I think Lenovo just made a heck of a good deal. Or at least a better one than Google(s goog) made in 2011.
The company purchased Motorola Mobility from Google Wednesday for $2.91 billion, just 17 months after Google spent $12.5 billion for Motorola. Granted, Google gained Motorola’s rich patent portfolio in 2011 but Lenovo gets a piece of that too from today’s purchase: The China-based company gains roughly 2,000 patent assets of its own and has a cross-licensing agreement with Google for the rest.
That patent protection could come in handy as Lenovo seeks to strengthen its smartphone market share around the globe. And make no mistake: That’s what this deal is all about. Without the Motorola brand, Lenovo would have a hard time breaking into new regions.
In fact, as I listened to the Lenovo conference call after news of the deal broke, that was a recurring theme from both Mr. Yang Yuanqing, Chairman and CEO, and Wong Waiming, CFO of Lenovo. Here are few quotes to illustrate the point:
“We bought this business and this team. We think they have very unique expertise.”
“Moto Mobility (is) very complementary to Lenovo Mobility. An asset we acquired for growth.”
“Winning market share is the goal. Now we have what we need to challenge others in this market.”
“We can sell 100 million units every year in the smartphone market.”
For reference on the last quote: Lenovo sold an estimated 45.5 million smartphones in 2013 according to IDC.
Yuanqing and Waiming emphasized that the Motorola brand will continue on and be complementary to Lenovo’s own brand. Although long-term details weren’t provided, it sounded to me like Motorola phones would still be sold in markets where Motorola has strong name-brand recognition: Don’t expect to see an influx of Lenovo phones in North and Latin America, for example.
So what does this deal do immediately for Lenovo? Research firm Strategy Analytics isn’t even waiting for the deal to close: It says Lenovo just vaulted to the no. 3 smartphone vendor in the world, behind only Samsung and Apple, with 6 percent of all smartphone sales in 2013.
Huawei and ZTE may be fierce competitors in China, but they don’t have a Motorola that can get them instant market share in the Americas and Europe. That share is currently small, but with products such as the Moto X and Moto G, Motorola showed promise; more than Lenovo has in these regions.
Lenovo said it has no plans to shutter Motorola offices in Chicago and that Dennis Woodside and the executive team would stay to continue executing Motorola’s current plans. Motorola’s Texas assembly plant seems up in the air, however, as Lenovo execs said they believe most of Motorola’s production is outsourced. That’s a nice way of saying, “We’ll take a look but only keep it if it’s cost effective.”
All in all, this looks like far less than a merger of two product lines; I don’t expect Lenovo to ingest Motorola’s products any more than I expect a rash of Lenovo phones landing in the U.S. The two brands will be kept separate; it’s a simple market share buy for Lenovo along with the bonus of patent licenses.
Does that mean Motorola Mobility is worth the $2.91 billion Lenovo just paid?
I’m doubtful of that mainly because it’s a large amount of money for company that wasn’t profitable, but still think it’s a solid deal. Being more of a hardware company, Lenovo is likely to take time that Google wouldn’t to see if Motorola can keep growing and eventually thrive. The deal also opens doors to Lenovo in markets where it had little or no chance of gaining share because it’s not a brand in such regions.
And of course, besides the rich history of Motorola, Lenovo grabs the company’s engineering expertise; something that already made a mid-range phone like the Moto X perform like a more expensive device while adding unique features that no phone currently has.