Then there were three: Lenovo prepares to join the US smartphone race

lenovoI’ve been doing a bit of work researching a piece on the latest Lenovo bombshell to hit the tech world – its $2.9bn bid for Motorola Mobility. Now, in my innocence, I reckoned there might be quite a few hurdles for Lenovo on this one, but the analysts I spoke to were pretty upbeat on the deal.

Remarkably, most were pretty confident this was a good buy and that it’ll help propel the firm to third in the global smartphone stakes in a matter of a couple of year.

It’s easy to see why on paper. Here’s what Canalys APAC MD Rachel Lashford told me were the main benefits for Lenovo:

·         Immediate entry to the US market, Motorola’s major market, as well as key markets in Western Europe and Latin America.

·         A unique relationship with Google.

·         Credibility with operators and consumers worldwide.

·         Existing US operator relationships and a handful of global ones.

·         Additional experienced phone sales teams.

·         Additional and highly rated phone engineers.

·         Additional tablet and phone shipments, as it becomes the key manufacturer of Google’s Nexus line.

Hard to argue with that lot. It’s also hard to see how Lenovo could have done better than Motorola – there wasn’t much choice out there, after all (BlackBerry? HTC?). Except that doesn’t mean it’s going to be a success. Although it has high brand recognition in the US, Motorola is a fading star, with neither innovative designs or huge volume sales to its name.

I wonder then if it’s really going to give Lenovo that huge leg-up into the US smartphone space it desperately wants. I’ll be even more surprised if Lenovo merges the two brands, as various analysts told me will happen eventually, unless Plan A has succeeded perfectly.

The thing I imagined would cause the biggest potential roadblock is a US political backlash. Lawmakers can be a pretty obstinate bunch, especially when they feel their country is being invaded by ‘foreign hordes’.

It’s certainly right to say that Lenovo has a better relationship with the US government – where ThinkPads are still used – than most Chinese firms, and that consumer smartphones are hardly a national security matter, unlike telecoms infrastructure (sorry Huawei, ZTE). But I still think there’s the potential for a unwelcome bit of political interference here, especially if some more news comes to light on Chinese spying and state links to tech firms.

Given the stakes, it’s not surprising Lenovo has apparently hired some big name attorneys, some of whom have worked for the CIA and Homeland Security, to help it lobby the deal through.

Lashford even speculated that “announcing two deals in one month will ease its progress, not complicate it”. I suppose we’ll all have to wait and see on that one.

One thing’s for certain: Motorola employees will be a happy bunch. I wonder how may will be queuing up for Lenovo CEO Yang Yuanqing’s annual $3m employee bonus giveaway?

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APAC the key to Micr-okia success

asiaIt was Microsoft and Nokia’s big week this week and I’m sure the two will be hoping to hog the headlines going forward as much as they did over the past seven days. Now some might have unkindly described the alliance as “the sounds of two garbage trucks colliding”, but I’ve been getting the low down on why the deal should matter to APAC, or more realistically, why APAC should matter to Microsoft.

Let’s get one thing straight, APAC is essential to Microsoft’s future success in the smartphone space, not just because it has the world’s largest and fastest growing market – China and India respectively – but because Nokia has a really good legacy footprint there thanks to its feature phone biz.

The problem for Redmond, however, is that we’re not talking about feature phones any more, but smartphones. These markets are increasingly demanding smartphones, albeit low-end handsets, not feature phones. It’s why local players like Huawei, ZTE, Micromax and others are growing at such speed.

Nokia’s stock is greatest in India, where it has been voted most trusted brand for two years in a row, despite on-going tax problems with the authorities. Yet according to IDC’s Melissa Chau its relationship with operators isn’t particularly great anymore, so to large extent Microsoft is going to have to start from scratch here.

Building a budget Lumia will be vital and Chau told me Microsoft could do two things to help achieve this:

  • Remove licensing charges – at the moment it’s built into the cost of the phone – which would wipe about $10 off per handset
  • Use its combined internal expertise now with software and hardware to tweak Windows Phone so that it can run on hardware specs more suited to a lower price point.

It also needs to sort out Asha, she told me, starting with making the handset more attractive by sticking some Microsoft apps on it, and then hopefully in time transitioning those customers to a low cost Lumia.

This ain’t gonna be easy. The competition is fierce out there and with Nokia’s star waning and a severe lack of apps in the ecosystem the best Redmond can probably hope for is cementing it in third place behind the deadly duo of iOS and Android. With four of the Lumia’s top selling markets in APAC (including no. 1 and 2) however, it must make the region a priority.

Time will tell how successful it is, of course, but time, as we all know, is probably something Micr-okia doesn’t have.


Come in Agent Elop, your work is done

nokia eventIt’s finally happened. Microsoft today announced it is buying most of Nokia’s mobile phone business for a bargain €5.44bn (£4.62bn) in cash.

