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 It is Lenovo's second major deal on U.S. soil in a week as the
Chinese electronics company angles to get a foothold in major global
computing markets. Lenovo last week said it would buy IBM's low-end
server business for $2.3 billion.
The deal ends Google's short-lived foray into making consumer mobile
devices and marks a pullback from its largest-ever acquisition.
Google paid $12.5 billion for Motorola in 2012. Under this deal the
search giant will keep the majority of Motorola's mobile patents,
considered its prize assets.
Shares of Google climbed 2.6 percent to about $1,136 in after-hours
trading. Google Chief Executive Officer Larry Page said that Google
would be best served by focusing on smartphone software rather than
devices.
Reuters reported the deal earlier on Wednesday, citing sources
familiar with the deal.
The purchase will give Lenovo a beachhead to compete against Apple
and Samsung Electronics as well as increasingly aggressive Chinese smartphone makers in the highly lucrative U.S. arena.
In 2005, Lenovo muscled its way into what was then the world's
largest PC market by buying IBM's personal computer division. It has
powered its way up the rankings of the global smartphone industry
primarily through sales on its home turf but had considered a U.S.
sortie of late.
"Using Motorola, just as Lenovo used the IBM ThinkPad brand, to gain
quick credibility and access to desirable markets and build critical
mass makes a lot of sense," said Forrester Research analyst Frank
Gillett.
"But Motorola has not been shooting the lights out with designs or
sales volumes in smartphones. So the value is simply in brand
recognition to achieve market recognition faster — and to expand the
design and marketing team with talent experienced at U.S. and
Western markets."
RISE OF THE CHINESE
The deal is subject to approval by both U.S. and Chinese
authorities.
Chinese companies faced the most scrutiny over their U.S.
acquisitions in 2012, according to a report issued in December by
the Committee on Foreign Investment in the United States. Analysts
say political issues could cloud the Motorola sale, especially with
Lenovo trying to seal the IBM deal at the same time.
Lenovo will receive over 2,000 "patent assets" as part of the
transaction, the companies said, but it remains unknown which will
change hands and whether they might be subject to extra scrutiny
from regulators.
For Motorola, Lenovo will pay $660 million in cash, $750 million in
Lenovo ordinary shares, and another $1.5 billion in the form of a
three-year promissory note, Lenovo and Google said in a joint
statement.
"The acquisition of such an iconic brand, innovative product
portfolio and incredibly talented global team will immediately make
Lenovo a strong global competitor in smartphones," Lenovo's chief
executive, Yang Yuanqing, said in a statement.
In two years, China's three biggest handset makers — Huawei, ZTE
Corp and Lenovo — have vaulted into the top ranks of global
smartphone charts, helped in part by their huge domestic market and
spurring talk of a new force in the smartphone wars.
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Although Huawei and ZTE have made some inroads in the United States,
where the Chinese companies continue to grapple with low brand
awareness, perceptions of inferior quality and even security
concerns. Lenovo has until now stayed out of the U.S. market.
In the third quarter of last year, ZTE and Huawei accounted for
5.7 percent and 3 percent of all phones sold in the United States,
respectively, trailing Apple's 36.2 percent and Samsung's 32.5
percent, according to research house IDC.
Huawei declined to comment on the Lenovo deal on Wednesday. ZTE did
not immediately offer comment.
Globally, Lenovo ranked fifth in 2013 with a 4.5 percent market
share, according to IDC. That's up from 3.3 percent in 2012 and
virtually nil a couple years before that.
STEP BACK
For Google, the sale represented a solution to a persistent headache
as Motorola's losses widened in recent quarters. It also showed
Google is willing to step back from the handset arena and throw its
weight behind device makers that propagate its Android software,
Kantar analyst Carolina Milanesi said.
"It all points to Google thinking in the short run that they're
better off betting on Samsung and keeping them close," Milanesi
said. "And of course now they're enabling a second strong runner (Lenovo)
in the Android ecosystem."
In 2012, analysts saw Google's Motorola acquisition as primarily a
way to secure the company's trove of patents amid the technology
sector's increasing legal battles — rather than a bona fide push
into the handset business.
Many industry observers were surprised that Google did not
immediately sell the hardware division after the deal closed,
choosing instead to operate Motorola a separate company.
It did sell Motorola's cable television set-top box business to
Arris Group Inc for $2.35 billion at the end of 2012.
In a blog post on Wednesday, Google's Page highlighted the strategic
choice in selling the Motorola handset business.
"The smartphone market is super competitive, and to thrive it helps
to be all-in when it comes to making mobile devices," Page wrote.
"This move will enable Google to devote our energy to driving
innovation across the Android ecosystem, for the benefit of
smartphone users everywhere."
Lenovo is being advised by Credit Suisse Group while Lazard Ltd
advised Google on the transaction.
(Writing by Edwin Chan; editing by Soyoung Kim, Chizu Nomiyama and Leslie Adler)
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