With China saturated, Lenovo turns overseas for smartphone growth

China may be the biggest smartphone market in the world, but according to Lenovo, the boom days are over.

"But now the China market is not hyper-growing any longer," said Lenovo's CEO Yang Yuanqing on Thursday. "It has been saturated. If you want to win you have to find new growth areas."

Lenovo's CEO made the comment in an earnings call, just a week after the Chinese company completed its $2.91 billion acquisition of Motorola Mobility.

Since 2010, Lenovo's smartphone business has almost solely grown on demand from Chinese consumers, with the company rising to become one of the country's top handset vendors. But even as it still wants to grow its presence in its home market, the company said on Thursday that foreign markets were becoming the focus of its smartphone business.

"If you only play in China, you will not win," Yang said.

Starting in 2012, Lenovo began selling smartphones outside China to emerging markets, and the efforts have started to pay off. In this year's third quarter, the company sold 20% of its smartphones in foreign markets, up from 9% a year ago, said Lenovo's CFO Wong Wai Ming.

The demand is even stronger outside China, Lenovo added. For example, in emerging markets located in Europe, Middle East and Africa, the company's smartphone business grew 400 percent year-over-year in the quarter.

The focus on smartphones is specially important for Lenovo, given that demand for PCs has stagnated. The company has been working to diversify its revenues, and wants its smartphones and the server business it recently acquired from IBM to become growth drivers.

Lenovo's recent acquisition of Motorola Mobility will help the company gain market share across the globe, it said on Thursday. Following the merger, Lenovo is now expected to rank as the world's third biggest smartphone vendor behind Samsung and Apple.

As for China, the company isn't backing away from the market. Not only does Lenovo want to revive the Motorola brand in China, but it's also starting up another new smartphone brand in the country geared at selling phones online.

China is still the biggest market, and accounted for 34% of all the world's smartphone shipments in the third quarter, far ahead of the US, which only had 13%, according to Canalys.

But unlike the US market, China has dozens of handset brands, most of them from domestic companies, with Lenovo's CEO calling it the world's most competitive smartphone market.

"Although we are facing some challenges in China, we still achieved a record sales volume because of our rapid expansion outside of China over the past two years," he said, discussing its smartphone business.

Lenovo handsets are now being sold in over 45 countries.

In the third quarter ended in September, Lenovo's net profit grew 19% year-over-year to $262 million. Revenue was also up 7% to $10.5 billion.

IDG News Service (Beijing Bureau)