The deal will see Redmond snap up the Finnish giant’s Devices and Services business for €3.79bn (£3.2bn), license Nokia’s patents for €1.65bn (£1.4bn).

It’s a dramatic last roll of the dice for outgoing CEO Steve Ballmer and neatly brings back former Redmondite Stephen Elop into the fold.

He’ll be stepping aside as Nokia boss to become EVP of Devices and Services, but must be one of the favourites now to succeed Ballmer. If so, this will be one of the most expensive pieces of headhunting in corporate history.

Nokia’s chairman of the board Risto Siilasmaa will take the reins as interim CEO while the deal goes through the usual shareholder and regulatory approvals. Microsoft said it expects the transaction to close in Q1 2014, all being well.

For Microsoft the deal is proof if any were needed that it’s no longer a software company, that it sees success in the smartphone space as crucial to its future and that it can’t rely on a partner like Nokia to deal with the hardware side of things.

A few things occur to me:

  • HTC and RIM will be pretty disappointed – who are they going to get to buy up their failing businesses now?
  • Agent Elop has now been recalled after 2 years out in the field persuading Nokia’s board to sell to Microsoft. Job done – you may now progress to Microsoft CEO.
  • China’s up and coming smartphone poster child Xiaomi was recently valued at $10bn, nearly $2bn more than Nokia at this sale. Surely over-inflated.
  • This deal, while it could theoretically ensure phones get out faster to market, is not going to make life any easier for Microsoft or its new Nokia Devices and Services division. Especially in Asia. Its lack of apps will still hold it back.
  • Is Nokia still Europe’s largest technology firm? Over 30,000 staff will now be Microsofties but it still has over 50,000 employees on its books working on the reasonably profitable NSN biz and location services. It should be in pretty good shape.

IDC analyst Bryan Ma told me that the deal would give Microsoft a shortcut or “jump start” into the hardware space, but could end up alienating OEM partners.

“It’s got device, manufacturing, economies of scale, and channels to sell into which would have all take it longer to grow organically, as well as valuable patents,” he argued.

“My concern is as much as this can help it doesn’t solve the biggest problem facing Windows Phone and Windows 8 on tablet and PC – it doesn’t have enough apps to make a compelling platform.”

Tellingly, Microsoft only devotes one bullet point on the app ecosystem in a mammoth 27-slide presentation explaining its strategic rationale, he pointed out.

Ma added that the deal could end up alienating more OEM partners.

“The whole debate Microsoft got into when it released Surface was that its hardware partners like Acer said it was stepping on their toes. This will raise questions over whether this is more salt in the wounds for them.”

As for smartphone OEMs well Windows Phone has very few of those beyond Nokia anyway so it will step on fewer toes, he said.

However, I’d agree with Canalys VP research Rachel Lashford that it’s not exactly going to attract any more into the fold either.

“It reminds me of a decade ago when Nokia owned Symbian and tried to license it out but it didn’t work out,” she told me. I can’t think of many OEM vendors would fancy going head-to-head with Microsoft on Windows Phone now.

As for Asia-specific repercussions, well I’ll be taking a look at those – and there should be some given Nokia’s legacy in India and Microsoft’s desire to crack China – in my next post.


Baidu’s $2 BILLION gamble on mobile apps

baidu logoChinese search giant Baidu has just agreed to pay $1.9 billion (£1.3bn) to acquire mobile app store provider 91 Wireless Websoft in the biggest internet M&A deal ever in the People’s Republic.

Commentators have already been arguing over whether nearly $2bn for effectively two mobile app stores is a good deal for China’s biggest search company.

As with all acquisitions, only time will tell, although it’s certainly a statement of intent for the firm and one it needed to make with the likes of Alibaba and Tencent all making big mobile internet plays.

Beijing-based Forrester analyst Wang Xiaofeng said in comments sent to me that it was a smart move for Baidu to “assure its competitiveness in the age of the mobile internet”.

“Alibaba is working on its m-commerce strategy through its investment in Sina Weibo and an [offline to online] strategy through the acquisition of Autonavi; Tencent is digging out monetisation possibilities from its killer product WeChat, including eBusiness and mobile payment,” she explained.

“91 Wireless’ strength in mobile applications will be a great complement to Baidu’s current business.”

As to exactly what Baidu is buying, well the main bit of 91’s business is two app stores – 91 Assistant and HiMarket – which apparently lead the domestic market with over 10 billion downloads.

This will give Baidu a great distribution channel for its own apps, and to be honest the deal shows a good degree of self-awareness from the web giant – it knows more users in China find info on the mobile net via apps than mobile web-based search engines.

Whether it proves to be a great piece of business or a stunningly ill-judged waste of money remains to be seen but I’d lean towards the former.

Baidu certainly couldn’t sit back and let its rivals gain the initiative in the brave new world of mobile and if this acquisition doesn’t work out it could well be because it left it too late before pouncing.