Lenovo's mobile goals furthered by IP deals

Patents vital to company's global ambitions

Just one day after market intelligence provider International Data Corporation (IDC) named Samsung, Apple and Xiaomi as the world's top three smartphone vendors during the third quarter of 2014, Lenovo Group finalized its $2.9 billion acquisition of Motorola Mobility, a deal likely to galvanize Lenovo as it takes on Samsung and Apple in the global smartphone market.

By incorporating Motorola Mobility into its strategy, Lenovo will not only acquire the Motorola brand and its portfolio of smartphones - China's leading personal technology company will also acquire around 2,000 patents.

This copious trove of technological patents will smooth Lenovo's entry into the global market by helping it stave off possible infringement disputes. After all, even large holders of patents like Apple often find themselves entangled in lawsuits concerning patent and intellectual property (IP) abuses.

The pursuit of patent assets looks to be an increasingly important part of Lenovo's mobile development strategy. In April, Lenovo announced that it had purchased a portfolio of patents from Japan's NEC Corp, a multinational IT conglomerate.

According to Lenovo, the NEC deal consisted of more than 3,800 patents filed in numerous countries, including essential patents for 3G and LTE mobile technologies as well as patents that cover a broad range of features and technologies used in many of today's most advanced mobile products.

A robust patent portfolio is a prerequisite for success in the smartphone market. These days, investment in technological patents is vital when it comes to achieving success in a global market, where realizing profitability is never assured.

Patent fees aren't cheap for device makers like Lenovo, which will naturally have to pay licensing and royalty costs on patented technologies when they export their products into overseas markets.

According to an industry report released in May co-written by Ann Armstrong, the vice president at Intel Corp, a hypothetical $400 smartphone could include over $120 in IP fees - about 30 percent of the device's total cost.

Indeed, patent fees and related expenses often exceed hardware and manufacturing costs. Based on this information, it's not hard to see how a comprehensive, competitive patent portfolio could help keep costs down for companies looking to expand their global reach.

What's more, a long-running string of IP litigations within the consumer technology industry means that companies with more patents could be better insulated from lawsuits - or, at the very least, be better able to defend themselves.

According to one study paper, Apple received 191 patent abuse claims from 2009 to 2013, while Samsung received 152 claims, HP 150, AT&T 147, Dell 140, Google 127, and Amazon and Sony 125 each.

As for smartphone makers with overseas ambitions and lower-end products, it makes sense to expand their patent portfolios through mergers and acquisitions as they work to expand market share. In the past, many companies focused on cutting prices and maintaining razor-thin margins, a strategy that is becoming increasingly untenable.

The global smartphone market is in the midst of a tremendous reshuffle. Although Samsung maintained its lead in the market during the third quarter, it was the only company among the top five to see its shipment volume decline year-on-year during the period - from 85 million units to 78.1 million - according to IDC. In fact, declining demand for high-end devices has chipping away at the company's shipment volumes throughout the year.

As for Samsung's nearest rival Apple, while the company may have recorded over 10 million sales of its latest iPhone handsets during its initial launch weekend, older-generation iPhone 5C and 5S models accounted for the bulk of its 39.3 million shipments last quarter, noted IDC.

All in all, with pressure intensifying on the world's big tech giants and consumers losing interest in upgrading to the latest new devices every year, this could be a golden moment for emerging competitors like Lenovo assert themselves.