Owning Motorola Mobility had always been a bit of a conundrum for Google (GOOGL -0.55%). Being in the handset business put the company in competition with customers who license its Android operating system. That's not entirely unprecedented as Microsoft (MSFT 0.13%) competes with its vendors by selling its Surface tablet, but it's generally not a comfortable position for a company to be in.
So, with the potential for Android -- which has been adopted by numerous companies as a way to compete with Apple's (AAPL -0.34%) iOS phone and tablet operating system -- being enormous, Google's selling of its Motorola Mobility unit to Lenovo makes sense. In the sale, Google gets nearly $3 billion. Google also gets to keep the majority of Motorola's patents, including some that will be licensed back to Lenovo. Yes, it appears at first glance that Google is taking a hit on the $12.5 billion it paid for Motorola in the first place. In reality, however, the company is getting out of making handsets and keeping most of the assets.
"Google got what they wanted and needed from Motorola — they got patents, engineering talent, and mobile market insight," said Jack Gold, principal analyst at J. Gold Associates, in a USA Today article.
How bad off is Motorola?
In the fourth quarter, Motorola's share of U.S. cell phone sales to end users came to 5%, a fourth-place showing after Apple's 48%, Samsung's 31%, and LG's 8%, according to a consumer survey by Consumer Intelligence Research Partners. HTC followed with 3% and Nokia with 2%, as reported by TWICE. Globally, however, Motorola is in much worse shape. The handset maker holds only about 1.1% of the total worldwide smartphone market.
Can Lenovo turn it around?
In its press release about the acquisition, Lenovo tried to accent the positives about Motorola's standing around the world. It highlights that "Motorola Mobility enjoys outstanding brand awareness around the world, and is currently the no. 3 Android smartphone manufacturer in the U.S. and no. 3 manufacturer overall in Latin America."
Lenovo CEO Yang Yuanqing said that he thinks the acquisition makes the company an instant global player in smartphones. He also reminds people that Lenovo has acquired a faltering brand and turned it around once already.
"We are confident that we can bring together the best of both companies to deliver products customers will love and a strong, growing business," he said. "Lenovo has a proven track record of successfully embracing and strengthening great brands – as we did with IBM's (IBM -0.33%) Think brand – and smoothly and efficiently integrating companies around the world. I am confident we will be successful with this process, and that our companies will not only maintain our current momentum in the market, but also build a strong foundation for the future."
When Lenovo acquired IBM's Think in 2004, it made the company the third-largest PC maker in the world behind Dell (NASDAQ: DELL) and Hewlett-Packard (NYSE: HPQ). Now, the company is the top computer-maker in the world, having passed HP for parts of 2012 and finally grabbing the crown in 2013.
It's not just the U.S.
Even before acquiring Motorola, Lenovo was the no. 5 smartphone maker globally. All of those sales occurred outside of the United States, where the company used Los Angeles Laker Kobe Bryant as pitchman to sell 45.5 million units in 2013, according to research firm IDC.According to the same research report, Lenovo didn't even enter the smartphone business until 2010 but still topped a goal of 40 million for 2013 as set by Yang Yuanqing.
Though Lenovo only commands a 4.5% global market share in 2013 (plus Motorola's 1.1% global share once the deal is complete) according to IDC, the company should be able to leverage Motorola's existing deals with American phone service providers such as AT&T, Verizon, Sprint, and T-Mobile to grow in the United States. Building market share in the U.S. is not easy, but Motorola is a well-known brand that Google advertised extensively. As such, converting U.S. customers should be easier than if the company had chosen to enter the market under the Lenovo name (which would also require new carriage deals on already crowded store shelves).
As noted before, Lenovo has already gone from the bottom of the middle to the top in PC sales, aided by acquiring another venerable brand. There's no reason to think that it could not do the same in smartphones.