Almost two and a half years ago Google surprised the mobile industry by plunking down $12.5 billion to acquire storied technology firm Motorola. Now, less than a year after the deal was finalized, Google is showing Motorola Mobility the door, selling it off to Lenovo for a seemingly-scant $2.91 billion.
What’s with the about-face? Was Google’s acquisition such a bad move that the company is now willing to lose more than $7 billion to get out of the deal? (It sold Moto’s set-top box division for $2.2 billion.) What does Lenovo buying Motorola mean for folks who have a Motorola phone or tablet — and what does it mean for Android?
Did Google throw money away on Motorola?
Google is not taking a $7 billion bath on Motorola – in fact, it’s arguably coming out ahead.
When Google bought Motorola, it got four things:
- A mobile phone business
- A set-top box business (serving cable and satellite operators)
- About $5.5 billion in cash and tax credits
- A large patent portfolio
Google said from the outset that its interest in Motorola was primarily about those patents. At the time, Google had just lost a bidding war for a major patent portfolio owned by the bankrupt Nortel. It believed acquiring Motorola’s patents was the next-best way to defend Android against seemingly-likely legal attacks from the likes of Apple and Microsoft.
With the Lenovo deal, Google is getting $2.9 billion for Motorola’s phone business (which now also includes tablets). Google is not selling Motorola’s patent portfolio. Google will keep the “vast majority” of those patents, with Lenovo getting a license to them and some other intellectual property.
So how does Google come out ahead? Backing up a bit, Google had already arranged to sell Motorola’s set-top box business to Arris Group for about $2.3 billion (cash and stock) even before its takeover of Motorola was technically closed. Google also offloaded things like factories for about $100 million, closed offices, kicked 4,000 people to the curb, and pocketed Motorola’s assets. So now, with the Lenovo sale, Google’s on-paper out-of-pocket cost on acquiring Motorola is down to about $1.8 billion. That’s not bad, considering Google valued Motorola’s patents and technology at about $5.5 billion when it took over the company.
Of course, Motorola Mobility has lost almost $2 billion since Google took it over — and that’s gotta burn.
Lenovo is the biggest winner
It’s currently the world’s largest PC maker (and it just bought IBM’s low-end server business for $2.3 billion: busy week!), but it’s also the world’s fourth largest smartphone maker, accounting for 4.9 percent of the world market in the final quarter of 2013. True, that’s a distant fourth place (Samsung and Apple cornered almost half the market by themselves) but it’s not bad, especially considering Lenovo has no presence in North America: its smartphones are primarily available in Asia and emerging markets.
Buying Motorola gives Lenovo four big things:
- A foothold in North America and Latin America: Motorola has deals with U.S. carriers (particularly Verizon), and is currently the the third largest smartphone maker in the U.S. – a distant third, far behind Samsung and Apple and basically tied with LG. But that’s literally the biggest presence in the American market that money could buy.
- Major mobile engineering and design expertise: Motorola has more experience with phones and mobile technology than almost anyone on the planet, and while the company has certainly struggled, its recent Moto X and Moto G have been well-received.
- Patents: Lenovo is getting access to (and in some cases ownership of) Motorola patents that other mobile companies (like Samsung and Apple) have to pay for.
- The Motorola brand: Just as Lenovo kept IBM’s ThinkPad brand for its PC business, it plans to keep the highly-recognizable Motorola brand name for mobile devices. Consumers who might not be familiar with Lenovo probably are familiar with Motorola.
But Google also wins
Google will reap a lot of benefits from this sale. Here are a few.
- No more conflict of interest: It’s no longer making both the Android operating system and Android devices, competing directly with its partners. Selling Motorola should help smooth relations with the likes of LG, HTC, Sony, and (particularly) Samsung. It will also hopefully spur competition and innovation in the Android ecosystem.
- Motorola was a money pit: It’s no longer saddled with a money-losing hardware business. That should please Google investors.
- It gets the patents: It’s keeping Motorola’s patents. They patents have not proven very effective at fending off legal challenges to Android, but patent battles take years to resolve: they may come through yet. In the meantime, the patents have been valuable to Google for generating agreements with Ericsson and Samsung, and they’ll continue to generate licensing fees for years to come.
- A successful Lenovo is good for business: If Lenovo succeeds with Motorola, it will reduce Samsung’s influence on the broader Android ecosystem. Google and Samsung have been at odds over Android’s direction. Having another major Android vendor in the ecosystem will make it more difficult for Samsung to push Google around.
- The Android ecosystem wins: There is now has a another major player with deep resources that – if it plays its cards right – can challenge Samsung. Lenovo already has massive manufacturing capacity, deep pockets, solid product lines, and customers / channel partners all over the world. If anyone can succeed with Motorola, it’s probably Lenovo.
… and who loses?
If there are winners, there have to be losers, right?
Samsung: The Korean giant loses because its days of dominating the Android platform could be numbered. Let’s face it: Google has never been very good at selling Android hardware. The various Nexus products are popular with developers but haven’t gotten much traction with consumers, and Google was always lukewarm about Motorola’s phone business, preferring to keep it at arm’s length. Lenovo, on the other hand, has both the resources and the willpower to make Motorola very competitive on a global scale. Samsung could have a fight on its hands.
Keep in mind that Samsung is also a winner because Google is no longer in the Android device business. Sure, Google will continue to make its Nexus line, partnering with the likes of Acer, Asus, and even Samsung to produce devices. But Samsung has to be pleased it no longer has to compete directly with a Google subsidiary on Android. The timing of its new patent-sharing agreement with Google probably isn’t a coincidence.
Motorola: Sadly, Moto might be the biggest loser in this deal. The company has lost money for years; it’s seen itself acquired, carved up, sold off, and had more than 20 percent of its people jettisoned – and now it’s just been sold again. That turmoil weighs heavily on morale. Motorola does have a lot of talent, but those employees are probably asking themselves serious questions. In trying to put a happy face on the Lenovo acquisition, the best Motorola CEO Dennis Woodside could do was express satisfaction that Motorola has a “brand new steward.” Even Motorola’s leaders see the company as a wallflower that needs a chaperone to the big dance.
We might lose out, too
We’re not sure if we’ll be winners or losers. Motorola has picked up some steam lately with its Moto X and Moto G devices – the Moto G in particular has gained traction as a solid entry-level Android phone. Hopefully, injecting Lenovo’s resources and willpower will let Motorola build on those successes and become a serious, top-tier player in the Android ecosystem. More choice is always good. Plus, the Motorola brand goes all the way back to the 1930s, when the company got started in car radios. It’d be a shame to see Motorola fade away. But it could, and future devices may not be as affordable as the Moto X and G.
- The best cheap tablets under $200
- A Pixel Fold is exactly what’s needed to finally make Pixel phones exciting
- Better late than never, the Motorola Moto G100 lands in the U.S.
- Google’s Wear smartwatch software update list is short, and the wait is long
- The best laptops under $500 for 2021