Google sells Motorola unit to Lenovo for $3B
PC maker Lenovo, which has struggled to replicate its smartphone success
outside China, gets an established global smartphone brand with
Motorola, while Google unloads a burden on its balance sheet and source
of tension.
by Roger Cheng
CNET News
January 29, 2014 1:22 PM PST
http://news.cnet.com/8301-1023_3-57618023-93/googles-motorola-may-be-sold-to-lenovo-for-$3b/
Google is unloading Motorola onto Chinese PC maker Lenovo.
Google confirmed on its site that it has sold Motorola for $2.91
billion, consisting of $660 million in cash and $750 million in Lenovo
shares, with the remaining $1.5 billion paid in the form of a three-year
promissory note. Reuters earlier reported on the deal.
Lenovo gets the Motorola brand, as well as its portfolio of devices,
including the Moto X and Moto G. In addition, it will also receive more
than 2,000 patent assets, while Google will retain control of a majority
of the patents it originally obtained from the Motorola deal.
A deal instantly gives Lenovo, which has a thriving smartphone business
in China, but few other places, an established global brand. Google,
meanwhile, would be able to shed a business that has continually dragged
down its profits.
The deal marks one of the worst investments in Google's history. In
2012, Google completed its acquisition of Motorola Mobility for $12.5
billion. At the time, it was thought that the primary reason for the
acquisition was the treasure trove of Motorola patents that would help
Google defend it and its partners against Apple.
The patents, however, have proven to be less than effective in warding
off lawsuits, and much of the legal fighting has gone on between Apple
and Samsung, with Google only tangentially related. Google and Samsung
recently signed their own cross-licensing pact.
Troubled handset business
The handset side of Motorola, however, has always been a stress point
between Google and its partners. While Google said it maintained a
division between its Android group and the Motorola unit, other vendors
have privately expressed irritation that a partner was also a competitor.
Google did legitimately try to revive the once vaunted Motorola brand
with unique products, including the Moto X, which was built in the US
and could be tweaked with different colors and covers, as well as the
ultra-low-cost Moto G, geared toward emerging markets and lower-income
consumers looking for a competitive smartphone.
Throughout the last year or so, Motorola has continually posted losses.
In the most-recent reported quarter, Motorola posted an operating loss
of $248 million, wider than the year-earlier period. Google reports its
latest results Thursday.
Still, the move is a surprising one given that Google has been moving
toward becoming more of a hardware company. Beyond smartphones, the
company is pushing its Google Glass headset and its Chromecast media
dongle. It just purchased Nest for $3.2 billion to get into the smart
thermostats and smoke detectors.
"This would be at odds with its recent push to hardware," said NPD
analyst Stephen Baker. "Everybody was thinking they would get more
hardware-oriented. This may signal a reversal."
Gaining a global brand
Lenovo, meanwhile, could conceivably jump-start its smartphone ambitions
with the purchase of Motorola. As the inventor of the cell phone,
Motorola has a rich legacy and a still well-known brand that Lenovo
could exploit.
Indeed, Lenovo actually has a strong smartphone business itself, but one
that is largely limited to China. Still, the market is big enough that
it ranked No. 5 among global smartphone vendors in the fourth quarter,
seeing its share rise to 4.7 percent from 4.2 percent a year ago,
according to Strategy Analytics.
Lenovo's CEO said in May 2013 that it would bring its smartphones to the
US within a year, but it hasn't updated its timing since then.
By buying Motorola from Google, Lenovo is repeating the same play is
successfully pulled off in 2005, when it entered the global PC business
by acquiring IBM's PC business. The deal instantly made Lenovo a major
player with PCs, building on the business-centric ThinkPad with the
consumer-facing IdeaPad.
Lenovo reportedly attempted to purchase BlackBerry, but a deal was
supposedly squashed by regulators sensitive to a Chinese company owning
phones widely used by government agencies.
The Chinese computer giant is the world's biggest PC vendor, with about
17 percent share of the market, according to IDC.
Lenovo said earlier this month that it will buy IBM's server business
for $2.3 billion.
With Motorola, Lenovo could use the company's established track record
and contacts in the wireless industry to push its phones around the
phone. And it doesn't have to build its own brand from scratch.
"We tend to think of the Chinese companies as rigid, but Lenovo has been
adaptable in a lot of brands and geographies," Baker said.
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