Google's Loss May Mean Lenovo's Gain

by CXOtoday News Desk    Jan 30, 2014

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Anything can happen in the ever-changing technology world and the latest news that’s all over the place is that Lenovo is going to buy Motorola from Google for nearly $3 billion. The new move will give the Chinese smartphone manufacturer a major presence in the US market. However, the deal also means that Google is effectively taking over $5 billion loss on its Motorola investment.

Google CEO Larry Page however highlights on something more exciting, keeping the loss part of the deal in the backburner. In a blog post explaining the reasons behind the sale, he says, “Selling Motorola’s smartphone operations will enable Google to devote our energy to driving innovation across the Android ecosystem.” To know what Larry Page said about the deal, click here.

The Google-Motorola story

Way back in 2012, Google bought Motorola Mobility with a keen interest on the latter’s patent portfolio. This was also Google’s largest ever acquisition at $12.5 billion. In the subsequent quarters however, Google suffered a loss of hundreds of millions and so made the decision to offload its handset business. Previously it had sold Motorola’s set-top box unit for over $2 billion. Currently all that Google is holding is Motorola’s Advanced Technology and Projects unit.

Experts believe that even though Google was attracted to Motorola’s patents initially, the results were not as expected after the buyout. The search giant was unable to use those patents effectively. And its rivals such as Apple and Samsung surged ahead with innovative designs and strategies. a Verge report points out: “The entire ownership of Motorola has been something of a headache for Google, and it appears that it’s finally time for Google to cut its losses.”

A Reuters report confirmed that post the buyout, Google will retain ownership of the majority of Motorola’s patents, while 2,000 patents and a license on the remaining patents will go to Lenovo. A company statement noted that Lenovo will pay Google $660 million in cash and $750 million in stock, while the remaining will be paid out over three years.

Steps in Lenovo

Google’s loss was lenovo’s gain for sure. It was looking to step into the US smartphone market this year. Until now, Lenovo couldn’t make much headway in the market. One of its recent plans of buyout for BlackBerry was also on hold and now Lenovo wants to renew its ambitions with the Motorola buyout.

Page believes Lenovo can turn Motorola into “a major player within the Android ecosystem.” He points out: “Lenovo has the expertise and track record to scale Motorola Mobility into a major player within the Android ecosystem. This move will enable Google to devote our energy to driving innovation across the Android ecosystem, for the benefit of smartphone users everywhere.”

According to many in the industry, Lenovo has the knack for acquiring established brands and building upon it. In 2005, the company bought its ThinkPad business from IBM and went on to create a successful line of laptops from it. Lenovo has similar plans with Motorola, with the help of which it can build stronger devices in the global marketplace.

The Motorola acquisition marks the company’s second acquisition announcement this month. Only a week ago, it has made a deal to buy IBM’s x86 server business.

An deal reflecting optimism

The two companies seem to be highly upbeat about the deal. “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. We will become a much stronger global player in the fast-growing mobile space,” says Lenovo CEO Yang Yuanqing.

Yuanqing also adds that as the deal includes important patents and licenses, it will help address new markets with a diverse smartphone lineup, and it brings along Motorola’s expertise in mature smartphone markets.

“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,” says Page confirming that Dennis Woodside and the Motorola team who have done a tremendous job reinventing the company for nearly the past two decades will be staying on board.

Analysts are also optimistic about the global deal. Buying Motorola will enable Lenovo to join Apple 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, reports Forrester Research analyst Frank Gillett in an email statement to TOI.

According to him, 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.

This new move certainly makes Lenovo a company to watch out for in 2014!