Facing a growing threat from China-based startup Xiaomi, which is valued at a whopping $45 billion, Lenovo’s chairman and CEO says he is considering spinning off a new unit that is focused on selling mobile and Internet-connected devices.

In an interview with Bloomberg News, Yang Yuanqing said the new unit called Shenqi (or “magical” or “miraculous” in English) would be worth “a couple of billion dollars.”

Lenovo and Xiaomi are battling for the No. 3 spot in the global smartphone market behind Samsung and Apple. 

The news comes as Lenovo faces stiffening competition from HP for the No. 1 spot in global PC sales. Data released earlier this week by research firms IDC and Gartner shows that the firms are virtually tied for the top spot.

Lenovo has made a concerted effort, however, over the past couple of years to diversify its product line. Some $6 billion was spent last year to acquire IBM’s x86 business and Motorola Mobility from Google.

The addition of well over 6,000 workers boosted Lenovo’s headcount by some 10 percent. The company last week began offering buyouts to veteran workers, as first reported by WRAL TechWire.

Lenovo announced creation of the new group in October, as WTW reported in detail. It’s scheduled to go “live” in April.

“We want to try a new way to nurture and incubate business,” Yang told Bloomberg. “Smartphones will be just one of the devices for this new startup company and it will be backed not only with Lenovo money, but also will get money from capital markets.”

Xiaomi, which has found a growing niche in China and other markets with cheaply priced devices, recently landed $1 billion in investment. its value soared to three times that of publicly traded Lenovo.

Lenovo shares traded at $1.36 in trading Wednesday in Hong Kong. Its shares are up some 14 percent over the past year.

Just when Yang might begin spinning off the group is not known. 

Cashing in on Internet of Things

According to Bloomberg, the spinoff would enable Yang to :focus on Internet-based devices, or the Internet of Things, such as smart homes. Yang has professed strong interest in making Lenovo the global leader in what Cisco has called the “Internet of Everything.”

Cisco Chairman and CEO John Chambers has described the Internet of Things as a multi-trillion-dollar opportunity.And he’s not alone in that belief.

As Bloomberg noted: “The market for Web-linked appliances will grow to $7.1 trillion by 2020, from $1.9 trillion in 2013, according to International Data Corp.”

While Lenovo does operate retail stores throughout its home market of China, Yang told Bloomberg a separate unit would sell directly to consumers via the web.

“We want to build a pure Internet-oriented model,” he said in an interview in Beijing. “If we do this kind of model within the current Lenovo, there is a lot of conflict with existing channels and carrier partners. With a different team mechanism, we can do whatever we want.”