In the year 2012, Google had bought Motorola Mobility for $12.5 billion, which it sold yesterday to Lenovo for $2.91, thereby generating a direct loss of $9.59 billion, if we exclude the inflation and other associated costs. Google had to bite this bullet, as ever since this acquisition happened, it was weighing in on their balance sheet and profitability.
Motorola had been bleeding Google badly; some estimates put the loss at $1 billion every year. Google has already lost $2 billion since this acquisition and trimmed the Motorola workforce from 20,000 to 3,800.
Larry Page announced this deal via this blog yesterday as he said, “We’ve just signed an agreement to sell Motorola to Lenovo for $2.91 billion,” adding, “I’m phenomenally impressed with everything the Motorola team has achieved and confident that with Lenovo as a partner, Motorola will build more and more great products for people everywhere.”
Out of $2.91 billion, $1.41 billion would be paid at the close of the deal; $660 million will be hard cash and $750 million via Lenovo shares. The remaining $1.5 billion will be paid via three year promissory notes. Credit Suisse Group is advising Lenovo on this mega-deal while Lazard Ltd advised Google. Google had recovered some of the investment by selling set-top operations of Motorola to Arris Group last year for $2.35 billion.
While prima-facie, it looks like Google lost a lot of money on Motorola, many believe that this deal was not really loss-making and Google actually stands to profit from it indirectly. When Motorola was in Google’s fold, they could not do much due to various anti-competitive SEC or FCC regulations and legalities. But now with Motorola moving out, those concerns are thrown out of the window.
The sell-off by Google is not only strategic, but a well thought out move that will help them immensely in longer run. Stock Market too reacted positively to this acquisition, as Google’s share prices increased 2.5% as it touched $1135 at the time of extended trading.
Colin Gillis, an analyst at BGC Partners said, “They make their money from people watching YouTube ads and doing searches, they don’t necessarily need to be the hardware maker.”
“Motorola’s been a millstone and a drag on results,” Gillis said. “You’re slipping the millstone off your neck.”
The Rise of Lenovo In Electronics Market
Lenovo is currently the largest manufacturer of PC in the world. After this acquisition, Lenovo will join the ranks of Apple as the only company which can provide world class desktops, PC, Laptops, Smartphones and Tablets. Large corporate enterprises can now buy all their gadget requirements from one single company.
Analysts are claiming this to be largest technology deal ever accomplished by a Chinese company. Last week, Lenovo has purchased IBM’s low end server business for $2.3 billion. Earlier, Lenovo has purchased IBM’s Thinkpad series of PC and Laptop in the year 2005.
Smart Move By Google
Several trade analysts are also observing that this is a very smart move by Google, as basically it is outsourcing Android’s handset manufacturing to Lenovo. If we observe closely, and read Larry Pages’ blog, we will understand that right now, Google’s primary focus is to expand Android ecosystem. And this is the reason they had bought Motorola in the first place.
But, it seems that their focus is diluting as they are not able to properly concentrate on the smartphone hardware business. Hence, by allowing Lenovo to deal with the manufacturing and distribution of hardware, they are in a way, strengthening it’s own Android eco-system, thereby creating space for more Google software products and tools.
Even in this deal, out of 17,000 original Motorola patents, Google will retain 15,000 of the most crucial patents and only allow Lenovo to use certain patents, that too under license. Anyone familiar with the tech world will understand that the importance of these patents is far more than the manufacturing and distribution rights.
Larry Page has already said, “Google will retain the vast majority of Motorola’s patents, which we will continue to use to defend the entire Android ecosystem.”
What are your views on this tech mega-deal between Google and Lenovo? Will Motorola resurface as a dominant force in the smartphone market or this deal will seal the fate of Motorola for ever?
Do share your views!
