Google’s Motorola Sale to Lenovo Is Great News for This Company

Google made a smart move by selling Motorola to an emerging market player like Lenovo, and here's one way to profit from it.

Feb 4, 2014 at 3:00PM

Google's (NASDAQ:GOOGL) sale of its Motorola business to Lenovo (NASDAQOTH:LNVGY) was a smart move by the search giant. The sale will now allow Google to focus more on the software side of the business, and might possibly help the Android ecosystem gather more steam in the emerging markets through Lenovo. However, yet another winner of this deal could be contract-electronics manufacturer Flextronics (NASDAQ:FLEX).

Why Flextronics?
In the recently reported third quarter, Motorola was Flextronics' only 10%-plus customer. When Google decided to build a smartphone in the U.S., it chose Flextronics as the manufacturing partner. Back in September, Flextronics was said to be assembling the Moto X at a weekly run rate of 100,000 units, and was capable enough to assemble "tens of millions" of phones every year, if the need arose.

However, with Google selling the Motorola brand to Lenovo, you might think that Flextronics' business was in danger. But, that's not the case, probably, as even Lenovo is a customer. Flextronics claims to have a very good relationship with Lenovo, receiving the "Supplier Quality of the Year" award last year. Also, given that Flextronics has factories around the world, including in China and Brazil, it might continue to get more business from Lenovo. 

In 2012, Lenovo made aggressive moves in the Brazilian market, spending $147 million to acquire three consumer electronics companies that manufactured computers, phones, and TVs. Now, Brazil is a fast-growing smartphone market. Smartphone sales in the nation were up 84% year-over-year during the first eight months of 2013. This year, the smartphone industry is expected to grow 75% in Brazil, according to GfK.

If Lenovo decides to aggressively push the Motorola brand in Brazil, it would probably look at Flextronics for its existing expertise in assembling the device. Even in China, smartphone shipments are expected to clock 450 million units this year, according to IDC, primarily driven by the introduction of TD-LTE. Lenovo, the third-largest smartphone maker in the world, is a force to reckon with in China, as it ranks second in the Middle Kingdom in smartphones.

If Lenovo decides to introduce a budget smartphone such as the Moto G in China, Flextronics would once again be a winner. The Moto G, which retails for $179 without a contract in the U.S., didn't go on sale in China. But, it might see the light of the day in the nation after the Google-Lenovo deal, opening a huge opportunity for Flextronics, as phones at such price points are in big demand in China.

Still counting on Google
Despite Google's sale of the Motorola business, the search giant continues to remain a key customer of Flextronics. According to Flextronics management, Google is about to become a top-ten customer, as their relationship has strengthened over time.  Flextronics now manufactures Google's Chromecast device, which is seeing strong sales and was the search giant's best-selling product last quarter.

Looking ahead, Flextronics is hopeful that its position within Google's ecosystem could expand. Flextronics aims to land more products like the Chromecast going forward, and the two are already ramping up some programs, according to management.  

Final words
Smartphone sales in emerging markets are expected to be strong going forward, and Lenovo primarily targets such regions. On the other hand, Flextronics' relationship with Google is also getting stronger, opening up avenues for its participation in disruptive products. So, Google's sale of its Motorola handset business to Lenovo could prove to be a blessing in disguise for Flextronics.

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Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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