Lenovo to Establish New Mobile Phone Company in China

Smartphone Company With Different Brand Name Is Part of Efforts to Fend Off Competition in China

Personal-computer and smartphone maker Lenovo Group Ltd. 0992.HK +3.16% said it would create a new company in China next year that focuses on selling mobile phones online.

The new smartphone company, which will have a different brand name, is part of Lenovo’s efforts to fend off fierce competition in China from Xiaomi Inc., a local smartphone startup that sells its handsets online while cultivating its fan base through its own software, services and entertainment offerings. Xiaomi is also known for being marketing savvy, engaging with consumers through online forums and social networks.

Lenovo said in a statement Wednesday that it will continue to sell Lenovo-branded phones in China through local carriers and retailers.

The new smartphone company, which will start its operation April 1, 2015, won't only sell devices online but will also offer applications and focus on consumer engagement, Lenovo said.

Lenovo, which last year overtook Hewlett-Packard Co. HPQ +1.74% as the world’s largest PC maker, has been quickly expanding its smartphone business for the past year. In the second quarter, Lenovo was the world’s fourth-largest smartphone makerby shipments behind Samsung, 005930.SE -0.18% Apple AAPL -1.23% and Huawei Technologies Co., according to IDC.

Lenovo and Xiaomi are two of the biggest smartphone makers in China, both selling more phones in the market than Samsung Electronics Co. or Apple Inc.

In recent quarters, Lenovo and Xiaomi have been competing intensely against each other for the number-one position by shipments.

Lenovo’s plans to set up a new mobile phone business comes as the company is in the process of completing a $2.91 billion acquisition of Motorola Mobility in the U.S.

But Lenovo said that the new smartphone company will be a China-focused company.