Sometimes tech companies move in mysterious ways, and Google (NASDAQ:GOOGL) selling Motorola Mobility to Lenovo definitely seems like a perfect example of this. After spending $12.5 billion for Motorola less than two years ago, Google decided this week to sell it off to Lenovo for $2.91 billion.
As odd as this seems for a company so deeply embedded in the mobile space, and for such a low price compared to the purchase price tag, Google made it clear it is selling the smartphone business to focus on what it does best.
Forgetting the past, moving toward the future
On Google's blog, CEO Larry Page explained the sale, saying:
This move will enable Google to devote our energy to driving innovation across the Android ecosystem, for the benefit of smartphone users everywhere. As a side note, this does not signal a larger shift for our other hardware efforts. The dynamics and maturity of the wearable and home markets, for example, are very different from that of the mobile industry.
So Google will focus on its best work in the mobile space right now: the Android OS and wearables. On top of that, the home market is becoming a growing interest for Google -- which is evident from its purchase of smart home device maker Nest Labs earlier this month. Selling Motorola allows Google to zero in on those endeavors.
But what about the $12.5 billion Google paid for Motorola just a couple of years ago? While it may seem as if Google is taking a big hit, it's not as bad as might appear.
After its purchase of Motorola, Google sold off the company's set-top box division for about $2.4 billion, and The New York Times reported Motorola had $3 billion in cash and $1 billion in tax credits at the time of the deal. On top of that, Google has valued Motorola's patents, which it will retain possession of, at $5.5 billion. So putting that altogether, Google technically loses $3.2 billion,but still comes out with patents worth more than the mathematical loss.
Which leads us to the fact that Google's massive opportunity now and going forward is building up the strength of its Android OS. If these patents can help do that, then the $3.2 billion is well worth the price.
Motorola drunk down millions of dollars each quarter from Google -- $248 million this past quarter – even though the company has released some innovative smartphones that are strong competitors in the mobile space. While Google will benefit from the patents and not losing money on the company each quarter, Lenovo could use it bring even more competition to Apple and fellow Android user Samsung.
Lenovo has strong presences in China and the acquisition will allow it to compete in the U.S. and Europe. Google investors should be pleased that the company can still use the Motorola patents to build a stronger Android system, without having to figure out how to make Motorola profitable.