Google (NASDAQ:GOOGL) wants out. Of wireless hardware. The Internet giant will sell most of its mobile hardware manufacturing arm, the former Motorola Mobility, to Chinese company Lenovo (OTC:LNVGY) for much less than what it paid for it.
How will the deal affect investors?
- Google might see an upside as the drag of poor mobile-hardware sales eases and it can focus on software, making money from selling mobile ads and other ventures.
- The world's No. 1 supplier of phones, Samsung, might have to deal with better products from an invigorated Motorola unit, which could eat into its leading market position.
- The No. 2 maker of smartphones, Apple (NASDAQ:AAPL), probably won't be affected by the deal unless Motorola starts competing in the high-end of the market where the Cupertino, Calif.-based company shines, Lenovo starts cutting into Apple's already-declining overall market share, or some other innovation arises.
The move to divest an underperforming business by Google is probably a smart one. Motorola's share of the smartphone market has deteriorated to about 1%, and the business was losing money. The company recognizes that it needs to branch out from its cash-cow business, desktop web search, as growth there could slow down someday. However, it won't be in wireless hardware.
The company will instead focus on such things as generating more revenue from mobile ads, cloud computing, driverless cars and robots, smart-home and auto gadgets, and wearables. One or more of these ventures would probably pan out for the company down the road. Google has some room left to run.
Is Apple finished?
While Apple may not be affected that much by the Motorola deal, it does have a few worries. The company just announced record iPhone unit shipments of 51 million for the October-December period. However, analysts expected 55 million, and that along with reduced revenue guidance for the current quarter drove down the stock price.
The company probably needs to ensure that it can grow in developing countries, like China, and release a new product to buffer the "downtimes" when iPhone sales come in lower than expected.
Rumors abound that a smartwatch, Internet-based TV, and a mobile-payment system are imminent. Even die-hard Apple bulls recognize this must happen soon or more investors will run away.
The next few months could be make-or-break time in Cupertino, Calif. Investors need to keep on top of things.
No. 3 with a bullet
In 2005 Lenovo scooped up the consumer-PC business of International Business Machines, and the deal propelled the Chinese company to the No. 1 spot in the industry. However, with the PC industry slowing down, Lenovo probably needed to act.
The combined Lenovo/Motorola handset business will be No. 3 in the market. The Chinese company would like to duplicate the success of its PC business after the IBM deal and leapfrog both Samsung and Apple in the rankings. It could take a fairly long time to pull that off. Samsung and Apple investors shouldn't panic yet, and Lenovo shareholders would need to be patient.
The proposed Motorola deal could be a win-win situation for both Lenovo and Google over the long term. Lenovo gets a company which can help it charge ahead in the smartphone market and balance potential impacts due to the general decline of the PC industry. Google sheds a less-than-stellar performer in its portfolio, freeing it up to pursue more profitable ventures.
Samsung needs to pay attention to the suddenly bigger Lenovo mobile business, although it could be several years before an impact would be felt. Apple has more immediate worries, including finding a new product line to help it get through the "lean" times when iPhone sales do not meet expectations and grow in developing markets like China.