and lighter designs, better touchscreens and so on. He points to the runaway
success of the Yoga, his firm’s touch-screen PC, whose screen folds completely back
to transform it into a tablet computer.
Hand-to-handset combat
The firm’s challenge in handsets is even more daunting. Chinese rivals offering
smartphones for less than $100 are nipping at its heels even as Apple and Samsung
surge ahead with ever whizzier offerings. Mr Yang is not worried about the cutprice rivals—not even Xiaomi, a fast-growing Chinese firm offering cheapish but
clever handsets. None of those will be profitable over the long run, he insists,
whereas Lenovo’s handsets are already profitable outside China. He points out that
it beat back similar challenges from low-end Chinese PC-makers with unsustainable
business models years ago.
Fine, but how will he catch up with the innovative global giants? At the moment,
most of Lenovo’s handsets are of middling sophistication and it has not penetrated
America. It has come up with high-end offerings, but when it tried to sell them in
advanced markets it was forced to pay 25% of revenues to patent holders. Such
payments are the “club fees” to enter the elite fraternity of global smartphone firms,
explains Alberto Moel of Sanford C. Bernstein, a research firm. This is not such a
problem in emerging markets, where patent enforcement is spotty: in China, it
spends barely 2% of revenues on licensing.
So, over the past couple o f months, the firm has scooped up thousands of
smartphone patents from NEC, a Japanese electronics firm, and Unwired Planet, a
patent-gathering “troll”. The Motorola deal gives Lenovo royalty-free access to
Motorola patents retained by Google; it also makes Lenovo party to useful licensing
deals Motorola had struck with others. Now, says Mr Yang, entering America
should cost a more manageable 10% of handset revenues.
That pragmatic approach offers a clue as to how Lenovo really innovates. Last
month, at a black-tie event attended by the leading lights of Silicon Valley, Mr Yang
won an award for championing innovation at Lenovo. But Mr Moel argues that the
Chinese firm is not an imaginative innovator like Apple, whose radical designs
transform whole markets. Rather, its ability to turn firms around deftly, execute
strategies economically and overcome obstacles nimbly suggests that a better
description of its strength would be “frugal innovation”, an ideal that has been
much touted in recent years but seldom achieved.