After buying Motorola for $12.5 billion in 2012, Google is handing it over to Lenovo for $2.95 billion, subject to approval of regulators.
While the search engine giant obviously threw away a good amount of money when it purchased Motorola, it keeps its portfolio of around 17,000 patents and gets rid of a business that might have just been a source of headache. The Chinese computer manufacturer, on the other hand, acquires a brand that can help it extend its reach as a smartphone maker in the global market and compete with the likes of Samsung and Apple.
"Lenovo has the expertise and track record to scale Motorola Mobility into a major player within the Android ecosystem. This move will enable Google to devote our energy to driving innovation across the Android ecosystem, for the benefit of smartphone users everywhere," said Google CEO Larry Page.
The announcement of the acquisition on Wednesday made the deal the fourth biggest purchase by a Chinese company in the United States. Lenovo will pay for the acquisition with $660 million cash, a promissory note due after three years for $1.5 billion, and ordinary shares amounting to $750 million.
"We want to become a global player in the smartphone area. We still haven't entered into the U.S. market and mature markets (in smartphones). The Motorola deal will definitely give us a shortcut into the U.S. market and provide us with a world-wide footprint. This will be a good start to challenge the big players in the smartphone market," explained Lenovo CEO Yang Yuanqing during an interview with The Wall Street Journal.
"Motorola is a very good brand. It also holds a lot of intellectual property and has very strong relationships with U.S. mobile carriers," Yang added.
The Lenovo CEO remains optimistic in terms of making Motorola profitable for them. Yang disclosed that the company plans to keep the Motorola brand and even use it in China.
"We can make money. We don't have an effective plan yet, but we definitely have that kind of confidence to turn around the business, and to expand the business. In the following year after we close this deal, we expect to sell more than 100 million smartphones world-wide," he said.
Lenovo's shares dipped by as much as 8.2 percent as investors worried that the largest computer manufacturer in the world might have paid too much for a troubled brand. However, Motorola will also allow Lenovo to explore the Americas for opportunities.
"This gets Lenovo into the U.S. and at the table with U.S. operators. The opportunity for Lenovo is to provide lower cost smartphones, since operators are aggressively trying to get their subsidy costs under control," said analyst Hugues de la Vergne of research firm Gartner.
Lenovo also announced last week that it is spending as much as $2.3 billion for acquiring IBM's server unit. The company bought the PC business of IBM in 2005.
