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Google Sells Handset Business to Lenovo
The Nearly $3 Billion Deal Comes Two Years After Google Bought Motorola for $12.5 Billion
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Updated Jan. 30, 2014 5:58 a.m. ET
Google sells handset business to Lenovo for nearly $3 billion. Bryan Ma of IDC tells the WSJ's Aaron Back how Motorola phones will give Lenovo a shortcut into the competitive U.S. Market.
Google Inc. GOOG -1.43% Google Inc. Cl A U.S.: Nasdaq $1106.92 -16.09 -1.43% Jan. 29, 2014 4:00 pm Volume (Delayed 15m) : 2.21M AFTER HOURS $1131.00 +24.08 +2.18% Jan. 29, 2014 7:59 pm Volume (Delayed 15m): 204,319 P/E Ratio 31.38 Market Cap $369.81 Billion Dividend Yield N/A Rev. per Employee $1,059,710 01/30/14 The Morning Download: Google, ... 01/30/14 Google Sells Motorola Handset ... 01/30/14 Lenovo-Google Deal Adds to Sam... More quote details and news » GOOG in Your Value Your Change Short position 's experiment making Motorola phones has ended after just 22 months, with the company unloading the handset business to China's Lenovo Group Inc. 0992.HK -8.21% Lenovo Group Ltd. Hong Kong $10.06 -0.90 -8.21% Jan. 30, 2014 12:05 pm Volume : 179.10M P/E Ratio 18.50 Market Cap $109.01 Billion Dividend Yield 1.19% Rev. per Employee $7,916,670 01/30/14 Lenovo Makes Bet on Smartphone... 01/30/14 Google Sells Motorola Handset ... 01/30/14 Lenovo-Google Deal Adds to Sam... More quote details and news » 0992.HK in Your Value Your Change Short position for $2.91 billion but keeping a valuable trove of patents.
The deal unwinds the Internet company's costly move into smartphone hardware after it acquired Motorola Mobility for $12.5 billion in May 2012. Google has struggled to compete in the cutthroat phone-hardware business—its share of the world-wide smartphone market fell to about 1% last year from 2.3% a year earlier, according to IDC.
Google said it would retain the vast majority of Motorola's patent portfolio, a key motivation of the original transaction that lets it defend those phone makers who use its Android software against patent suits. Google's Android software powers the majority of the world's smartphones.
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The deal also signals the rising ambitions of Lenovo, which is seeking to be a bigger player in the global technology market.
Lenovo, which last week agreed to buy a server business from International Business Machines Corp. IBM -0.25% International Business Machines Corp. U.S.: NYSE $176.40 -0.45 -0.25% Jan. 29, 2014 4:00 pm Volume (Delayed 15m) : 4.95M AFTER HOURS $177.00 +0.60 +0.34% Jan. 29, 2014 7:46 pm Volume (Delayed 15m): 20,882 P/E Ratio 11.67 Market Cap $191.54 Billion Dividend Yield 2.15% Rev. per Employee $229,711 01/29/14 Q&A: Lenovo Group CEO On Motor... 01/27/14 Samsung, Google Sign Patent-Li... 01/24/14 The Morning Download: Microsof... More quote details and news » IBM in Your Value Your Change Short position , gains a brand that would catapult its place in the global smartphone market to third from fifth, far behind Samsung Electronics Co. 005930.SE -0.23% Samsung Electronics Co. Ltd. S. Korea: KRX KRW1280000 -3000 -0.23% Jan. 29, 2014 3:00 pm Volume : 383,637 P/E Ratio 6.55 Market Cap KRW210813.81 Billion Dividend Yield 1.08% Rev. per Employee KRW2,485,940,000 01/30/14 Lenovo-Google Deal Adds to Sam... 01/29/14 Q&A: Lenovo Group CEO On Motor... 01/29/14 Samsung to Open European Retai... More quote details and news » 005930.SE in Your Value Your Change Short position and Apple Inc., AAPL -1.14% Apple Inc. U.S.: Nasdaq $500.75 -5.75 -1.14% Jan. 29, 2014 4:00 pm Volume (Delayed 15m) : 17.85M AFTER HOURS $501.00 +0.25 +0.05% Jan. 29, 2014 7:59 pm Volume (Delayed 15m): 145,202 P/E Ratio 12.34 Market Cap $446.66 Billion Dividend Yield 2.44% Rev. per Employee $2,163,820 01/29/14 Tim Hortons, PC Brands Hold Sw... 01/28/14 HEARD ON THE STREET: Apple's N... 01/28/14 Apple Shares Hit Three-Month L... More quote details and news » AAPL in Your Value Your Change Short position according to IDC. Lenovo became the No. 1 personal-computer maker last year after buying IBM's PC business in 2005.
