Why Lenovo has bought Motorola

What the Motorola acquisition means for Google, Android and the smartphone market

Lenovo has agreed to buy Motorola from Google for US $2.91bn. On the face of it that’s a big loss for Google given that it spent $12.5bn buying Motorola only in 2011. So what’s going on? Here I’ll take a look at why Lenovo has bought Motorola, why Google has sold it, and what it means for Android and the smartphone market.

Why Lenovo has bought Motorola Lenovo has operational scale, access to components, and a strong brand name in the important emerging markets of Asia and Africa. Motorola makes great products like the Moto X and Moto G, and brings a very close relationship with Google. Lenovo is buying the soft- and hardware engineering expertise required to make great phones, and bringing the ability to punt them out cheaply and at scale. Then there is the sympathies between the brands. Motorola is a strong brand in the US and south America, Lenovo in Asia. The joint venture could be a potent mix, as the two brands are quickly merged.

With the capture of Motorola Lenovo just became the third biggest smartphone maker in the world. According to Strategy Analytics the combination of Lenovo and Motorola accounted for 6 percent of global smartphone shipments in 2013. Lenovo alone shipped 45 million smartphones last year according to IDC. Furthermore Lenovo is huge in China, which is a major source for smartphone growth. And it has that ability to manufacture and roll out products on a huge scale (did we mention that?).

Motorola’s engineers can design great phones, and Lenovo can make sure they reach every corner of the world. Motorola has a full version of Android that is full-featured and easy to use, and as a huge PC- and laptop vendor Lenovo can access all the components it needs. It has one of the biggest channels to market of any tech company, and the scale to make cheaply the great things Motorola designs.

This matters because there are only two ways in the which the global smartphone market will grow. Number 1, fi rst-time purchasers in Asia and Africa. And secondly: budget smartphone purchasers in the saturated Western markets. A combined Motorola/ Lenovo will be able to make cheaply great handsets, and ship them to every market. That’s great news for them and for consumers, and poor news for the likes of Huawei, ZTE and LG.

Why Google has sold Motorola
In the short term Google has divested itself of a loss-making division. Moreover running Motorola was a distraction from Google’s core business of getting consumers to use Google services and then using the data generated to sell advertising. Running Motorola never sat easy with Google’s other Android partners, who must have felt like they were competing with their partner. Of course, buying something for $12.5bn and then selling it for $2.91bn isn’t great business. But it’s also not the full story.

You’ll read a lot about how Google has kept hold of Motorola’s patents, which will generate revenues in the future. Many analysts are arguing that Google only ever wanted Motorola’s patents – the vast majority it is keeping for itself and licensing back to Lenovo. The value of those patents to Google is known only to Google.

More hard news is that Google in fact divested of Motorola for $5.3bn, as it sold the set-top part of Motorola to IBM for $2.4bn some months ago. That leaves a $7bn loss on a loss-making business o set only by some patents of dubious value. It starts to make more sense, but what’s the real game here? Ultimately a strong Lenovo/Motorola hybrid selling large volumes of Android phones can only be good news for Google. The African and Asian markets are dominated by Android, but mostly by cut-down flavours of Google’s ‘open’ OS that don’t generate the data, or media and app sales, via which Google monetises Android. A successful Lenovo will sell Android handsets in western markets, too, increasing Android market share there.

Motorola’s expertise could ensure that those
people who get new Android phones spend money
on using them, too, and use them for all the webbased
activities via which Google generates data
and therefore ad revenue. The Android market
is hopelessly fragmented right now, but it will
consolidate around a few big brands. Samsung and
Sony have the high-end sewn up, albeit in a fi ght with
an ailing HTC. Lenovo/Motorola could hoover up the
bottom end of the market.
In the long run fewer, better Android manufacturers
is good for Google. So the strategy of selling Motorola
to the right company makes sense.
Then there’s the Samsung question. Samsung
is the most successful Android phone maker,
but famously never mentioned ‘Android’ when it
launched the Galaxy S4. Using a Samsung phone
is very much a ‘Samsung’ rather than a ‘Google’
experience, complete with Samsung stores and
services. Samsung has even hinted at moving away
from Android and on to the Tizen platform, which
would be disastrous for Google. Should Lenovo and
Motorola perform as expected Samsung becomes
less important for Android. It would be a blow to lose
Samsung, but it would no longer be a terminal blow.
The purchase and sale of Motorola could be seen as
a $7bn insurance policy agains the big phone makers
jumping from the good ship Android.
Finally, it’s worth looking at the economics of
Google buying Motorola in the fi rst place, and then
selling it for a loss.
Google is incredibly cash rich. In this period of
the company’s history it has money to spend, and
strategic goals to fulfi l in a rapidly developing market.
We won’t know for a while if buying and selling
Motorola makes sense, but it certainly doesn’t put
Google in fi nancial di culty. It’s prepared to buy its
strategic goals.
Google bought Motorola to keep an important
Android player in the smartphone- and tablet market.
It bought it for its manufacturing and design expertise,
for its patents, and to ensure Google had a stake in
the nascent Android hardware market. It certainly
didn’t buy it to make money – although I doubt it
expected to lose as much money as it has.
Given that the Nexus products Google sells in
partnership with other hardware vendors have
continued to sell in great numbers during Motorola’s
entire time in the Google fold it seems highly unlikely
that Google ever looked to run Motorola as a going
concern. Which is good because it never did.
No. I think Motorola has served its purpose for
Google. By selling it to a strong manufacturer such as
Lenovo Google will calculate that it stands to make up
its losses in future market share and revenue, as well
as shoring up the future of Android in a smartphone
world that at least hints at further fragmentation. And
it is taking up a small amount of shares in the new
Lenovo/Motorola business to indicate exactly that.
What this means for the market
Lenovo/Motorola means good, cheap, full-Android
smartphones, at scale in all corners of the world. It
means a powerful large-scale budget phone maker
dedicated in the long-term to Android. Already the
third-biggest smartphone company on the planet,
combined Lenovo and Motorola will be able to
rapidly increase market share by o ering quality
to fi rst-time smartphone buyers in Africa and Asia,
as well as the West. It has the brands to do so, the
expertise and the manufacturing clout. And it has
a visible brand in every corner of the world.
In the long term this is good news for Google,
Lenovo and Motorola, and potentially bad news for
the smaller commodity phone makers and those who
wish to see a more fragmented budget phone market.


KNOWLEDGE HISTORY HOW TO ANIMAL LIFE CRIME CELEB GAMES MYSTERY FOOD SPACE TRAVEL FINANCE HEALTH BEAUTY TECH VEHICLE ENTERTAINMENT GARDEN PRODUCT DECORATE JOKES