Is Lenovo Building Its Own Mobile Chips?

Imagination Technologies (NASDAQOTH: IGNMF  ) is widely regarded as the premier vendor of high-performance, low-power graphics intellectual property. Its IP is found inside of Apple's vaunted A-series processors, as well as in chips from MediaTek and even Intel (NASDAQ: INTC  ) . Interestingly enough, though, in a recent Imagination press release, we may have just gotten the first clue that Lenovo (NASDAQOTH: LNVGY  ) is building its own mobile chips.

Say hello to this new Imagination customer
In Imagination's press release, the company took the opportunity to highlight that the company managed to secure future business from many existing customers – including MediaTek, Intel, and many others. However, what was more interesting is that Imagination listed Lenovo as one of its "new" customers.

Now, if you look at what Lenovo makes (PCs, tablets, smartphones, and servers), it's not hard to guess what Lenovo might need with graphics IP. The PC market is pretty dominated by X86 compatible chips from Intel and Advanced Micro Devices. If Lenovo is looking to make a play at building its own server chips, it probably would license CPU IP from rival ARM Holdings as there seems to be more support for the ARM architecture there than Imagination's MIPS.

So, the most obvious conclusion is that Lenovo is exploring the possibility of building its own processors for tablets and smartphones.

This isn't surprising
It's unsurprising that Lenovo may be interested in trying its hand at an in-house system-on-chip. Samsung, Apple, LG, and Huawei have in-house efforts (though the degree of success from each varies). At the very least, exploring in-house efforts helps to keep the external suppliers like MediaTek, Qualcomm, and Intel on their toes.

At best, having a very skilled, effective in-house team allows for a degree of customization that buying chips externally doesn't quite allow for. Though there are real advantages to being able to do a custom chip in-house, it's very difficult to match what experienced merchant vendors like Qualcomm are able to offer, let alone surpass what they can do.

Didn't Lenovo just praise Intel?
Interestingly enough, in an interview some months ago, a Lenovo executive had the following praise to offer with respect to Intel and its mobile push (emphasis mine), 

You really need to pay attention to Intel. I think that someday they will be a major player in this phone ecosystem. On the PC side, they just build the densest, lowest power-consumption, best chips in the industry; they have the fabs; they can build the things. My understanding is that they have more engineers working on Android than Google does now. They are very, very serious. So, you know, keep an eye out.

It's clear that Lenovo holds Intel in high regard, and given that the two companies recently signed a multiyear, multi-device partnership, it seems logical that Lenovo plans on using a good number of Intel processors in its future smartphones/tablets. Given this deal, and given that MediaTek and Qualcomm have successfully powered many top-selling Lenovo devices, it's a little difficult to understand why Lenovo would want to throw tons of resources at duplicating the work that these companies are already investing billions into. 

Foolish bottom line
Lenovo is a company that, frankly, is on fire. The company's PC share gain story has been impressive, and its mobile products and growth have also been quite a sight to see. We'll know over the next few years whether Lenovo is also serious about becoming a chip powerhouse, or if it is merely toying with the idea of doing its own chips.

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  • Report this Comment On July 15, 2014, at 10:03 AM, seuvjeuh wrote:

    yes! well written. Lenovo probably is the next samsung, But than China based with a bigger potential! Solid Long term value stock is what Lenovo is

  • Report this Comment On July 15, 2014, at 10:42 AM, tempest669 wrote:

    I have not seen the press release, but are you sure Lenovo is not interested in designing a MIPS processor for their servers and/or mobile endeavors? IGNMF has been discussing working with Chinese vendors on their technologies, MIPS is already more broadly supported than ARM server chips. Android L removes many convert and compile issues for MIPS and x86 in mobile. And if Lenovo feels so highly of Intel, why would they bother to design a SoC at all? They already operate at razor thin margins. What is the incentive of alienating one of their largest partners and potentially not achieving the economies of scale to make an SoC cost effective?

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Ashraf Eassa

Ashraf Eassa is a technology specialist with The Motley Fool. He writes mostly about technology stocks, but is especially interested in anything related to chips -- the semiconductor kind, that is. Follow him on Twitter:

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