Lenovo buys Google's handset business for $2.91B

Lenovo buys Google's handset business for $2.91B

Summary: Lenovo's smartphone strategy has revolved around emerging markets, but that changed in a hurry after the acquisition of Google's Motorola Mobility handset business.

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Lenovo has quickly become a smartphone player by tackling emerging markets as well as China, while strategically leaving the U.S. untouched. That strategy is changing: Lenovo is buying Google's Motorola handset business.

Google confirmed after markets closed on Wednesday that Lenovo has acquired Motorola Mobility in a deal valued at $2.91 billion, just two years after the search giant bought it for $12.5 billion.

Lenovo will pay $1.41 billion when the deal closes in cash and shares, and the remainder will be in a $1.5 billion note over three years.

In a company blog post, Motorola confirmed that Google will retain the "vast majority" of the patents it acquired when it first bought the mobile company in 2011, including "current patent applications and invention disclosures." Lenovo will license the patents as part of an ongoing relationship with the search giant.

So, it turns out that Google's Motorola Mobility purchase was really about the patents after all.

Lenovo, which has been on an acquisition spree and recently bought IBM's x86 server business, just reorganized around mobility, enterprise, PC, and cloud services. Lenovo will beef up its mobile unit with the purchase of Google's Motorola Mobility, the unit behind the Moto X.

Indeed, Lenovo and Google said in a statement:

This agreement will significantly strengthen Lenovo's position in the smartphone market. In addition, Lenovo will gain a strong market presence in North America and Latin America, as well as a foothold in Western Europe, to complement its strong, fast-growing smartphone business in emerging markets around the world.

Google CEO Larry Page said in a blog post:

But 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 move will enable Google to devote our energy to driving innovation across the Android ecosystem, for the benefit of smartphone users everywhere. As a side note, 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.

Lenovo CEO Yang Yuanqing added:

We are confident that we can bring together the best of both companies to deliver products customers will love and a strong, growing business. Lenovo has a proven track record of successfully embracing and strengthening great brands – as we did with IBM's Think brand — and smoothly and efficiently integrating companies around the world. I am confident we will be successful with this process, and that our companies will not only maintain our current momentum in the market, but also build a strong foundation for the future.

On the follow-up conference call with members of the press, it was confirmed by Lenovo executives that Motorola chief executive Dennis Woodside and the executive team will be part of the transition to Lenovo.

"Motorola has a excellent engineering team. If we can combine that with efficient operations platform at Lenovo — we believe we can not only sell more volume of phones, but also make more money from this product line. We expect profitable growth in the future," Yuanqing said.

He also said during the transition that there are no plans to lay off any of the global workforce. "We bought the company, and we bought the team," Yuanqing said, describing the Lenovo-Motorola team as "complementary."

All eyes will be on exactly what the mix of Lenovo and Motorola devices will be. Lenovo currently holds the second-place spot in China, and has significant inroads in emerging markets, notably India, Russia, and Indonesia. Lenovo will continue to use its brand in those markets, the company's boss confirmed, while using Motorola in the U.S. where the brand is stronger. In places like China, where there's a mix of both brands, Lenovo may market both.

Lenovo will also "assess the market requirements in the U.S. and Latin America" to see if it should use current devices or develop new ones.

Yuanqing said depending on which is best for the market conditions, "We can leverage the Motorola brand to do business in that area as well."

For Google, the sale of its handset business gets it out of a channel conflict over Android and partners such as Samsung. Google would also shed a money-losing handset business that hurts profit margins.

Overall, Google could generate a return on its $12.5 billion Motorola Mobility purchase even if Lenovo gets a good bargain.

Lenovo would get U.S. carrier relationships, intellectual property, and an entry into the U.S market. Lenovo has made headway in the tablet market as well as smartphones via Android. In fact, Lenovo has really been the only PC maker to navigate the post-PC era well.

The deal is expected to close this year — a specific date was not given — and will likely be subject to regulatory approval in both the U.S. and China.

From the U.S. Securities and Exchange Commission with further details on the deal:

Topics: Mobility, Android, Google, Lenovo, Smartphones

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40 comments
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  • Yep

    Now watch for them to buy Blackberry.
    slickjim
    • Buying Blackberry would make sense...

      Would pair up nicely with their ThinkPads.
      ForeverCookie
      • I don't see it

        BlackBerry is saddled with a shrinking base of enterprise customer who have lost interest in BES (thanks to MS ActiveSync - which serves most SmartPhones) and with the BlackBerry 10 OS.

        To make money off of BlackBerry, Lenovo would have to shed BlackBerry 10 in favor of Android or Windows Phone in the BlackBerry. I

        They need to leave Motorola Mobility alone and running Android (at least for now).
        M Wagner
        • I am sure they will.

          Microsoft is a lot less likely to go after Lenovo (their OEM partner) than to go after Google (a MAJOR competitor). Nor is Apple as likely to go after a strong Microsoft partner because they know Microsoft can bury Apple in litigation - more or less indefinitely.
          M Wagner
          • Don't be so sure

            Microsoft went after Samsung and HTC - the only other companies interested in making Windows Phone outside of Nokia. However, I do agree that going after an OEM partner is a stupid idea.

