Lenovo Made Phones for 14 Years and Sold Hundreds of Millions. It Is Ending Without Leaving a Mark

The company's main investment has gone back to PCs.

On the evening of November 3, Lenovo Group CEO Yang Yuanqing announced a shake-up of the phone business. Chen Xudong, the senior vice president who ran Lenovo's phone business in China, was moved over to the global services business. His replacement, Qiao Jian, had been running Lenovo's global human resources.

Lenovo's mobile business was carved out into its own business group only two years ago. It has already had three bosses.

Every previous head of Lenovo's phone business came out of PC products, marketing or sales. Qiao Jian, the new one, has worked in human resources almost continuously since 2005. Handing the phone business to an executive who spent more than a decade in HR is not a common move.

The clearest sign of how far the phone business has shrunk came from Yang Yuanqing himself, at the earnings call that same evening: "Moto will be the only smartphone brand going forward." Phones at mainstream prices will still exist, but every one of them will carry Moto in front of its name — Moto Zuk Z2, for instance — the way Samsung puts Galaxy in front of the S7.

Six months ago it looked nothing like this. In April, Lenovo's phone unit gathered more than 10,000 employees for a "pep rally." In the huge hall of the Capital Indoor Stadium, over drums, whistles and flags, executives led the staff in shouting "Let's go big!" and "Win!" The rally ran straight into a launch event for a new ZUK phone, the internet phone brand Lenovo had set up two years earlier.

Now, after 14 years and hundreds of millions of units, the Lenovo-branded smartphone is finished.

Phones are a brutal market. In the past four years alone, Nokia, Palm, BlackBerry and Microsoft have all seen their phone businesses end.

Each of those deaths set off memories and sighs from old users. Their products saw a lot of people through their teens and twenties, and each of them, in its own way, pushed along more than a decade of smartphone evolution.

Lenovo is not like that. Since yesterday's news, hardly anyone has stepped forward to say how it changed your life or mine, or how it remade an industry.

By the Numbers, Nobody Misses Lenovo Phones Either

From 2013 to now, Lenovo has sold no fewer phones than Xiaomi. Yet according to Android handset activity tracked by Umeng (Android users of internet services), 15.66% of Chinese Android users today are on a Xiaomi or Redmi, against 3.08% on a Lenovo. Not one Lenovo model appears among the 100 most-used handsets.

Another set of numbers says the same thing. QuestMobile tracked how Android users replaced their phones from January to September this year. Among OPPO users, 44.6% bought another OPPO; Huawei and vivo both cleared 30%. Only 4.6% of Lenovo users stayed with Lenovo.

Lenovo Got In Early, and It Hasn't Sold Badly in Recent Years

Lenovo was already making smartphones in 2002. Back then a smartphone was a niche business tool, and the ET-series phones Lenovo put out were built much the way it built PCs — a Microsoft handheld operating system, an Intel processor, and most of the time a stylus not much bigger than a toothpick, which you poked at buttons and a Start menu on the screen.

After the Microsoft system failed, Lenovo was not slow to switch to Android either. Its LePhone went to the CES electronics show in 2010 with a custom Android interface. Xiaomi's first product did not arrive until a year later.

In 2015 alone, Lenovo sold more than 70 million smartphones.

But It Really Is Hard to Recall a Single Lenovo Phone

That has something to do with the brands.

Lenovo once had a pile of phone names: Lemon, ZUK, Dapai, Golden Warrior, the P series, the A series — and that leaves out Moto, which it bought, and the LePhone, which it killed early. The prices ran from high to low, with no clear link or logic between them.

Not until this year, in fact, did Lenovo work out who these phones were supposed to be sold to. Moto was fixed as the high-end line, ZUK as the mid-range flagship, Lemon and Vibe as cheap low-end phones. Those are the main goods in Lenovo's phone store today.

Before that, Lenovo never seemed to know who its users were. Take ZUK, the sub-brand launched in 2015: the first product's pitch was all about chasing extreme performance; by the second generation that talk was gone, replaced by keywords like value for money and flagship.

Even the user interfaces were bewildering on their own. Lenovo has used three completely different custom interfaces so far, and that is without counting Moto.

Clover, which arrived with the LePhone in 2010, is the most distinctive of them, built on Lenovo's own design.

The Vibe system that followed borrowed a great deal from the iPhone: app icons were rounded rectangles, and there was even an iPhone-style dock.

When ZUK launched, it brought yet another new interface, with colors and icons somewhat like Meizu's Flyme.

The three systems ran side by side for a while, with nothing connecting them. It is hard to believe they came from the same company.

The Root of It: Lenovo Never Knew What It Was Doing, and Overhauled Its Strategy Every Two or Three Years

Failed products were only the surface of the disorder in the phone business. Underneath were even more frequent changes of executives and of strategy.

In 2008, just as the iPhone and Android were born, Lenovo sold its phone business.

Apple released the iPhone in 2007. That same year Google pulled phone makers together into the Android alliance, and HTC built Google's first Android phone, the G1. The smartphone had already proved itself the shape of things to come.

But in 2008 Lenovo sold off its phone business for $100 million, on the grounds that it made less money than PCs and that Lenovo needed to "focus more on its core PC business." Phones were 2.36% of total revenue at the time.

The next year Lenovo bought the phone business back, at twice what it had sold it for, saying "this is the right moment to move into the mobile internet."

In 2009, With the Business Bought Back, Lenovo Took Aim at the iPhone

Once smartphones became a core strategy, Lenovo's target was to hit the iPhone with the LePhone. When the LePhone launched at CES in 2010, the executive running phone R&D was Chen Wenhui, who had come up through desktop PCs.

