CELLPHONES: LeTV Raises Funds, Lenovo Changes Mobile Chief

Bottom line: LeTV’s impressive first fund-raising for its new smartphone unit reflects big hopes due to its earlier success with Internet TVs, while Lenovo’s replacement of its mobile chief reflects concerns about its smartphone unit.

LeTV mobile unit raises big cash

A trio of new smartphone stories are highlighting rapid changes in the highly competitive landscape, where a steady stream of new entrants is creating constant challenges for existing players. Many of the newest entrants aren’t really worth mentioning, as they come from state-run backgrounds and have little or no chance of success.

That’s certainly the profile for construction equipment maker Sany Heavy (Shanghai: 600031), which has no place in this smartphone race but has just unveiled its inaugural model anyhow. Meantime, the industry’s hottest new entrant is online video high-flyer LeTV (Shenzhen: 300104), whose newly formed mobile unit Leshi Mobile has just raised a cool $400 million in its first funding round. Finally there’s the struggling Lenovo (HKEx: 992), whose failure to make a strong name for itself in the space despite numerous advantages may have prompted the departure of its mobile division chief.

These 3 stories nicely summarize conditions in China’s rapidly changing smartphone market that is at once the world’s largest but also its most competitive due to the presence of numerous homegrown players. LeTV became the latest to join the space when it launched its first smartphones last month, and now media are reporting its Leshi Mobile unit has raised $400 million in its initial funding round. (English article)

This inaugural funding round was led by Internet giant Tencent (HKEx: 700), and interest was so high that the amount was reportedly increased from an original target of $300 million. That’s quite impressive for a company with no track record at making cellphones, and is nearly a third of the amount that the similarly red-hot and more experienced Xiaomi raised at the end of last year. (previous post)

I haven’t actually met anyone who has bought a LeTV smartphone yet, but the reviews have been generally positive since the product’s release last month. LeTV has also been quite successful with its bigger strategy of creating video-based ecosystems around its products, mostly TVs in the past, which is probably why everyone now thinks they can score similar success with smartphones.

I doubt anyone is equally bullish on Sany, whose name is synonymous with big bulldozers and other heavy equipment behind China’s construction boom of the last 2 decades. Sany has just rolled out its first smartphone, which is aimed at people like construction workers whose phones may get subject to lots of rough treatment. (Chinese article)

Sany is trumpeting the phones for their “3 resistances”, namely high resistance to shock, to dust and to water. I have to credit the company for at least trying to develop a specialty product within a niche area where it has many contacts and is quite familiar. Still, I seriously doubt these new Sany smartphones will still be around 2 years from now.

Last there’s Lenovo, which is rapidly emerging as the biggest casualty among major companies vying for share in China’s smartphone market. Despite the company’s huge advantages through its dominance of China’s PC market, Lenovo has developed a reputation as a maker of smartphones that sell well but are cheap and lack the kinds of distinctive features and brand image that creates buzz and customer loyalty.

Now media are reporting that Liu Jun, the president of Lenovo’s mobile division, has quit after 4 years on the job. (Chinese article) Liu announced his departure on his microblog, where he trumpeted the fact that Lenovo rose to become the world’s third biggest smartphone and tablet PC brand under his tenure. Lenovo issued its own announcement saying Liu will be replaced by Chen Xudong, a company veteran who was formerly head of its China region.

The obviously implication is that Liu is being forced out due to Lenovo’s failure to perform better in the highly competitive space. Whether Chen can reverse that situation is still an open question. But his credentials as former head of the China market, which accounts for half of the company’s sales, shows Lenovo is clearly concerned about the situation.

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