Google is selling its Motorola Mobility smartphone unit to Lenovo for $2.9 billion so that the internet search firm giant can focus its efforts on the innovation of its Android operating system. This move will also allow the search company the ability to maximize its corporate profit and reduce operational costs. The deal with Lenovo, the world’s largest maker of PCs, was announced Wednesday. The co-founder and the current C.E.O. of Google, Larry Page said in a statement “[This deal will now] enable Google to devote our energy to driving innovation across the Android ecosystem.”
Google bought Motorola Mobility in 2011 for $12.4 billion and so far, it has been the company’s largest acquisition. The plan then was to strengthen Google’s mobile business and name Google operations executive Dennis Woodside as its C.E.O. However, since the Mountain View, California-based company took over Motorola, Google lost nearly $2 billion through the third quarter of 2013. The Motorola workforce was likewise trimmed from 20,000 to 3,800 after the takeover by Google.
Google may have also launched Moto X, the first smartphone assembled in the U.S,. and Moto G, a smartphone targeted primarily for budget conscious customers, but these efforts failed to generate the needed profits for the company. Since 2012, Google has tried to limit the number of phone models released under the Motorola brand name. According to data gathered by Strategy Analytics, Motorola’s market share in the smartphone business fell from 3.1% to 1.7%. In order to recover the purchase costs, Google sold Motorola Home in 2012, the cable and video unit, to Arris Group Inc. for $2.35 billion.
With this recent deal to purchase Motorola, Lenovo will pay $600 million in cash, $750 million in Lenovo ordinary shares and the remaining $1.5 billion to be settled in the form of a three-year promissory note.
In a blog post, Page said that they acquired Motorola in 2012 so that their Android could have a strong patent portfolio as well as an enhanced smartphone experience for users. Google likewise issued a statement saying that “the vast majority” of Motorola’s patents will remain with Google. This will still provide Google with enough protection against lawsuits for its Android software.
The sale of Motorola will also allow Google the chance to reduce any possible friction that may exist between Google and its hardware partners which also use Google’s Android mobile operating system like Samsung and Lenovo.
Lenovo is on the path for an aggressive expansion with this latest acquisition of Motorola. This is not only in terms of product expansion but also in terms of market penetration. Lenovo right now is a major player in the laptop and desktop business and the Motorola purchase will allow the company to foray into the smartphone category too. Aside from this, Lenovo can now also sell its products and services in the U.S., European and Latin American markets, effectively expanding its reach.
The Motorola deal came on the heels of the recent plans of Lenovo to also purchase a major piece of IBM Corporation’s low-end computer server unit for $2.3 billion. According to Yang Yuanqing, chairman and C.E.O. of Lenovo, “We will immediately have the opportunity to become a strong global player in the fast-growing mobile space.” In a recent IDC survey, the market for PCs contracted by 10 percent. The major reason cited for this decline is that people are now buying more smartphones and tablets instead of the more traditional laptops and PCs.
This recent deal between Google and Lenovo is a win-win situation for both companies. Strategically, this will allow Lenovo to have a strong brand outside of their traditional Chinese and Asian market. This will also allow Lenovo to establish business relationships with AT&T and Verizon. For Google, the deal will allow the company to focus more on the services side as well as retain holdings for many of Motorola’s patents.
Thus, selling Motorola for $2.9 billion to Lenovo may indeed maximize the profits of Google and allow Google to concentrate on its Android innovation process where the company is really seeing success.
By Roberto I. Belda