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Why Lenovo should, and may, buy HTC

The only PC vendor selling PCs is rumored to either ally or buy the struggling smartphone vendor. Both deals are a win for both players.

Much of the recent chatter on the blogs and Asian news sites suggests that China's Lenovo, the only PC vendor left that can sell PCs, is looking to either partner with or outright purchase struggling Taiwanese smartphone vendor HTC.

Some reports from Asia say the two have been in talks in some form or another since August. Lenovo has kept mum, while HTC has publicly said it is not interested in selling. But we've heard that refrain before, and HTC is not in the dominant position between these two.

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The fact is Lenovo is a growing, thriving entity and a global success. HTC is struggling because it is solely a smartphone maker in the super-competitive Android market. It has to go up against Samsung, which is many times its size, the much-larger LG, and Motorola, which is owned by Google.

Unlike those three, HTC has no other business upon which it can fall back. So while those three can absorb a loss in the smartphone division for the sake of gaining market share, HTC has no such luxury.

Then there's Lenovo. It has an Android smartphone for sale in China, and it runs an Intel Atom, no less. But the firm has yet to duplicate its PC success in the smartphone market outside of China. So it could use HTC almost as much as HTC needs Lenovo.

Plus, while HTC has a proven track record with high-end smartphones, like the HTC One, it has struggled with the marketing and distribution of its products. Lenovo, on the other hand, has a very strong distribution capability thanks to what it has built and what it inherited from IBM when it bought out the PC division. In many ways, Lenovo and IBM are still joined at the hip.

Combined, this would be a powerful combination. Lenovo could go into enterprises anywhere in the world, beyond just China or the U.S., and offer top-level laptops and smartphones in a bundle.

There are definite obstacles. HTC’s chairwoman and co-founder Cher Wang jointly owns the largest stake in the firm with her husband and has said in no uncertain terms recently that she’s not interested in selling. Without Wang's agreement, a deal goes nowhere.

Lenovo, meanwhile, is the No. 2 in China’s smartphone market, with 13% market share, according to ABI Research. Lenovo trails Samsung, which holds the top spot in China, and has a wide range of models and strong relationships with distributors.

Then there's the geopolitics. Taiwan wants nothing to do with the Communist mainland, while the Chinese government seeks to reunify with China. This makes deals between Taiwanese and Chinese companies very, very difficult. That's probably why talks have been going on for so long.

But if anyone can do it, Lenovo has shown that it can be the one to strike a deal between the two nations. In 2011, Lenovo formed a $300 million joint venture with Taiwanese ODM manufacturer Compal Electronics to make computers in China.

If this deal can go through, it would put even more pressure on HP and Dell, both of which have tried repeatedly to introduce smartphones and fallen on their faces for it.

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