            But that along with MS purchase of Nokia and building their own tablet kind of sends the message that Microsoft intends to go WP alone. So we'll collect what we can from Android licensing fees from partners until they're no longer partners. By then, it won't (hopefully for Microsoft) matter.
            tallbruva
    • From 13 billion to 2.9 billion in just a couple years

      Wow. Just wow The patents have generated nothing so far for google. Moto's lost every case they've been in. Be interesting to see now if Lenovo starts making moto branded windows phones.
      Johnny Vegas
      • Not quite 13 to 2.9 billion

        You have to keep in mind that they also sold off the Motorola Home division for $2.35 billion a year ago and that they kept the majority of the patents. Are the patents worth $7 billion? Not really but they're not worthless. They may not be very useful in lawsuits but they still do bring in money for them. I'm sure at the time people would have thought that $7 billion for the patents would have been a great deal.

        It was ultimately a bad deal but not quite *that* bad.
        rawrz
        • Point was

          The patents have not added to Google's bottom line in any way after spending billions on them. Actually those lawyers that lost those patent cases were not cheap. So, Google's bottom line has been negatively impacted by spending those billions.

          Spend billions to loose millions more. Not a good financial decision.
          rmark@...
      • They sold home division to Arris before

        $2.3 billion I think so it was from 13 to $5.3.
        Still looking like a bad deal, but we must add patents to it, while they don't bring money I wonder if nuclear weapons during could war was a waste of resources for US or Russia (or Soviet Union in that era).
        AleMartin
      • Don't forget the $100's of millions in losses per Q

        Expect a huge revenue decline with a return of massive profit margins for Google.
        Bruizer
    • slickjim: "Now watch for them [Lenovo] to buy Blackberry"

      The Canadian government blocked Lenovo from buying BlackBerry (in early November, 2013):

      http://www.zdnet.com/report-canadian-govt-blocked-blackberry-lenovo-deal-7000022833/

      BlackBerry was Lenovo's initial target for acquisition. One must conclude that Motorola Mobility is its second choice.
      Rabid Howler Monkey
      • Blackberry to black hole

        BB will eventually be worth less and less, as its marketshare continues to decline.
        rod911
        • BlackBerry's focus is shifting

          BlackBerry has had a declining share of the handset business, but that is not their only business and it's currently being de-emphasized. BlackBerry is still a leader in device management and the OS for embedded devices like car entertainment consoles. They are focusing their energy more on such things and less on consumer handsets. They have a solid plan for profit. They don't need to dominate handset market share.
          N Wick
  • good

    Now we can compare Google getting out of the hardware business against MSFT getting into it in a big way with its Lumia acquisition. And Samsung may be betting some serious competition.
    hrlngrv 
    • Yep, Lenovo could give Samsung a run for its money.

      1. Lenovo has strong hold in the PC market as they are #1.
      2. Lenovo is all set to lead in the Small to Mid-range servers with its latest IBM x86 server division. This gives HP and others a real run for money. Because, while HP and others blame Microsoft or others for their losses, Lenovo continues to capture the market.
      3. Lenovo is already gaining traction in Asian market regarding mobile devices, and now this gives it a chance to enter into western world giving Samsung headache.
      4. Lenovo now needs to buy or start consumer electronics/electrical goods to give Korean Company a run for its money.

      But probably Samsung would spend more number of resources to copy Apple and Microsoft or other US company more and more to sustain.
      Ram U
      • HP cannot figure out what it wants to be when it grows up ...

        ... so they have to watch out for Lenovo.
        M Wagner
    • Lenovo already makes tablets

      And they haven't made an impact yet.

      The question remains: Will Lenovo absorb Motorola into the fold or will it allow it to function as an independent unit?

      The latter would make sense. Allow Motorola to ride the wave they have with the Moto X. Not only that, there's brand recognition that comes with the Motorola name. That will also come in handy when the uninformed that know Lenovo is a Chinese company but doesn't know owns Motorola want to bash Lenovo. Keeping the brands separate can go a long way in PR.

      After all, how many people realize that 7-Eleven is owned by Seven & I Holdings - a Japanese company?: http://en.wikipedia.org/wiki/Seven_%26_I_Holdings_Co.
      tallbruva
  • Thats crazy....

    So now another American Juggernaut brand is going to be owned by the Chinese? Not only that but it just confirms that Google really did want the IP and nothing else. Although their Motorola phones... compete with Googles own Nexus brand anyway and they were doing really nothing with Motorola as a company anyway.
    Jimster480
    • That is exactly what I was thinking

      In the 90's early 2000's I worked for AirTouch then Verizon in their paging divisions and we sold countless of those devices and Moto was the main company that we purchased out equipment from. They had the highest quality of all of brands that we sold. They cost more but they were produced in the USA by a US company and were the best. I can't believe that they are being sold to an organization out of the US. Man, that stinks.
      DadMagnum
    • Nexus devices look more interesting than Motorola

      My opinion.
      Motorola distribution is also far from perfect in many countries.
      AleMartin