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Lenovo intensifies mobile phone business strategy

25 Jun 2013  | Jennifer Baljko

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Lenovo Group Ltd. is rumoured to be in joint venture talks with Japan-based NEC Corp., which fuels the hot topic about the former ramping up its mobile phone business, as well as their existing PC business relationship.

The rumour mill's latest spin is that Lenovo and NEC are in "detailed discussions" to team up on mobile, according to Reuters. The widespread chatter is that the companies might be forging a deal to integrate smartphone manufacturing and retail activities.

It wouldn't be the first time the two companies have partnered. Chinese consumer electronics manufacturer Lenovo and Japanese electronics conglomerate NEC formed a PC joint venture in 2011.

The NEC Lenovo Japan Group was said to be Japan's biggest PC provider at the time, and the aim of the deal was to strengthen market positions (namely in Japan), enhance the companies' product portfolios, and expand their distribution channels. More specifically, the combination brought together Lenovo's manufacturing, procurement, and supply chain resources and NEC's marketing, sales, and distribution capabilities.

Similar benefits would likely be listed for any newly formed mobile unit, if talks turned into a signed contract.

Of course, though, Lenovo and NEC are mostly mum on if and how the talks are shaping up; several media reports cite unnamed sources who say talks are happening or that talks are happening with "multiple parties," not just with one or another.

The timing of talks, however, has to be more than sheer coincidence.

A few weeks ago, Lenovo laid out its product portfolio strategy, with top management saying that corporate development investments were going to be focused on fast-growing tablet, smartphone, and enterprise hardware areas.

Some news outlets said that focus could translate to 60 million Lenovo smartphones being sold in fiscal 2013, up from the 23.5 million units it shipped the previous year.

Job cuts
NEC is reportedly cutting 400 jobs from its mobile phone handset unit, about 44 per cent of the 900 workers in that group, and relocating them to other NEC companies, according to a MarketWatch story, citing Nikkei reports. An unnamed NEC official denies that the labour cuts are linked to the Lenovo joint venture talks, but instead are a way for the money-losing division to reduce fixed costs and improve the unit's business performance, the reports note.

Regardless of where the rumours lead, the writing is on the wall. Lenovo has been shoring up its base PC business in its home country and beyond. It's a quick rising star, stealing market share from well-established PC OEMs.

The company has developed a well-oiled manufacturing and supply chain machine, and it has the financial strength to replicate and refine its PC model in other consumer electronics sectors. Whether it's with NEC or someone else, Lenovo will strike a deal somewhere; history has already proven that with its IBM ThinkPad acquisition.

But, the smartphone market isn't an easy place to win traction. Market leaders have already won over users in many pockets of the world. And, companies that got in early but failed to elbow their way to a higher ranking on the sales charts may be looking for a way to bail ship or recoup losses.

Soon, we will probably hear more talks like the ones Lenovo and NEC are said to be having. The inflection point is happening and the market shakeout will eventually follow suit.

It's too early for the electronics supply chain to react just yet. Nothing's set in stone yet. Then again, it's never too soon to keep eyes wide open.

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