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Google sheds Motorola in $2.9b deal with Lenovo

By AFP - Jan 30,2014 - Last updated at Jan 30,2014

WASHINGTON — Google has agreed to sell Motorola to Chinese technology giant Lenovo for $2.91 billion, after a lackluster two-year effort to turn around the smartphone maker it bought for $12.5 billion.

The deal ends Google’s run as a handset maker after its biggest-ever takeover, which was announced in 2011 and finalised in 2012.

It also provides Lenovo footholds in smartphone and tablet markets where it is eager to gain traction while acting as a peace offering to Samsung and other partners that make devices powered by Google-backed Android software.

“It is win-win,” said analyst Tim Bajarin of Creative Strategies in Silicon Valley. “Google keeps the patents and the research group, and they keep partners off their back, while Lenovo gets what they need to get into the US smartphone market.”

The deal comes just a week after Lenovo said it will buy IBM’s low-end server business for $2.3 billion, giving it a platform to compete in that sector with US giants Dell and Hewlett-Packard.

However, Lenovo’s Hong Kong-listed shares dived 8.21 per cent to HK$10.06 on Thursday as investors were spooked about Motorola’s profitability.

Even under Google, Motorola failed to gain traction in a rapidly evolving smartphone market now dominated by South Korea’s Samsung and US-based Apple.

Google and Lenovo claimed the deal was good for everyone involved.

“Lenovo has the expertise and track record to scale Motorola Mobility into a major player within the Android ecosystem,” Google Chief Executive Larry Page said in a statement.

Lenovo Chairman and Chief Executive Yang Yuanqing said the acquisition “will immediately make Lenovo a strong global competitor in smartphones. We will immediately have the opportunity to become a strong global player in the fast-growing mobile space”.

The Chinese firm was the fifth-largest smartphone maker in the fourth quarter, with a 4.5 per cent market share, barely behind fellow Chinese maker Huawei and South Korea’s LG, according to a report by research firm IDC.

Ramon Llamas, at IDC, said with Motorola added in, Lenovo will be number three globally and gain other benefits.

“Lenovo gets an all-important foothold in North America and in Latin America, and to a lesser extent western Europe,” Llamas indicated. “Motorola has distribution, it has brand recognition, Lenovo does not have that.”

Lenovo became best known in the United States after buying IBM’s PC business in 2005, and used that to become the world’s biggest PC maker in 2013.

However, JP Morgan analysts said in a note to clients that Motorola is deeply unprofitable with losses approaching $1 billion and questioning whether Lenovo can get the business in the black.

They asked: “Are they buying a bit more than they can chew?”

While Google would be taking a loss on the sale, it did spin off the Motorola Home division for $2.3 billion in 2012 and sold off some of its manufacturing facilities.

Some analysts said one of Google’s main interests in Motorola would be the portfolio of 17,000 patents, the majority of which it will keep.

“Google got what they wanted and needed from Moto — they got patents, engineering talent and mobile market device insight,” said technology analyst Jack Gold. “They don’t need to be in the device business... This is a win for Google and a win for Lenovo in my opinion.”

But according to Llamas, the deal still leaves a hole of about $7 billion for Google and asked AFP: “Are the patents worth $7 billion? I don’t know but that is a big question.”

Llamas said Motorola failed to make headway some had expected with Google’s deep pockets. While the unit produced a highly regarded Moto X handset and a budget-priced Moto G, it has remained far behind the leaders.

“Nobody expected Motorola to go back to its heyday, but I think with Google’s backing, some of us expected it to make a run at the market leaders and that didn’t happen,” he added.

In a blog post, Page said Google bought Motorola “to help supercharge the Android ecosystem” and that goal has been accomplished.

“But the smartphone market is super competitive, and to thrive, it helps to be all-in when it comes to making mobile devices. It’s why we believe that Motorola will be better served by Lenovo — which has a rapidly growing smartphone business and is the largest [and fastest-growing] PC manufacturer in the world,” Page said.

“This move will enable Google to devote our energy to driving innovation across the Android ecosystem, for the benefit of smartphone users everywhere,” he added.

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