How do you beat the iPhone? you sell into markets where the iPhone can't. Since the iPhone is a premium item sold for a premium price, there are many places in the world where the populous cannot afford it. Target your cheap junk there, and you beat the iPhone in volume of shipments.
That's how the game is played. That's how it's been played for a very long time. Lenovo, like most everyone else, understands that if they try to sell class-competitive phones as the iPhone, in markets where people can afford iPhones, they (Lenovo) would go out of business. Where people have the choice and means to buy an iPhone, they generally do so.
The same is true for everyone competing with Apple. Nokia, Samsung, you name it: They are extremely popular at the low-end of the market. At the high-end, Samsung: Apple's closest competitor, is lucky to see a third of the iPhone's numbers. Yet analysts tend to lump all handsets into one, competitive basket, regardless of class, just for the sake of carrying on the pretense that all handset makers are on an even footing, more or less. They're not, and at least Lenovo is admitting it.