Lenovo and Google happy with Motorola deal, Chinese investors less so

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Lenovo and Google happy with Motorola deal, Chinese investors less so

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Chinese technology company Lenovo is buying loss-making Motorola from search engine giant Google.

The price is $2.9 billion dollars (2.13 billion euros), less than a quarter of the $12.5 billion Google paid for the handset maker in May 2012.

But one industry watcher said it is not as bad a deal as it looks for Google.

Reuters Breakingviews Asia Editor Peter Thal Larsen explained: “They sold the Motorola set top box business for a couple of billion dollars, they also had a one billion dollar tax credit that came with the business when they bought it. And the business had three billion dollars of cash in it, which Google will keep as a result of this deal.”

He pointed out that Google will retain ownership of most of Motorola’s patent portfolio: “Google is also keeping the patents which are part of the Motorola mobility business, which is what they were really interested in in the first place. So when you add all that up, it looks like Google is actually coming out slightly better. They get some patents, they get some technology and mobile. And they get rid of this handset business, which is something that they didn’t really want to own, and Lenovo does.”

Betting on a turnaround

Lenovo – which makes only 20 percent of its money from mobile phones and the rest from personal computers – is betting that it can stem Motorola’s losses and challenge the big boys – Samsung and Apple. This purchase makes it number three in the smartphone market.

Lenovo’s chief executive Yang Yuanqing told reporters at a news conference: “With the merger of the two companies, Levono will bring Motorola Mobility on the path of healthy growth with profit, and launch a powerful challenge to the world’s largest and second largest smart phone producers.”

Larry Page, CEO of Google was also upbeat saying: “We think Lenovo has the expertise and track record to scale Motorola into a major player within the Android ecosystem. They have a lot experience in hardware, and they have global reach.”

But investors felt Lenovo had overpaid and Lenovo’s shares slumped 8.2 percent on Thursday. Google’s shares rose.

Big deals

It is the Chinese firm’s second major US deal in a week. It also agreed to buy IBM’s low-end server business for $2.3 billion (1.7 billion euros).

Reuters’ Peter Thal Larsen is also not sure if these deals can come good for Lenovo: “They have a big handset business in China, but not so big outside China. And obviously buying Motorola gets them a brand name that is recognised in other parts of the world, particularly the United States.

“With servers, it’s a bit less clear how that fits in, but the strategy with the IBM servers business basically seems to be that they can improve the profitability of that business by mashing it together with their PC business – buying the same components, assembling it at the same time. But nonetheless, it looks like integrating these two big acquisitions, which are both loss-making, is going to be a big ask for Lenovo.”