Lenovo is to buy Motorola Mobility from Google for $2.91bn, including the Motorola brand, current devices such as the Moto X and G, as well as the future product roadmap.
Previously, China-headquartered Lenovo purchased IBM's PC client business in 2005, and IBM's server business in January 2014.
The deal with Lenovo confirms that Google's main interest in buying Motorola was its patent and IP portfolio because the company will retain the "vast majority" of patents as part of the deal. Lenovo will have a license to all IP, plus will gain over 2,000 patent assets.
Google creates a much simplified business environment by divesting itself of Motorola Mobility. It removes the channel conflict with other Android smartphone makers because Google will no longer have its own competing smartphone hardware division. Like Apple, Nokia, and Palm before it, Google has failed to balance the competing business demands of distributing operating systems while also making hardware. Where those companies chose to downplay their OS licensing business in favour of their own hardware play, Google did the opposite and sacrificed Motorola.
Lenovo benefits in four key areas through the acquisition:
1. Entry to the US mobile market. Motorola remains a strong player in the US with relationships with the main carriers. By contrast, Lenovo has mainly operated in uncontrolled mobile markets where its products have been distributed in retail. Lenovo gains greater understanding of how to work with the mobile operator channel.
2. Brand assets. Motorola is a familiar consumer brand in mobile across the Americas. However, in Europe, emerging markets and Asia, its mobile market share is tiny and its brand a hindrance, not an asset. While Motorola originally kickstarted Android adoption in the US through distribution on Verizon's network under the DROID brand, outside the US HTC's Desire played that role, and Motorola failed to establish its smartphone portfolio. Lenovo is right to plan to use the Motorola brand in the US, but its own brand in China and emerging markets.
3. Mobile engineering expertise. Motorola has experience appealing to international tastes, compatibility with US 4G networks, and numerous carrier networks. Plus, Motorola has deployed a mass customization model with the Moto X and its numerous factory finishes. While Lenovo is a very successful mobile handset maker already, its strength is in China, where it ranked second in smartphone shipments in 2013 with a 12.7% share, only Samsung was ahead with a 14.9% market share.
4. A stronger Google relationship. The current Motorola Mobility executive team are largely Google insiders who stepped over after Google's purchase. If Lenovo can retain them, their knowledge of Google will help Lenovo's overall Android business.
But for Google, this deal is an escape from a difficult business position. When Google bought Motorola Mobility in August 2011 for $12.4bn, Motorola had 3 percent global handset market share. Now, it's around 1 percent. Despite well-received smartphones such as the Moto X, Motorola has suffered from a lack of attention from Google, under investment, and weak marketing spend compared with the smartphone market leaders. Google has been too focused on Android's overall performance and on intellectual property battles, to give Motorola the support it needed to turn around a struggling business.
It's an ideal time for Google to divest Motorola Mobility now the potential for conflict with Samsung has receded because Samsung and Google have signed a cross-licensing agreement on intellectual property. Previously, Google had the option of leveraging Motorola to give Google services a route to market in the event Samsung shut Google's services out of its Android devices. Now that capability appears unlikely to be needed.
Google has made a significant loss on its investment. Lenovo's $2.91bn barely covers the cash acquired as part of Motorola Mobility. Google split cost of its Motorola Mobility acquisition as follows in its SEC filings: Of the $12.4bn purchase price; $2.9 billion was cash acquired; $5.5 billion was attributed to patents and developed technology; $2.6 billion to goodwill; $730 million to customer relationships; and $670 million to other net assets acquired. In addition to these figures, Google supported the loss-making Motorola business for over two years.
Yet Google should also gain a new, stronger, Chinese partner which could help Android. Google knows Chinese OEMs will be critical for Android's future success. Because of Lenovo's previous purchase of IBM's PC business, Lenovo is an easier partner for Google than would be many other Chinese OEMs.
In China, Android is winning, but without Google's help, and without Google's services such as its Google Play app store, Gmail, search, advertising and the rest. If, Google could leverage this Lenovo relationship so as to nurture Google's services inside China, then even the loss Google has made on Motorola Mobility would have been worthwhile.
But that idea would be very much another moon shot, to use Larry Page's famous description of the effort required by Andy Rubin and team to create Android's current success in smartphones.