Real work clearly went into the LePhone: Lenovo built its own interface, Clover, on top of Android. That was standard practice among phone makers then, a way to strengthen your own brand instead of leaning on Google's stock system.

Two years earlier Lenovo had not wanted to make phones at all. Now that it did, it said it would pass Apple within a year: "We are confident we can beat the iPhone in the Chinese market within a year."

The LePhone was not cheap, either — 2,899 yuan even with money prepaid to China Unicom. The most successful Chinese Android phone of that year, the Huawei C8500, which sold a million units in a hundred days, cost 999 yuan.

The phone sold badly: 500,000 units in all of fiscal 2011. That year Lenovo reorganized its MIDH business group and turned to cheap phones sold through carriers.

In 2011, as Xiaomi, OPPO, vivo and Huawei set about building brands, Lenovo turned to making low-end phones for carriers.

In August 2011, just as Lenovo was embracing the carriers, Lei Jun held a launch event for the first Mi phone. Huawei, which had been living off carrier business much as Lenovo did, launched a new phone brand, Honor, three months later.

That same year, OPPO hired Leonardo DiCaprio to endorse its new Find. BBK, which shares some bloodline with OPPO, set up the vivo brand, and its first phone went on sale the following year.

Leaning on carriers was not a business that could last. The carriers dictated a phone's specifications, the app store had to follow their requirements too, and the maker took little of the profit. In some ads the carriers lined up Huawei, ZTE and Lenovo phones side by side for shoppers to pick from. A low-end model was often just a giveaway for topping up your balance or signing a new contract.

Lenovo did try to break free. Chen Wenhui, then head of the phone business, said on several occasions that he wanted to bring the carriers' 70% share down. After two years with nothing to show for it, Lenovo chose volume over brand and in 2013 put Feng Xing, who was good at working with carriers, in charge of phones.

In 2014, as carriers cut subsidies, Lenovo turned to Motorola and to internet phones.

In 2014, under pressure from government policy, China's three big carriers began cutting subsidies sharply. Carrier business suddenly got hard.

That year Lenovo bought Motorola and, at the same time, launched a brand of its own overseas. At Mobile World Congress in Barcelona that February, Lenovo put up an open booth for the first time and, under purple lights, pushed its Vibe series — a sub-brand first aimed at markets outside China.

The same year, Lenovo set up ShenQi Gongchang, or Magic Factory, an independently run internet company backed by Lenovo money. Its purpose was plain: break out of Lenovo's old carrier model and build an internet brand that courted young users the way Xiaomi did.

By the Time Lenovo Started Fixing the Business, It Had Run Out of Time

ZUK's first phone, the Z1, launched in 2015 at 1,799 yuan, aimed at "heavy users" — geeks, in other words. Lenovo said ZUK was done flooding the market with models and would release one phone a year.

That strategy changed the very next year. The second ZUK generation already had two models, with the high-end Z2 Pro priced above 2,500 yuan. This time the pitch was "technical innovation," including a heart-rate and ultraviolet sensor on the back of the phone.

The marketing playbook copied early Xiaomi too. At the Z2 launch, Lenovo vice president Chang Cheng, who ran ZUK, all but shouted his way through the product introduction. He said "world's first" nine times and threw in terms like "ball-bearing OIS" and "intelligent EIS."

But ZUK came too late. It was still working out how to build an internet brand and which users to go after, while internet phones as a whole had already hit the ceiling. Xiaomi, the most successful of them, stopped growing in 2015 and turned to opening physical stores to fight OPPO and vivo.

Chen Xudong said in May: "We need two years, two to three generations of ZUK products and two generations of Moto products, before we might be able to change the situation in the Chinese market."

Six months later, Lenovo Group was no longer willing to wait.

Back in 2014, Lenovo was briefly the top-selling phone company in China. In the past two quarters it has not even made the top six at home, and its global sales fell out of the top five as far back as 2015.

In the fiscal year that ended March 31, Lenovo lost $128 million — its first full-year loss in seven years.

In the two quarters since, phone sales fell nearly 30% year on year, producing a pretax loss of $277 million. Lenovo Group's $300 million of profit over the past six months is roughly what it made selling office buildings.

The phone business is making Lenovo's books look worse and worse.

Can Motorola Pull It Off?

After this shake-up, Moto will be Lenovo's only phone brand, and the company will pay more attention to markets outside China. Yang Yuanqing said on the call that Lenovo's smartphone business does better abroad than at home.

He also talked up the new Moto Z. It is built from several "modules," so you can clip on extra batteries, speakers and other parts as you like.

At its best, the phone sold 60,000 units in a week. Set against rival flagships that pass a million in their first week, that is not a pretty number.

The overseas markets Lenovo keeps talking about do not look promising either. In Europe, where phones still fetch high prices, the main carriers in the five biggest countries — Britain, France, Germany, Italy and Spain — feature no Lenovo product at all on their home pages.

The Chinese brands that turn up most often are Huawei and its sub-brand Honor. Alcatel (TCL) and ZTE get the occasional slot:

The four letters M-o-t-o stopped guaranteeing success in phones a long time ago.

How serious Lenovo itself still is about phones is worth doubting. Look at its recent acquisitions: all of them circle its old business, PCs. It finished buying NEC's Japanese computer business only this July, and in October it confirmed the purchase of Fujitsu's Japanese PC business as well.

Lenovo is the world's largest PC maker, first in global shipments — but over the past two quarters its share lead over second-place HP has narrowed to less than 1 percentage point.

Competition in the PC industry, though, is another story.

Cover image from Visual China Group.