07 Dec Lenovo and Google “A win win” deal
The Chinese giant PC producer Lenovo has acquired the iconic mobile maker Motorola Mobility for $2.91 billion from Google. Google paid 12.5 billion for Motorola in 2011. In what it appears that Google has a huge loss of approx 9 billion.
Google confirmed that it is giving up trying to compete with smartphone makers, selling its Motorola handset business to China’s Lenovo for $2.91 billion. Less than 3-years after buying it for $12.5 billion.
“The smartphone market is super competitive, and to thrive it helps to be all-in when it comes to making mobile devices. It’s why we believe that Motorola will be better served by Lenovo—which has a rapidly growing smartphone business and is the largest (and fastest-growing) PC manufacturer in the world,” admitted Google CEO Larry Page
Instead the Internet giant said it will focus on developing the Android software for smartphones and retain the vast majority of Motorola’s patents, which it will continue to use to defend the entire Android ecosystem
On the face of it, that’s more than $9.5 billion for a collection of patents that has not proven to be very effective, especially against Apple, Microsoft or even Nokia.
However, on the bright side, when Google acquired Motorola it also inherited a cash pile of $3.2 billion, as well as $2.4 billion in deferred tax assets, for a net acquisition cost of $6.9 billion
Google then sold Motorola’s set-top box business to Arris Group ($2.3 billion) and its factories to Flextronics ($75 million), further reducing the total acquisition cost to $3.85 billion.
Net-net, after the Lenovo deal closes, Google spent less than a billion dollars for patents that it originally estimated was worth $5.5 billion, plus some valuable insights in running a large hardware company (mass layoffs, razor thin margins, ultra competitive market…) – and the realization that its not what they want to be doing in the long run.
Admittedly, Motorola also ran up close to $2 billion in operating losses, but that still leaves Google with a $3 billion profit!
OK, I admit, that’s a bit of fuzzy math. But at the very least that’s not the huge overstated loss that we’re reading pretty much everywhere.
“Motorola to help Lenovo enter the U.S. and other mature markets”
For Lenovo, the Motorola acquisition is a fantastic win at a relatively low risk: $660 million in cash, $750 million in stock and the remaining $1.5 billion through a three-year promissory note.
The world’s fourth smartphone maker in market share – behind Samsung, Apple and Huawei – gets the iconic U.S. mobile phone brand, worldwide channels outside its primary market in China and deep relationships with carriers like AT&T and Verizon. ”And it gets an engineering staff that knows phones for worldwide sales,” said analyst Jack Gould.
A win-win deal after all.