What Google's Sale of Motorola to Lenovo Means for Both Companies

What's This?

Image: Nelson Almeida/AFP/Getty Images

By Adario Strange2014-01-30 04:57:12 UTC

Google’s decision to sell Motorola Mobility for $2.91 billion to Lenovo is described by some as a huge loss for the search giant, which paid $12.5 billion for the company in 2011. However, upon further examination, the supposed $9.6 billion loss may be much less than it appears, and the deal itself could work to bolster the long-term strategies of both companies.

We have to remember that Google sold the Motorola Home unit for $2.35 billion in cash and stock to communications-technology company Arris last year. What's more, the 2011 Motorola deal afforded Google a tax break worth $1 billion, and gave the company access to Motorola’s $3 billion in cash, according to Reuters.

See also: Lenovo Buys Google's Motorola Unit for $2.9 Billion

Taking those figures into account, Google’s loss looks more like $3 billion. Not an insignificant amount — but nowhere near the nearly $10 billion it may appear to be at first glance.

Google's Takeaway

What does Google get for its $3 billion? Most importantly, the company will retain the lion’s share of Motorola's over 17,000 patents and 7,500 pending patent applications, according to its announcement. This is a very important detail. Of the total payout price paid by Google, “$5.5 billion was attributed to patents and developed technology," according to the SEC filing outlining the 2011 deal.

So, not only has Google come away with a net positive from a cash standpoint, but it also gets to retain patents that could pay untold dividends over time. From that perspective, the Lenovo deal is a purely practical move. Google CEO Larry Page offered additional context in a statement announcing the deal:

The smartphone market is super competitive, and to thrive it helps to be all-in when it comes to making mobile devices. It’s why we believe that Motorola will be better served by Lenovo — which has a rapidly growing smartphone business and is the largest (and fastest-growing) PC manufacturer in the world.

“This shows Google’s lack of interest in the hardware business, and will remove the concern of Google competing with Android handset vendors,” Taiwan-based Gartner analyst CK Lu told Mashable. “The acquisition will provide Lenovo patent protection, and allow it to expand outside China, where smartphones are approaching a saturation point.”

Beyond Smartphones

Interestingly, Page took the deal announcement as an opportunity to mention Google’s dedication to the wearable and smart-home space. "This does not signal a larger shift for our other hardware efforts. The dynamics and maturity of the wearable and home markets, for example, are very different from that of the mobile industry," he said.

That last bit hints that Google may be betting more on “the Internet of things,” and the usage of mobile devices ultimately migrating to wearable hardware.

A study released last month by analyst firm Canalys predicted that shipments of wearable devices such as the Pebble and Galaxy Gear smartwatches are set to increase by 500% in the second half of 2014. But as always, Google remains relatively opaque about its concrete plans for the future of hardware.

A Stronger Android Player in Asia

For Lenovo’s part, the deal immediately gives the world's largest PC maker a strengthened position in the mobile-device market, and offers consumers a stronger Android alternative based in Asia. Lenovo's deepened smartphone focus via the Motorola acquisition is particularly important given the recent trends that show the PC market giving way to mobile over the next decade.

“Our third quarter 2013 data showed Lenovo is already worldwide number three in smartphones, but this deal allows Lenovo to further grow and close the gap with Samsung and Apple,” Lu said. "Lenovo may [now] be able to break the Samsung dominance in Android.”

Based on a recent report, Strategy Analytics estimated that the combination of Lenovo and Motorola represented up to 6% of global smartphone shipments in 2013.

Lenovo’s decision to double down on mobile is prudent, given the prevailing winds of consumer trends. According to another Canalys report, mobile devices will make up roughly 50% of the personal-computing market in 2014.

The End of Motorola?

While Lenovo will certainly leverage Motorola's strong name-brand recognition in the short term, the latter's history with such acquisitions suggests we may be looking at its last days.

When Lenovo announced its plan to take over IBM’s personal-computing division in 2004, Lenovo CEO Yuanqing Yang said, “Through acquiring IBM's global PC business and forming a strategic alliance with IBM, Lenovo will absorb and integrate the skills from both sides, and acquire global brand recognition.”

However, just a few years later, the company ditched the IBM brand name for good.

Today, Lenovo issued a similar, post-acquisition refrain, when Yang said in a statement, “The acquisition of such an iconic brand, innovative product portfolio and incredibly talented global team will immediately make Lenovo a strong global competitor in smartphones.”

Yang also extolled the virtues of Motorola's Moto X and Moto G as devices that will help the company achieve its goal of “reaching the next 100 million people with the mobile Internet.” That may, eventually, turn out to be the case, but given Lenovo’s past, it’s hard not lament what may very well be the beginning of the end for the Motorola name.

All things considered, Wednesday's deal appears to make both parties whole: Google gets to refocus its efforts on what it sees as the real future of mobile, while Lenovo gets an accelerated leg up in the global mobile-device marketplace.

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Topics: Apps and Software, lenovo, Mobile, Motorola, Tech