Lenovo-Motorola-Logo-AH1

Lenovo’s Foray Into The Mobile Market May Prove Costly

September 23, 2015 - Written By Matthias Tan

In an interview with TWST, analyst Nam Hyang Kim says that Lenovo was on a roll in the PC market and making good profits. Kim is an LLP senior analyst in Arete Research Services and has an excellent reputation for being accurate in his observations. He says that since the company has been making good profits, investors are encouraged to invest in the company because of the excellent margins gained. However, he observes the market with a bearish eye. For those who do not know what it means to take a bearish view of the market or bear market. A bear market means that the prices of securities e.g. gold and company stocks fall. As a result, many investors are very cautious with their investments and some sell their stocks. As a result of investors being cautious and selling their stocks, the market goes into depression and this causes the value of stocks to go down even further. This results with investors making less money. This trend will continue to go on until companies start to make good profits or until a sizable amount of investors starts to invest large sums of money with companies again.

Kim says that this bear market would not have affect Leveno very much if they had not forayed into the mobile market by buying over Motorola. Many other PC companies who had tried to do so had failed many times, one example is Microsoft buying over Nokia. Microsoft had a reported a writedown of 7.5 billion in last year’s 4th quarter, it is one of the most costly mistakes the company has ever made. Kim says that Lenovo’s venture may fail as well. He says this, “Nobody really cares about the Motorola brand anymore, but Lenovo thinks it is still a good brand and that it still has name recognition. Motorola also has a very high-cost structure. They are not profitable and have not been profitable for a long time.” He goes on to say that the last time Motorola made money, it was before the advent of the iPhone in June 2007. In addition to that, the company has undergone a series of restructuring which costs more valuable money.

Only time will tell whether Lenovo’s foray into the already saturated mobile device market will bear fruit. For now, it has to improve its line of mobile devices and offer something that its competitors do not or risk repeating the result of Microsoft’s failure with Nokia and scaring its investors away when losses are made.