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Google sells Motorola to Lenovo for $2.91 billion

Last updated on: January 30, 2014 11:56 IST
Motorola Mobility Chief Executive Dennis Woodside poses with the new Moto G mobile phone during its worldwide presentation in Sao Paulo.

Lenovo Group said on Wednesday it agreed to buy Google Inc's Motorola handset division for $2.91 billion, in what is China's largest-ever tech deal as Lenovo buys its way into a heavily competitive US handset market dominated by Apple Inc.

It is Lenovo's second major deal on US soil in a week as the Chinese electronics company angles to get a foothold in major global computing markets. Lenovo last week said it would buy IBM's low-end server business for $2.3 billion.

The deal ends Google's short-lived foray into making consumer mobile devices and marks a pullback from its largest-ever acquisition.

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Google sells Motorola to Lenovo for $2.91 billion

Last updated on: January 30, 2014 11:56 IST
Lenovo CEO Yang Yuanqing attends a news conference in Sao Paulo.

Google paid $12.5 billion for Motorola in 2012. Under this deal the search giant will keep the majority of Motorola's mobile patents, considered its prize assets.

Shares of Google climbed 2.6 per cent to about $1,136 in after-hours trading. Google Chief Executive Officer Larry Page said that Google would be best served by focusing on smartphone software rather than devices.

Reuters reported the deal earlier on Wednesday, citing sources familiar with the deal.

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Google sells Motorola to Lenovo for $2.91 billion

Last updated on: January 30, 2014 11:56 IST

The purchase will give Lenovo a beach-head to compete against Apple and Samsung Electronics as well as increasingly aggressive Chinese smartphone makers in the highly lucrative US arena.

In 2005, Lenovo muscled its way into what was then the world's largest PC market by buying IBM's personal computer division.

It has powered its way up the rankings of the global smartphone industry primarily through sales on its home turf but had considered a US sortie of late.

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Google sells Motorola to Lenovo for $2.91 billion

Last updated on: January 30, 2014 11:56 IST
Actress Kristin Bauer van Straten attends the HBO Luxury Lounge featuring Motorola and PANDORA Jewelry in honor of The 65th Primetime Emmy Awards at The Four Seasons Hotel.

"Using Motorola, just as Lenovo used the IBM ThinkPad brand, to gain quick credibility and access to desirable markets and build critical mass makes a lot of sense," said Forrester Research analyst Frank Gillett.

"But Motorola has not been shooting the lights out with designs or sales volumes in smartphones. So the value is simply in brand recognition to achieve market recognition faster - and to expand the design and marketing team with talent experienced at US and Western markets."

Rise of The Chinese

The deal is subject to approval by both US and Chinese authorities.

Chinese companies faced the most scrutiny over their US acquisitions in 2012, according to a report issued in December by the Committee on Foreign Investment in the United States.

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Google sells Motorola to Lenovo for $2.91 billion

Last updated on: January 30, 2014 11:56 IST
Actor Ashton Kutcher named Lenovo product engineer and launches Yoga Tablet at YouTube Space.

Analysts say political issues could cloud the Motorola sale, especially with Lenovo trying to seal the IBM deal at the same time.

Lenovo will receive over 2,000 "patent assets" as part of the transaction, the companies said, but it remains unknown, which will change hands and whether they might be subject to extra scrutiny from regulators.

For Motorola, Lenovo will pay $660 million in cash, $750 million in Lenovo ordinary shares, and another $1.5 billion in the form of a three-year promissory note, Lenovo and Google said in a joint statement.

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Google sells Motorola to Lenovo for $2.91 billion

Last updated on: January 30, 2014 11:56 IST
A man using Google Glass examines one of Motorola's new Moto X phones at a launch event in New York.

"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," Lenovo's chief executive, Yang Yuanqing, said in a statement.

In two years, China's three biggest handset makers - Huawei, ZTE Corp and Lenovo - have vaulted into the top ranks of global smartphone charts, helped in part by their huge domestic market and spurring talk of a new force in the smartphone wars.

Although Huawei and ZTE have made some inroads in the United States, where the Chinese companies continue to grapple with low brand awareness, perceptions of inferior quality and even security concerns. Lenovo has until now stayed out of the US market.

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Google sells Motorola to Lenovo for $2.91 billion

Last updated on: January 30, 2014 11:56 IST
Actress Janina Gavankar attends the HBO Luxury Lounge featuring Motorola and PANDORA Jewelry in honor of The 65th Primetime Emmy Awards at The Four Seasons Hotel.

In the third quarter of last year, ZTE and Huawei accounted for 5.7 per  cent and 3 per cent of all phones sold in the United States, respectively, trailing Apple's 36.2 per cent and Samsung's 32.5 per cent, according to research house IDC.

Huawei declined to comment on the Lenovo deal on Wednesday. ZTE did not immediately offer comment.

Globally, Lenovo ranked fifth in 2013 with a 4.5 per cent market share, according to IDC. That's up from 3.3 per cent in 2012 and virtually nil a couple years before that.

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Google sells Motorola to Lenovo for $2.91 billion

Last updated on: January 30, 2014 11:56 IST
Senior vice president and president of Lenovo's Consumer Business Group Liu Jun shows the new Lenovo smartphone.

Step Back

For Google, the sale represented a solution to a persistent headache as Motorola's losses widened in recent quarters.

It also showed Google is willing to step back from the handset arena and throw its weight behind device makers that propagate its Android software, Kantar analyst Carolina Milanesi said.

"It all points to Google thinking in the short run that they're better off betting on Samsung and keeping them close," Milanesi said. "And of course now they're enabling a second strong runner (Lenovo) in the Android ecosystem."

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Google sells Motorola to Lenovo for $2.91 billion

Last updated on: January 30, 2014 11:56 IST
Different colored examples of Motorola's new Moto X phones rest on a table at a launch event in New York.

In 2012, analysts saw Google's Motorola acquisition as primarily a way to secure the company's trove of patents amid the technology sector's increasing legal battles - rather than a bona fide push into the handset business.

Many industry observers were surprised that Google did not immediately sell the hardware division after the deal closed, choosing instead to operate Motorola a separate company.

It did sell Motorola's cable television set-top box business to Arris Group Inc for $2.35 billion at the end of 2012.

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Google sells Motorola to Lenovo for $2.91 billion

Last updated on: January 30, 2014 11:56 IST
Motorola Mobility Chief Executive Dennis Woodside talks during the worldwide presentation of the Moto G mobile phone in Sao Paulo.

In a blog post on Wednesday, Google's Page highlighted the strategic choice in selling the Motorola handset business.

"The smartphone market is super competitive, and to thrive it helps to be all-in when it comes to making mobile devices," Page wrote.

"This move will enable Google to devote our energy to driving innovation across the Android ecosystem, for the benefit of smartphone users everywhere."

Lenovo is being advised by Credit Suisse Group while Lazard Ltd advised Google on the transaction.

Source: REUTERS
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