Partnership With Microsoft Is A Tailwind For Lenovo’s Mobile Business

Summary:

  • Lenovo inked a patent cross-licensing deal with Microsoft.
  • Lenovo has also agreed to pre-install Microsoft apps on select Android phones. This could mean Lenovo is no longer paying royalty fees over Microsoft patents on Android.
  • I like how the Lenovo brand is now focused on mid-range and high-end phones. Zuk is Lenovo’s new brand for entry-level phones.
  • Carriers are now supporting Lenovo’s mid-range Vibe Android phones.
  • LNVGY has a strong buy signal based on its one-year algorithmic forecast. The stock trades at a very low TTM Price/Sales ratio of 0.16.

Lenovo’s (LNVGY) new patent cross-licensing deal with Microsoft (MSFT) is a positive development for both firms. Lenovo and its Motorola Mobility subsidiary can expect much lower (or no more) overhead costs from licensing Microsoft patents covering smartphones and tablets. In exchange, Lenovo will install Microsoft’s mobile apps like Skype, Office 365, and OneDrive on select Android phones.

Lenovo ended 2015 as the world’s third biggest vendor of smartphones, just behind Samsung (SSNLF) and Apple (AAPL). Lenovo is still the most successful PC vendor to branch out to smartphones. To date, Lenovo has sold more phones than Acer, Asustek, or Hewlett-Packard (HPQ). Lenovo is therefore still a good long-term bet for investors. Lenovo, the world’s top vendor of personal computers, proved it could also become a leader in smartphones.

The deal with Microsoft will allow Lenovo to increase its profit margins on Vibe and Moto-branded smartphones. Eliminating or greatly reducing the $5-$15 per Android device royalty fees to Microsoft adds to operating margins over Lenovo and Moto phones. The recent deal with Microsoft will help Lenovo make money out of its smartphone business.

The savings from inking the deal with Microsoft is a much-needed help for Lenovo’s troubled mobile division.

Why Lenovo Needs A Helping Hand In Mobile

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