The journey for “Motorola – A Google Company” ends here as Google (GOOG, Financial) unloads the phonemaker onto the world’s largest PC maker, Lenovo (LNVGY, Financial), subject to approval from the Committee on Foreign Investment in the U.S., or CFIUS. The confirmation came very recently as Google announced that it has closed the deal for $2.91 billion, consisting of $660 million in cash and $750 million in Lenovo shares, with the remaining $1.5 billion paid in the form of a three-year promissory note.
What the Deal Means for Google
Quite frankly what this deal means for Google is that it has finally shed a business, one of the worst investments in Google’s history, that has been eating up its profits continuously. The search giant had acquired Motorola to “supercharge the Android ecosystem by creating a stronger patent portfolio for Google and great smartphones for users” and mainly to provide some stiff competition to Apple (AAPL, Financial). Many analysts were expecting the company to immediately sell off the hardware division and focus just on the benefits from the patents, but instead Google carried on business for Motorola. And now finally the company did what was expected. Now, let’s take a look at what this deal holds for Lenovo.
(Picture credit: TechnoBuffalo)
What the Deal Means for Lenovo
The Chinese PC maker already has a very flourishing smartphone business running in China and has been attempting to expand its market aggressively. With the Motorola brand under its belt, Lenovo can benefit greatly from the phonemaker’s expertise. With the deal in place, Lenovo will have access to the Motorola branding along with its portfolio of devices such as Moto X and Moto G, as well as have access to round about 2,000 patent assets. However, Google will still hold back the control over a large chunk of the patents that it had obtained with the acquisition of Motorola in 2012.
For some time now the Chinese PC maker has been eyeing a share in the U.S. smartphone market where it will have to compete against Apple and Samsung (SSNLF, Financial). Back in 2005, Lenovo had managed a great entry into the U.S. market when it purchased IBM’s personal computer division and continued using the “ThinkPad” branding. We can clearly see a similar trend in the present situation. The company can use Motorola branding to get attention quickly and enter the desired markets.
However, the point to remember is that Motorola, the inventor of cell phones, though popular and easily recognizable, is not a very successful brand and its past sales volumes and bottom lines have been disappointing. It’s pretty clear that Lenovo won’t be getting much market share advantage because of the acquisition. Instead, it will only be able to exploit the brand’s awareness and its legacy and from there it will have to take things forward and build a better reputation along with catchy offerings, probably leading to a tangible market share. So, the bottom line is the main takeaway for Lenovo from this deal is a better recognized global brand.
Departing Thoughts
In the recent years three Chinese brands – Lenovo, ZTE and Huawei – have made their presence felt in the global smartphone space and with this deal, Lenovo will surely surpass its Chinese peers. Apart from that, the legacy of Motorola will definitely provide the world’s largest PC maker the necessary boost to make it big in the smartphone space as well. So, the deal seems to be a boon for Lenovo. But, the boon can turn out to be a bane in no time if Lenovo fails to offer irresistible tantalizing products and market them equally well.
