The Method Behind Google, Inc.'s Motorola Madness

The search giant's sale of its Motorola phone unit isn't quite as bad as it may seem.

Jan 30, 2014 at 9:00PM

All those who lamented Google's (NASDAQ:GOOGL) decision in 2012 to drop $12.4 billion on Motorola Mobility, easily its largest acquisition to date, as misguided and much too expensive are probably gloating today. After announcing it sold Motorola, not counting the 20,000 mobile patents, to Lenovo (NASDAQOTH:LNVGY) for $2.9 billion, Google and CEO Larry Page were likely expecting a tidal wave of negativity. And, at first glance, the various headlines referring to the Lenovo deal as "Google's Misstep" seem warranted.

But before you judge the deal too quickly -- in other words, take the original $12.4 billion price tag Google spent for Motorola in 2012, subtract the $2.9 billion it just sold the unit for, and determine Google is eating $9.5 billion -- there's a bit more to the story. Does the sale of Motorola equate to an admission of defeat for Google? To some extent, yes, certainly as a hardware manufacturer, but nothing close to a $9.5 billion setback.

The rest of the story
Determining how big a hit Google is taking by selling Motorola to Lenovo requires reviewing its original deal to secure the business in 2012. Of the $12.4 billion Google spent to acquire the device manufacturer, $2.9 billion was cash and equivalents sitting on Motorola's balance sheet. That drops the cost of Motorola's actual assets at the time to $9.5 billion.

Since taking over Motorola, Google has also unloaded non-core assets, including last year's deal to sell the cable box unit to Arris Group for $2.05 billion in cash along with $300 million in stock. So, if we take another $2.3 billion from the $9.5 billion Google sunk into Motorola's assets, the search giant's on the hook for about $7.2 billion.

When Google made the original Motorola deal, it estimated the value of Motorola's patent portfolio at a whopping $5.5 billion. Even then, it was clear the patents were far and away the most valuable asset Motorola owned. Some investors may question Google's patent valuation, but let's assume its patent estimates are close; that leaves Google with Motorola assets of $1.7 billion ($7.2 billion less $5.5 billion), based on its original acquisition price. Does that mean Google actually made money on the Lenovo deal? Not quite.

There's one last factor to consider in calculating just how much Google lost, or gained, from the sale of Motorola. The $2.9 billion deal with Lenovo for the hardware business includes $1.4 billion in cash, about half the amount Google received in its original Motorola transaction, meaning Lenovo is actually spending $1.5 billion for Motorola's hardware assets.

After taking into account the cash included in both the 2012 and 2014 Motorola deals, asset sales in the interim, and Google's patent portfolio, the sale of Motorola leaves Google with approximately $200 million of egg on its face ($1.7 billion less $1.5 billion). Nothing to brag about, but hardly as bad as the headlines would have some believe. 

From here
Though China-based Lenovo's $2.3 billion deal to acquire the low-end server business of IBM last week was well received, the same can't be said for the Motorola acquisition. Lenovo was down more than 4% at the open after getting pounded by investors in after-hours trading.

As for Google, the decision to exit the hardware business and concentrate on its Android OS dominance, self-driving cars, and bizarre Internet balloons, among other innovative technologies, seems to have struck a chord with investors, and Google's share price jumped about 2% out of the gate this morning.

Final Foolish thoughts
The Motorola announcement is an ideal example of why investors need to go beyond the headlines before making decisions. If your research stopped at the news that Google spent $12.4 billion for Motorola and then sold it less than two years later for $2.9 billion, you'd wonder if Page and his team had lost their collective minds. Turns out, what seemed to have been a colossal failure at first glance really wasn't that bad a deal for Google.

A hidden mobile gem
Want to get in on the smartphone phenomenon? There's one company sitting at the crossroads of smartphone technology as we know it, and t's not your typical household name, either. But it stands to reap massive profits NO MATTER WHO ultimately wins the smartphone war. To find out what it is, click here to access the "One Stock You Must Buy Before the iPhone-Android War Escalates Any Further..."

Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Google. It also owns shares of International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers