By selling Motorola Mobility to Lenovo, Google is ending a combination that never really worked out while keeping assets that could prove valuable down the road.
In a deal announced on Wednesday, Lenovo agreed to buy the venerable handset maker for $2.91 billion, pending regulatory approval. That’s far less than the $12.5 billion that Google paid for Motorola in 2011, even counting what it already got for selling off the company’s set-top-box business. But Google will retain most of Motorola’s patents, potentially a valuable warchest in the lawsuit-strewn mobile industry.
More importantly, the search giant will get out of a business that never helped it compete or make money and hurt its relationships with other Android phone manufacturers, industry analysts said.
Fixing a mistake
“Google didn’t really have to buy Motorola and probably should not have bought Motorola,” said analyst Avi Greengart of Current Analysis.
Though simple math suggests it cost Google more than $9 billion to own Motorola for a few years and obtain most of its patents, the company did recover about $2.35 billion by selling Motorola’s set-top-box business to Arris Group in 2012. And for a company worth more than $350 billion, these aren’t exactly bet-the-farm transactions.
The 2011 acquisition raised questions about whether the vast universe of Android device makers, including Samsung Electronics and LG Electronics, would be able to compete on a level playing field with an in-house Google handset brand. Among other things, the partners were concerned Motorola would get early access to new Android innovations, analysts said. The tensions were never resolved.
Now, Google can get back to its core business, analysts said.
“The biggest thing they get is more clarity,” said analyst Chetan Sharma of Chetan Sharma Consulting. “Their interests are more aligned with having an Android strategy and working with the partners versus trying to build their own hardware.”
While owning a phone vendor made it harder for Google to work with its partners in proliferating Android, the business also continued to lose millions. Motorola was struggling in a highly competitive phone business when Google bought it and remains a distant follower behind Samsung, Apple and other well-known names. Motorola’s share of the worldwide smartphone market was just 1.3 percent in the third quarter of last year, according to Gartner.
Better for Google, better for Android
Selling the company will take a money-losing asset off Google’s books and simultaneously make its partners more comfortable investing in Android, Greengart of Current Analysis said.
But Google didn’t buy Motorola to get into the handset business, according to analyst Jack Gold of J. Gold Associates. It wanted patents, engineers and insights into the mobile business, and got those, Gold said in a note analyzing the news. “They made an investment in the other value of Motorola and probably just hoped for the best on sales,” he said.
As weak as Motorola is in the global handset sweepstakes, it could be a valuable asset for Lenovo as the Chinese company tries to expand its phone business outside of China. Lenovo had 5.1 percent of the world market in the third quarter, according to Gartner, but its name is not as well-known as Motorola’s.
With Motorola, Lenovo will get global name recognition but not global distribution, Greengart said: Motorola’s sales are mostly concentrated in North America and Latin America.
However, the ailing phone maker’s products are actually good, Greengart said. Motorola has found a niche with smartphones that extend pure Android without smothering it in add-on features such as a Motorola calendar or phone application, he said. Also, the company has tuned its products for a set of consumer preferences—a “just right” strategy—rather than making the biggest or fastest handsets.
The challenge has been getting that message across to consumers, and Lenovo will inherit that problem, Greengart said. Still, Lenovo has a proven track record of adopting a U.S. brand, the successful Think line of laptops that the company acquired from IBM in 2005.
“This gets Lenovo into the U.S. and at the table with U.S. operators,” Gartner analyst Hugues de la Vergne said in an email interview. “The opportunity for Lenovo is to provide lower cost smartphones, since operators are aggressively trying to get their subsidy costs under control.”
But the jury is still out on whether it can succeed. “The U.S. is very competitive and it will be an uphill battle for Lenovo to gain significant share in a market dominated by Samsung and Apple,” he said.