets. Indeed, Lenovo only trails Apple and Samsung in this market while other computer hardware manufactures such as Hewlett-Packard, and Dell have struggled mightily to enter the smart device market. No one wants to discuss H-P's purchase of Palm.
While growth remains strong for this market segment, handset devices also offer a better profit margin as compared to the personal computer market segment.
The real danger in Lenovo's purchase remains its branding efforts. Lenovo seems only to acquire market share by purchasing other brands. Its laptop sales remain stalled until it bought IBM's ThinkPad brand name. Recently, it purchased IBM's low revenue x86 server brand. The Motorola purchase fits the pattern. The Lenovo brand resonates only so much with consumers. The ensuing market share does not offer sufficient financial performance. Instead of investing in organic growth, Lenovo is relying on inorganic growth through the purchase of other brands to create growth in sales revenue and unit volume.
This thought should worry Lenovo's managers more than Apple's and Samsung's competitive effort in Asian.