Motorola, a cellphone pioneer, which came out in 2004 was bought up by Google two years ago at $12.4 billion. Motorolas product line became outmoded after Apple Inc released the iPhone in 2007, unleashing a new era of touch-screen phones. Motorola hasn't been able to catch up yet. Google is ridding itself of a financial headache by selling Motorola Mobilities smartphone business to Lenovo for $2.9 billion.Of that $2.91 billion, $1.41 billion will be paid at the close of the deal. $660 million will be comprised of US cash and $750 million in Lenovo ordinary shares. The remaining $1.5 billion will be paid in the form of a three-year promissory note.
“This fits perfectly with the strategy we have pursued for a couple of years,” Yang Yuanqing, chairman and chief executive officer of Lenovo, said in an interview. “Before, we only had PCs as a core business. Now, we’ve built two pillars: the first is enterprise, and the second is this mobile business. We will be going from an emerging-market player to a worldwide player in smartphones.” But Investors punished Yang for his move, on concerns Lenovo may have paid too much for a shrinking business.
While Google is backpedaling, China's Lenovo Group Ltd is gearing up for a major expansion. Lenovo is already the worlds largest PC maker and now it is trying to expand its presence in the area of smartphones. Lenovo is a leading smartphone maker in its home country but now it is aiming for other corners like US and Latin America.
Google is holding on to Motorola's more than 20,000 mobile patents, providing Google with legal protection for its widely used Android software for smartphones and tablet computers. While the $2.91 billion sale of Motorola is a far cry from the price Google paid for the business, the world's largest search company doesn't appear to be taking much of a loss, analysts said.
And the point seems to be true as Google previously recovered some of the money that it spent on Motorola by selling its set-top operations last year to Arris Group Inc for $2.35 billion. And the Motorola patents were valued at $5.5 billion at the time Google took over, according to regulatory filings. Lenovo is picking up about 2,000 Motorola patents in addition to the phone manufacturing operations. But Google is keeping majority of the Motorola patents which it can license but the value of the patents Google is holding by itself is unknown.Factoring all that, there's a gap of roughly $1.65 billion between what Google paid for Motorola and what Google is getting from its sales to Arris and Lenovo, plus the original value of the patents.Buying Motorola will enable Lenovo to join Apple Inc as the only major technology companies with global product lines in PCs, smartphones and tablets, putting Lenovo in a better position to become a one-stop shop for companies to buy all their devices from the same vendor, said Forrester Research analyst Frank Gillett.
"This makes Lenovo a company to watch," Gillett said in an email. "The personal device manufacturer business is consolidating -- and manufacturers must compete in all three device markets, plus emerging wearable categories, or get left out of the next market shift."
It is very interesting to see if this sale of Motorola by Google proves a mistake to the company by turning into a golden opportunity to Lenovo Group as it expands beyond its success in the personal computer industry and now in the area of smartphones.
