Analyst: Lenovo-Motorola Deal Casts Shadow Over Apple’s iPhone Business


Lenovo’s recent decision to purchase Google’s (NASDAQ:GOOG) Motorola Mobility business could eventually spell trouble for Apple’s (NASDAQ:AAPL) iPhone business argued JPMorgan (NYSE:JPM) analyst Mark Moskowitz in a recent note to investors obtained by CNET. According to Moskowitz, the acquisition could shrink Apple’s potential customer base by further consolidating the fragmented Android smartphone market. Presumably, this will make Apple’s unified iOS platform less attractive to smartphone buyers.

Google originally bought Motorola Mobility in 2012 for $12.5 billion in order to acquire the company’s approximately 17,000 patents and 7,000 patent applications. On Wednesday, the Mountain View-based company announced that it had agreed to sell the mobile business to Chinese PC maker Lenovo for $2.91 billion. Although Lenovo gets the rights to the Motorola Mobility brand and devices like the Moto X and Moto G, Google will maintain control of the majority of Motorola’s valuable patent portfolio.

“In September 2012, we wrote that the smartphone’s contribution to growth at Apple could be peaking and that the iPad needed to carry more weight in the model, which has not come to fruition,” wrote Moskowitz according to CNET. “We think this means that Apple needs to innovate and enter new product categories or services in the next 12-18 months. If not, then there is risk of the China Mobile (NYSE:CHL) rollout for Apple being the last major growth catalyst.”

Moskowitz predicted that the smartphone market could follow the pattern set by the PC market where consolidation and slower growth has led to fewer discernible differences among various PC products. According to Moskowitz, this trend could threaten Apple’s ability to charge a premium price for its mobile products since similarly equipped Android devices will sell for less money.

Lenovo Chair and CEO Yang Yuanqing made it clear in Google’s announcement of the deal that his company had global ambitions for its smartphone business. “The acquisition of such an iconic brand, innovative product portfolio, and incredibly talented global team will immediately make Lenovo a strong global competitor in smartphones,” stated Yuanqing. “We will immediately have the opportunity to become a strong global player in the fast-growing mobile space.”

However, Lenovo will likely have difficulty growing share in a market dominated by Samsung (SSNLF.PK) and Apple. According to IDC data, Samsung held a 31.3 percent share of the worldwide smartphone market last year, while second-ranked Apple held a 15.3 percent share.

Lenovo took a 4.5 percent share of the worldwide market due to its strength in emerging markets such as China. However, Lenovo, Motorola and Google combined only accounted for 6 percent of total worldwide smartphone shipments in the last quarter according to data from market research firm Canalys.

Despite this, Moskowitz noted that Lenovo overcame similar obstacles to secure a significant share of the worldwide PC market. “Do not underestimate Lenovo,” Moskowitz told Bloomberg Businessweek. “Lenovo could replicate their success in PCs, particularly at the low end of smartphones.”

Follow Nathanael on Twitter (@ArnoldEtan_WSCS)

More From Wall St. Cheat Sheet: