Washington,Jan.30,2014(WSJ): Google sells handset business to Lenovo for nearly $3 billion. Bryan Ma of IDC tells the WSJ’s Aaron Back how Motorola phones will give Lenovo a shortcut into the competitive U.S. Market.Google Inc. GOOG +2.67% ‘s experiment making Motorola phones has ended after just 22 months, with the company unloading the handset business to China’s Lenovo Group Inc. 0992.HK -8.21% for $2.91 billion but keeping a valuable trove of patents.
Empreror of Internet Google Sells Handset Business to Lenovo
The deal unwinds the Internet company’s costly move into smartphone hardware after it acquired Motorola Mobility for $12.5 billion in May 2012. Google has struggled to compete in the cutthroat phone-hardware business—its share of the world-wide smartphone market fell to about 1% last year from 2.3% a year earlier, according to IDC.Google said it would retain the vast majority of Motorola’s patent portfolio, a key motivation of the original transaction that lets it defend those phone makers who use its Android software against patent suits. Google’s Android software powers the majority of the world’s smartphones.
The deal also signals the rising ambitions of Lenovo, which is seeking to be a bigger player in the global technology market. Lenovo, which last week agreed to buy a server business from International Business Machines Corp. IBM +0.09% , gains a brand that would catapult its place in the global smartphone market to third from fifth, far behind Samsung Electronics Co. 005930.SE -0.23% and Apple Inc., AAPL -0.60% according to IDC. Lenovo became the No. 1 personal-computer maker last year after buying IBM’s PC business in 2005.
The Google deal—and last week’s agreement with IBM—are likely to draw scrutiny from U.S. regulators concerned about security issues involving acquisitions by Chinese companies. An inquiry could delay the closure for several months or make it difficult to complete. The deal announced Wednesday came together relatively quickly, with talks beginning around Thanksgiving, said Yang Yuanqing, Lenovo’s chairman and chief executive. That was just a few weeks after another handset maker, the troubled Canadian firm BlackBerry Ltd., scrapped a plan to sell itself—a sales process in which Lenovo had been a suitor, people familiar with the matter said at the time. Lenovo had no real competition in bidding for the Google business, a person familiar with the deal said.
Google originally paid $12.5 billion for all of Motorola, though it gained access to Motorola’s $3 billion in cash, and was able to sell Motorola’s set-top box business for another $2.35 billion. Google had absorbed roughly $2 billion of operating losses through the third quarter of last year. In the Lenovo deal, Google would receive $660 million in cash up front and $750 million of Lenovo shares. The other $1.5 billion is due within three years. Besides providing an immediate boost to Google’s bottom line, selling Motorola should reduce potential friction between Google and hardware partners that use its Android mobile operating system. Android is used by companies that include Samsung as well as Lenovo and Motorola itself.(Wall Street Journal)
Despite Google’s attempts to run Motorola as an independent unit, executives at smartphone makers didn’t like relying for smartphone software on a company that competes with them in the hardware market.