SMARTPHONES: Lenovo Slashes Moto, Xiaomi Goes Further Offline

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Bottom line: Lenovo’s big job cuts at Motorola could auger a write-off of the brand in the next half year, while Xiaomi’s huge offline expansion looks necessary but will further undermine its trendy high-tech image.

Lenovo slashes jobs at Moto

Two former smartphone high-flyers are in the headlines today, with PC giant Lenovo (HKEx: 992) and Xiaomi both taking steps to try and regain their former glory. Lenovo’s move looks like a major retreat for its struggling Motorola brand, which has just slashed more than half of its staff. Meantime, Xiaomi has just rolled out two higher-end models in a bid to go upscale. But what caught my attention were details of the company’s plans to sharply boost its offline presence in the latest reports.

Both stories reflect companies in transition, after each tumbled from the ranks of China’s top smartphone brands due to failure to build a loyal customer base. Lenovo bought Motorola for $2.9 billion 2 years ago and was hoping to position the faded brand as its premium product line. Meantime, Xiaomi skyrocketed to fame 3 years ago partly on an online-only sales model that helped it control costs and position itself as a trendy, cutting-edge brand.

But of course times have changed since then. Lenovo never managed to revive Motorola, even as sales plummeted for its own cheap Lenovo brand phones. I’ve said for a while that Lenovo should simply write off Motorola and try a new approach, and that could finally be happening with these latest job cuts.

According to the latest reports, Lenovo has just slashed nearly 1,000 jobs company-wide, with about half of those at its Motorola operations. (Chinese article) Following the move, Motorola’s headcount has been reduced to just 700, from a previous 1,200. Many of the cut Motorola workers were based outside China, and received only a day’s notice that their jobs were being eliminated.

These latest cuts are probably part of a broader restructuring announced earlier this year that saw Lenovo say it would eliminate 3,200 jobs, or about 5 percent of its workforce. It now appears that Motorola is taking some of the biggest cuts under that program. Perhaps this latest reduction hints that Lenovo will finally shutter the unit completely soon, a move that would help it to focus on its newer Zuk brand.

Xiaomi Goes Upscale

Next there’s Xiaomi, which is still able to attract attention to its new product launches despite its rapidly sliding sales. That fact owes partly to the company’s earlier glory days when it rapidly rose to become China’s leading player and the third best-selling global brand, thanks to a savvy marketing strategy by its charismatic CEO Lei Jun.

Lei was front-and-center at the latest product launch in Beijing, unveiling 2 new models including one selling for a relatively high 2,599 yuan ($390). (English article; Chinese article) The price is less than half of what most iPhones cost, but media are still calling the new products Xiaomi’s attempt to challenge the much larger Apple (Nasdaq: AAPL) in the higher end of the market.

But what most caught my attention in the reports was word that Xiaomi is planning to sharply boost its offline store count. The company originally sold its products only online, in a savvy strategy that helped it manipulate supply to create artificial shortages that added to its buzz. But as its sales stalled, it finally shifted that strategy and began selling its smartphones through traditional offline stores earlier this year.

The latest reports say Xiaomi will sharply ratchet up that strategy, with plans to operate 1,000 stores by 2020 — up from just 25 now. That not only marks a divergence from its original strategy, but also a major break with role model Apple, which operates a far smaller number of large, trendy stores in major cities. Against that backdrop, the latest move by Xiaomi looks somewhat desperate and aimed at becoming more mainstream, even if such a shift is necessary if it hopes to reverse its sliding momentum.

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