It is less than two years ago that Motorola Mobility was acquired by Google (GOOG, Financial). The acquisition by far had been the largest by Google. The tech giant had bought the company for a whopping $12.5 billion sometime in 2012. On Wednesday, Larry Page, the CEO of Google announced the sale of Motorola to Lenovo for as low as $2.91 billion. Yes you read that right.
Motorola was already in doldrums when it was acquired by Google. Many analysts had even said that the investment would turn futile. Even after being acquired, Motorola continued with its dismal performance. The company continued bleeding money even when the shareholders went on increasing. Even Moto X was not effective enough to rake up revenues for the company. The company is known to experiencing fits and starts and this is being seen as another blockade in Google’s path. Although some experts suggest that this deal would not be a complete loss for Google. Apart from keeping billions of patents, Google has profited in the sense that it has virtually turned Lenovo into a factory for developing its Android operating system.
Google’s business depends completely on the how its phones penetrate the market and on how many people all over the world use these phones. Google may be a leader when it comes to the software industry, controlling a sizeable portion of the market share but when it comes to mobile phones it has a long way to go. When Google acquired Motorola they might’ve looking forward increase their market cap. What surprises me is the fact that those running the company could not see what everyone else did. That Motorola would be an absolute disaster for Google was the common feeling in market. Selling Motorola is an acknowledgment that Google is better off focusing on its core competencies - making software and selling ads - particularly as the profit margins for phones are shrinking overall.
Google still holds some 15,000 of the 17,000 patents that it had acquired originally. The rest of the patents sold to Lenovo will only grant it a license to use and operate only a part of the company. The most important part of the transaction is the patents that alone cost up to around seven billion dollars. Although the patents did not prove to be of any help to Google it did in some ways help the company with cross-licensing agreements like the one between Google and Samsung which happened last Monday. For the record, Google’s share price climbed by about 2% in the after hour trading just a day before the company announced its fourth quarter earnings.
Lenovo is already a big name in the PC industry. It is now looking forward to making big money in the smartphone sector. The company may have its strategies in place before they went for the Motorola deal but it might turn out to play the spoiler for the company’s plans. Whatever Lenovo has up its sleeve isn’t quite known, how do the things turn out to be is something worth speculating, at least what the analysts predict. Motorola, if we remember, was the maker of the first commercial cellphone, more recently fell behind rivals like Apple and Samsung. Page announced the deal to acquire Motorola just months after he reclaimed his position as chief executive of Google, and he appointed Dennis Woodside, who previously ran Google's sales and operations, as Motorola Mobility's chief executive. In spite of having a strong strategy of focusing on bringing out new phones instead of merely remodeling the old lineup didn’t work for the company. The company came out with a few phones which couldn’t survive the stiffness of the market and could not even rake a penny that would count, quite literally so. With Lenovo now taking away a bit off the load that Google seemed to be carrying for almost two years, things might start figuring out. For the record, Google has acquired Nest Labs, the maker of smart thermostats and smoke alarms that for $3.2 billion.
With newer hopes that the company rides on we can just wait to see how things work out. Google hasn’t done badly at the market either. This can be an opportunity for the investors. I would suggest to go for it without contemplating much.
