Lenovo believes Motorola was a smart purchase, despite falling profits

The smartphone market has become an increasingly tough place to business during the past couple of years, with a slowdown in flagship smartphone demand and huge pressure on price in entry level markets. Many of the well-known smartphone brands have fallen short of their financial targets this year and the situation appears to be no different for Lenovo.

Lenovo has seen its smartphone shipments decline the most recent quarter, down 31 percent compared with a year earlier. The company managed to ship 5.9 million handsets in the second quarter, resulting in a pre-tax loss of $292 million for the mobile division.

Compounding the issue, Lenovo purchased Motorola for $2.91 billion last year in a bid to expand its smartphone business to new markets and to secure itself a position as a dominant player in the market. The large expense provided a temporary boost for Lenovo, which jumped up to third place in the global smartphone rankings following the purchase. However, the combined company has slipped back into fifth position this year, with a 4.5 percent share of the market.

Lenovo cited poor sales in Brazil and China, as the markets continue to become even more competitive. The company says that it will be looking to regions outside of its home turf for additional growth. Although this raises a question about whether the expensive acquisition of Motorola was a worthwhile venture for Lenovo.

“I still believe this acquisition (Motorola) was the right decision…Except Apple and Samsung there is no third strong (global) player. I believe that will be Lenovo.”

Lenovo is also struggling with the decline in the PC market, which contracted by 11.8 percent in the second quarter of the year. Although its share rose slightly from last year, Lenovo shipments fall year over year for the first time since Q2 2013. Yang Yuanqing, Lenovo’s Chief Executive, stated that the past quarter was “the toughest market environment in recent years”.

As a result, Lenovo is planning to cut 10 percent of its nonmanufacturing positions, a total of 3,200 jobs. The company is looking to make $650 million worth of savings in the second half of 2015. Furthermore, Lenovo’s mobile business will undergo a restructure worth $900 million in the next quarter. The company is looking to clear stock and to put a bigger emphasis on its new Motorola brand.

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Perhaps Motorola’s latest line-up of competitively priced smartphones will boost Lenovo’s revenue in the second half of the year?