Google sells Motorola Mobility to Lenovo for US$2.9bn

30 Jan 2014

Google is selling its Motorola Mobility unit it acquired two years ago for US$12.5bn to Chinese technology giant Lenovo for just US$2.91bn. On the face of it this looks like a US$9.6bn loss for Google, or is it? Was it a clever ploy all along to get its hands on Motorola’s valuable patents trove?

The deal is comprised of US$660m in cash, US$750m for Lenovo shares and the remaining US$1.5bn in the form of a three-year promissory note.

Last week, Lenovo confirmed it is to buy IBM’s x86 server business for about US$2.3bn. Lenovo acquired IBM’s PC division in 2005 for US$1.75bn.

“Lenovo has the expertise and track record to scale Motorola Mobility into a major player within the Android ecosystem,” said Larry Page, CEO, Google.

“This move will enable Google to devote its energy to driving innovation across the Android ecosystem, for the benefit of smartphone users everywhere,” Page added.

Google will maintain ownership of the vast majority of the Motorola Mobility patent portfolio, including current patent applications and invention disclosures.

As part of its ongoing relationship with Google, Lenovo will receive a licence to this rich portfolio of patents and other intellectual property. Additionally, Lenovo will receive more than 2,000 patent assets, as well as the Motorola Mobility brand and trademark portfolio.

“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,” said Yang Yuanqing, chairman and CEO of Lenovo.

“We will immediately have the opportunity to become a strong global player in the fast-growing mobile space. 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,” Yuanqing added.

What was Google thinking buying Motorola Mobility for US$12.5bn in the first place?

On one hand it looks like Google made a strategic error by attempting to buy a mobile manufacturer when it possibly never intended to make its own devices, like rival Apple.

Some 80pc of the world’s smartphones run on Android, Google’s mobile OS, and Google’s model has always been hinged around ‘open’. The idea Google would make its own devices to compete in a closed ecosystem would only serve to alienate brands, such as Samsung and Sony, whose smartphones and tablets run on Android.

To put it mildly, the Motorola Mobility acquisition seemed to run contrary to Google’s corporate religion.

Motorola was always a major player in terms of radio. Acquiring Motorola gave Google access to a vast trove of patents covering wireless devices, wireless networks, and physical fixed-line networks – a trove some estimate to be worth US$6bn in total.

Perhaps that was Google’s intention all along – getting its hands on valuable intellectual property. Motorola was Google’s biggest acquisition, followed by Nest in recent weeks at US$3.2bn, and YouTube in 2006 for US$1.6bn.

Last night, Lenovo investors voted with their feet and shares fell by almost 9pc as feelings ran high in Hong Kong in terms of whether Lenovo bought a pup in buying a company.

The acquisition also brings to mind Microsoft’s US$5.4bn cash acquisition of Nokia last year and whether that was a good strategic decision. Time will tell.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years