30 Nov 2009 10:03

Lenovo's mobile Internet ambition revealed in buy-back of unit

Shanghai. November 30. INTERFAX-CHINA - Lenovo Group (Lenovo) plans to buy back its former handset unit, Lenovo Mobile, for $200 million, according to a Nov. 27 announcement by the group.

Lenovo Group reached an agreement with Lenovo Mobile's current four shareholders to buy back the entire lot of Lenovo Mobile shares which it sold in January 2008 for $100 million after five consecutive quarters of weak performance.

At the time of the share sale in 2008, Lenovo Group stated that it would exit the handset business for at least the next five years. However, the group's chief executive officer (CEO) Yang Yuangqing said last week that the handset business is integral to the group's long-term prospects, especially in capitalizing off of China's lucrative mobile Internet market.

Jade Ahead, Ample Growth, LEV Ventures and Super Pioneer, purchased the Lenovo Mobile shares. Jade Ahead and Ample Growth, both of which Lenovo holds shares in by way of its investment arm, Hony Capital, paid a collective $60 million for a 60 percent stake, while LEV Ventures and Super Pioneer paid an aggregate $40 million for a 40 percent stake.

As a result of a number of share purchase deals over the course of 2008, Lenovo Mobile was held by Gainnew, Shenzhen Investment, Jade Ahead and Super Pioneer at the time of the Lenovo Group buy back announcement.

Wang Yan, Lenovo Mobile's brand communication manager, told Interfax on Nov. 30 that Lenovo Mobile's progressively improving market performance is one factor behind Lenovo Group's interest in re-acquiring the brand.

"Lenovo Mobile reported a net profit of RMB 39.94 million ($5.11 million) in the first half of 2009 alone, a dramatic increase compared to the RMB 27.33 million ($4 million) in net profit reported for the entire year of 2008," Wang said.

According to Wang, the buy back will not impact Lenovo Mobile greatly in the areas of business development and growth strategy, but Lenovo Group plans to expand the brand's handset stock, especially in mobile Internet-related functions. Wang declined to disclose any further details regarding product expansion, other than that the company has increased investment in mobile Internet development since the beginning of 2009.

"We will continue to focus on the Chinese market, which is integral to the group's global portfolio along with its recent expansion into India and South East Asian markets," he said.

According to Wang Yanhui, an independent industry observer and IT expert, the group's move to buy back Lenovo Mobile is most likely aimed at producing its own mobile Internet device (MID), a converged handset/personal computer (PC) product with a promising market outlook.

"As the market moves away from traditional handsets and towards more sophisticated mobile devices like MIDs and personal digital assistants (PDA)s, which straddle the line between PC and handset, Lenovo cannot be a global leader in the PC market without handset manufacturing capacity," Wang said.

Wang noted that Lenovo Group's desire to return to the domestic A-share market may also be behind the buy back of Lenovo Mobile.