A couple of years ago HTC was, if anything, nosing ahead of Samsung in smartphones. In fact, in the last quarter of 2011, HTC had become the bestselling smartphone brand in the US! An amazing achievement for a firm that entered the branded business only in 2004! Then HTC slid, and the last two and a half years years have been a struggle for the brand. What went wrong?

Thinking about it, it struck me that the big difference between HTC and Samsung is that Samsung has moved on to provide an eco-system of consumer electronic products, both personal (e.g., smartphones, cameras, pads, notebooks) and family (e.g., TVs) that connect and talk together, while HTC has not moved beyond smartphones and pads.

Not only do the various Samsung products talk to each other, but Samsung has launched the Kies software which allows Samsung users to organize and move content easily from one device to another. This is the capability that made Apple such a successful brand in the first place.

The lesson for building a successful consumer electronics brand, then, is not just that one must have good products, but that one needs to be able to offer an integrated eco-system of products that seamlessly connect to each other as well as easy-to-use software that helps the consumer readily acquire, organize, and manage content across devices.

I wonder if HTC is making a move in this direction? I clearly preferred the HTC One smartphone over the Samsung Galaxy S4, when I acquired a new smartphone last year, but I bought the Samsung Galaxy S4, as it made my life overall simpler. I hope your listening, HTC!

Lenovo’s acquisition of Motorola from Google for $2.9 billion seems to have gone down badly among investors, with Lenovo stocks losing over 16% of their value since the announcement. The press suggests that the deal was not good for Lenovo because Google retained the majority of the patents that had been owned by Motorola. What’s not clear to me is why is the fact that Lenovo did not get the patents a concern for Lenovo?

Looking at pure numbers, Google paid $12.5 billion to acquire Motorola and it has been reported that the patents owned by Motorola are valued at around $5 billion. Additionally, for its acquisition price, Google gained access to $3 billion in cash that was with Motorola, and was able to sell Motorola’s set-top box business for another $2.35 billion. Google also has absorbed roughly $2 billion in losses since the acquisition, again according to reports. Given these number, it does not seem unreasonable for Lenovo to have paid $2.9 billion for Motorola, an acquisition which could prove transformative for Lenovo in the long run. Why do I think this?

Lenovo’s current business is dominated by PCs. Lenovo is the #1 player in this business, but being #1 in a shrinking category is cold comfort. Lenovo is the #4 smartphone player in the world, a position driven primarily by its #2 position in China, a market where growth is slowing, which is likely to force Lenovo to look overseas for growth. The Lenovo brand is just beginning to establish itself in the US and other developed markets, and it is hardly ready for an extension in to smartphones in most markets outside China.

The Motorola brand could be just the thing Lenovo needed to rapidly catapult itself in to the global smartphone business. First, in the US and around the world, the Motorola brand has presence in consumers’ minds a presence that is not only the result of Motorola’s pioneering efforts in the mobile phone industry but also due to its access to consumers through its numerous links with the carriers. For Lenovo, the sheer ubiquity of the Motorola brand both in terms of access and in consumers’ minds is very significant. Without the acquisition, it would have taken Lenovo years and vast sums of money to create the presence that Motorola offers instantly.

Second, the Motorola brand has relevance. Motorola is relevant in the mobile phone category, where it has had a long presence, making it both credible and trusted by consumers. Lenovo on the other hand has no relevance in the mobile phone or smartphone category outside of China, as it currently sells its smartphones primarily in China, with a small presence in a few other countries. As such, the Motorola brand gives Lenovo the opportunity to leap in to this category worldwide, instantly and with credibility.

Finally, Motorola is a storied brand with a history dating back to 1928. Thus, the brand provides an opportunity for Lenovo to differentiate itself in a highly competitive category. This differentiation is not only in comparison with the myriad of Chinese smartphone players that are flooding in to the market, but also in comparison to globally dominant players like Samsung and Apple. Whether Lenovo will be successfully able to leverage the Motorola brand’s heritage remains to be seen. But, given how adroitly Lenovo leveraged the ThinkPad brand it acquired from IBM a decade ago, there is no reason to count Lenovo out in this regard. Indeed, the markets were equally pessimistic when other EMNCs acquired storied MNCs like Motorola–e.g., Jaguar and Land Rover by Tata Motors in 2008, but the markets were wrong!

Only time will tell if the Motorola acquisition will be a game changer for Lenovo, but I am much more optimistic than either the market or the many pundits who have expressed concerns!

Woke up this morning to the news that Blackberry had signed a deal with Foxconn to design, manufacture, and market Blackberry handsets in the emerging markets.  Importantly, according to the news item, Foxconn will take responsibility for managing the inventory of these new devices, a move Mr Chen, acting CEO of Blackberry, told analysts “means I will never have to discuss inventory writedowns with you again”.   

While the news item talked about how this new move on Foxconn’s part was about diversifying their client base to reduce their dependence on Apple, which apparently accounts for 50% of their revenues, it made me think something rather different.  It made me wonder whether we are seeing the birth of a new branded EMNC. 

Consider these facts for a moment.  Foxconn already has significant capabilities as an ODM and OEM contract manufacturer of consumer electronics—it is the world’s largest consumer electronics contract manufacturer.  It is the largest exporter in greater China and has facilities in Europe (Czech Republic, Hungary, and Slovaka; it is the second largest exporter in the Czech Republic), North America (Mexico), South America (Brazil), as well as in India and Malaysia. It also has a JV in Japan and has announced plans for new facilities in the USA, earlier this year. It builds a wide range of consumer electronics for the veritable who’s who of this space, being the manufacturers of the Blackberry, iPad, iPhone, iPod, Kindle, PlayStation, and Wii U.

Foxconn Factory in China

Foxconn Factory in Czech Republic

As such, Foxconn already has world class design, manufacturing, quality control, and logistics capabilities.  Its scale and scope make it a very low cost manufacturer. Its work with Apple gives it the capability to achieve the enviable fit, feel, and finish of Apple products. As the comment from Blackberry’s Chen above suggests, it has the capability to manage inventory and build to demand.  Through its operations, it already has insights in to what consumers around the globe want.  The only missing piece of the puzzle, which could catapult it in to the world of branded businesses, is marketing; that is the capability to generate customer insights on its own, respond to it, create customer access to what it makes by building and managing a retail distribution network, and provide post-purchase customer service.  This is the knowledge it will now acquire through its 5-year marketing agreement with Blackberry.

News reports have already suggested that Foxconn has started work on developing its own brand of TVs and smartphones, and is investing in the now hot emerging areas like wearables. Thus, the leap forwarded to becoming a branded EMNC is not far. We can expect to see Foxconn’s entry in that space soon.  And, given its size and capabilities, it will likely be a formidable player. Beware, all of you in the consumer electronics space!