The Google deal—and last week's agreement with IBM—are likely to draw scrutiny from U.S. regulators concerned about security issues involving acquisitions by Chinese companies. An inquiry could delay the closure for several months or make it difficult to complete.
The deal announced Wednesday came together relatively quickly, with talks beginning around Thanksgiving, said Yang Yuanqing, Lenovo's chairman and chief executive. That was just a few weeks after another handset maker, the troubled Canadian firm BlackBerry Ltd., scrapped a plan to sell itself—a sales process in which Lenovo had been a suitor, people familiar with the matter said at the time. Lenovo had no real competition in bidding for the Google business, a person familiar with the deal said.
Google originally paid $12.5 billion for all of Motorola, though it gained access to Motorola's $3 billion in cash, and was able to sell Motorola's set-top box business for another $2.35 billion. Google had absorbed roughly $2 billion of operating losses through the third quarter of last year.
In the Lenovo deal, Google would receive $660 million in cash up front and $750 million of Lenovo shares. The other $1.5 billion is due within three years.
Besides providing an immediate boost to Google's bottom line, selling Motorola should reduce potential friction between Google and hardware partners that use its Android mobile operating system. Android is used by companies that include Samsung as well as Lenovo and Motorola itself.
Despite Google's attempts to run Motorola as an independent unit, executives at smartphone makers didn't like relying for smartphone software on a company that competes with them in the hardware market.
Related
· Deal Adds to Samsung's Worries
· Interactive: Decoding the Phone-Plan Puzzle
· Lenovo's Shares Dive on Deal
· For Lenovo and Motorola, a Longtime Love Story
· Digits: Lenovo Group CEO on Motorola Deal
· Motorola Deal Gives Lenovo 'Shortcut' to U.S. Market
· Recap: Lenovo Announces Motorola Mobility Buy
· Highlights of the Sale
· Heard on the Street: Google Gets While Going Is Good
· Heard: Lenovo's Motorola Moment Could Be Fleeting
· Timeline: A Look Back at Motorola
Earlier Coverage
· Google's Motorola Unit to Cut 10% of Workforce (03/08/2013)
· Google Leans on Motorola With Hardware Push (08/01/2013)
Google will also benefit from the deal to the extent it is helping to create another Android handset maker to offset Samsung's dominance in that market. In 2013 Samsung had 32% share of the world-wide smartphone market, more than six times that of any other Android rival, according to Strategy Analytics. Lenovo combined with Motorola would have had 6% share of the smartphone market last year.
Lenovo's greater scale in hardware, including its massive world-wide supply chain, means it is well-placed to bring low-cost Android devices to market, a strategy that Motorola chief executive Dennis Woodside had recently begun to pursue. He recently cut the price of the flagship Moto X smartphone and released the cheaper Moto G for more value-conscious buyers.
Motorola Moto X smartphones, using Google's software Associated Press
That may cut into Apple's market share as well as put Android smartphones into the hands of billions of people in developing markets world-wide that have never bought one.
Lenovo has the expertise and track record to make Motorola "a major player within the Android ecosystem," said Larry Page, Google's CEO, in prepared remarks.
Motorola, under Google, has introduced smartphones under the Moto name that have attracted some attention in the crowded market. "This gives Lenovo the all important foothold to get into North America," said IDC analyst Ramon Llamas.
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Lenovo's Mr. Yang said in an interview he expects to sell 100 million handsets in the year after it completes the Motorola deal. "We don't have an effective plan yet, but we definitely have that kind of confidence to turn around the business, to grow the business," Mr. Yang said, citing the computer maker's manufacturing know-how.
Mr. Yang said Lenovo has been interested in buying Motorola Mobility. After Google acquired it in 2012, Mr. Yang said he invited Eric Schmidt, Google's executive chairman, to his house for dinner. "I told him if they really want to run a hardware business they could keep it," Mr. Yang said. "If they are not interested in the hardware business, they could sell Motorola to us."