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. It is the Lenovo's second
major deal in US in a week as the Chinese electronics company angles to get a
foothold in major global computing markets. Lenovo had announced that it would
buy IBM's low-end server business for $2.3 billion.
Lenovo is paying about $2.91
billion for Motorola: $660 million in cash, $750 million worth of Lenovo stock
and $1.5 billion in the form of a three-year promissory note. Lenovo gets the
Motorola brand along with the current and future products such as the Moto X
smart phone. It also gets more than 2,000 patents and the Motorola trademark
portfolio. The sale price is a lot lower than the $12.5 billion that Google
agreed to pay for Motorola in late 2011. However, Google is keeping most of the
Motorola's patents and is providing Lenovo a license for this portfolio and
other intellectual property.
Google had previously recovered
some of the money that it spent on Motorola by selling the company's set-top
operations last year to Arris Group Inc. for $2.35 billion. Google is also
keeping most of the patents that came with the Motorola purchase.
It is unclear if Google will have
to absorb a charge to account for the difference between what it paid for
Motorola Mobility and what it is getting back. The Mountain View, company in
California, may address the issue on Thursday when it announces its
fourth-quarter earnings after the market closes. Though patents are a large
part of what drew Google's interest to Motorola in the first place, those
patents have not been as helpful as Google initially hoped from it. Google
seems to have highly overvalued Motorola's portfolio, which has not been able
to bring in nearly as much in royalties as either company seemingly expected.
It also has not been able to use those patents very aggressively and saw them
fail when used in an attempt to block sales of the iPhone. The whole ownership
of Motorola has been something of a headache for Google, and it appears that it
is finally time for Google to cut its losses.
Lenovo is already among the smart
phone leaders in its home country of China, but it has been looking for other
ways to expand its presence in other markets, especially in the US and in Latin
America. This company had been rumored to be among the prospective buyers for
BlackBerry.
Buying Motorola will enable Lenovo
to join with Apple as the only major technology companies with global product
lines in PCs, smart phones and tablets, putting Lenovo in a better position to
become a one-stop shop for companies to buy all their devices from the same
vendor.
Most investors viewed Motorola as
an unnecessary drain on Google's profit. Google's stock gained $28.08, or 2.5
percent, to $1,135 in extended trading. Most analysts thought Google had paid
too much money for Motorola and questioned why Google wanted to own a smart
phone maker at the risk of alienating other mobile device makers that rely on
Android. Although Google does not charge any device makers to use the software
but Google makes money from Android because the operating system features
Google services that show digital ads.
This purchase will give Lenovo a
beach-head to compete against Apple and Samsung Electronics as well.
Author : Iman Majeed
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