Xiaomi recently became the third largest smartphone maker in the world for a single day, right before Lenovo's (OTC:LNVGY) acquisition of Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) Motorola Mobility closed and bumped China's top smartphone maker back down to fourth place.

Xiaomi has enjoyed a meteoric rise to the top of the market over the past year, toppling former market leader Samsung (OTC:SSNLF) along the way, but how will it fare against the combined threat of Lenovo, the top PC maker in the world, and Motorola? 

Why Xiaomi should worry about Lenovo
Lenovo has a tradition of buying mature technologies, like IBM's (NYSE:IBM) PC business, once demand in developed markets has peaked. It then sells these products on a higher volume and lower margin business model. Lenovo then slowly alters these devices, as it did from the ThinkPad to the Yoga laptop, based on market demand. That steady strategy helped it oust Hewlett-Packard (NYSE: HPQ) as the world's top PC maker two years ago.

Lenovo's K900. Source: Lenovo

That's why Lenovo acquired Motorola. Just as IBM gave up on its PC business, Google eventually gave up on Motorola after buying the besieged handset maker for $12.5 billion in 2012. After selling Motorola's set-top box business to Arris (NASDAQ: ARRS) for $2.35 billion and launching the poorly received Moto X and G, Google gave up and sold the money-losing business to Lenovo for $2.9 billion.

The key question now is whether Lenovo can make Motorola relevant again. Lenovo states that it shipped 16.9 million of its own smartphones in the third quarter, while Motorola shipped 8.7 million devices. Combined, those two brands accounted for 8.7% of the global smartphone market, compared to Xiaomi's 5.3%. While that's a nice slice of the market, shipments of Lenovo-branded devices have slowed, posting 30% year-over-year growth in the third quarter, compared to 74% growth a year ago. Xiaomi, by comparison, posted whopping growth of 211%. Motorola also hasn't squeezed out a profit for four consecutive years, according to Strategy Analytics.

Despite those challenges, Barclays analysts Kirk Yang and Ric Cheng expect Lenovo to break even on its Motorola investment within two to four quarters, compared to the four to six quarters that the company originally forecast. That bullish forecast is based on the fact that the Motorola brand has stronger brand recognition than Xiaomi or Huawei outside of China. Therefore, market gains outside of China could help Lenovo/Motorola extend its lead over Xiaomi, which is still restricted to a handful of markets. That dual-brand strategy is also expected to allow Lenovo to sell its low-end smartphones in China, India, and other emerging markets, while selling mid to high-range Motorola devices in developed markets.

Why Lenovo shouldn't underestimate Xiaomi
Lenovo will have an edge over Xiaomi in developed markets, but it will have a tough time taking it down in China. According to Kantar Worldpanel Comtech, Xiaomi controls 30.3% of the Chinese market, followed by Samsung with 18.4%. IDC notes that Lenovo currently controls 12.5% of the market.

Xiaomi's Mi 4. Source: Xiaomi

Xiaomi has grown quickly using several unorthodox strategies. It reportedly only spends around 1% of its revenue on advertising, compared to 5% for Samsung. Instead, it relies on "flash sales" to sell a limited number of units on the Internet, which generates hype and word-of-mouth advertising across social media. Xiaomi also avoids brick-and-mortar retailers, opting to release limited batches of devices periodically. This eliminates an inventory buildup of unsold phones, which forced Samsung to increase marketing costs to clear out unsold devices earlier this year.

As a result, Xiaomi squeezes out phones with high-end specs at low to midrange prices, and adopts a high volume, low margin model to quickly gain market share. As a result, Xiaomi's devices also compare favorably to low-end devices, like Microsoft's (NASDAQ: MSFT) Lumia 530, which is clearly designed as a budget device.

Lenovo's Moto branding won't help much in China, where Xiaomi is already considered the national brand. Therefore, the only way to tackle Xiaomi is with cheaper Lenovo-branded smartphones. But if Lenovo engages in a prolonged pricing war against Xiaomi with a traditional marketing model (as Samsung tried to do), it could end up with annual losses for both its Lenovo and Motorola brands.

The road ahead
Lenovo certainly faces a lot of questions regarding its mobile business now that the deal with Google is closed, but I think the company has a good chance of turning around Motorola's business in the same way that it revived the ThinkPad brand. But just like that acquisition, it could take years -- not the few quarters that analysts suggest -- to see meaningful results.

But if Lenovo is smart about its maintenance of both brands, it could maintain a foothold in developed markets with the Motorola brand while spreading the Lenovo brand across emerging markets, giving it a two-pronged approach that Xiaomi and Huawei notably lack.