Lenovo’s acquisition of Motorola explained

Moments ago Lenovo signed an agreement to acquire Motorola for $2.91 billion from Google, which is selling it at a massive loss after buying Motorola for $12.5 billion less than two years ago. So what does this deal mean for all the three companies involved? Here’s our take…

For Google: Motorola’s acquisition was an expensive mistake for Google. At $12.5 billion it was Google’s largest acquisition and Google had hoped that Motorola’s patents would save it and its Android hardware partners, who were bombarded by patent infringement lawsuits by the likes of Nokia, Microsoft and Apple among others. However, the patents Google acquired turned out to be worthless, with most of them being standard essential patents that provided Google with little bargaining power.

Google was clear the acquisition was for patents as it did not want to alienate its handset vendor partners by coming across as a direct competition with Motorola. It ensured that Motorola worked as an isolated company and did not get any unfair advantage when it came to new Android releases and features. It wasn’t clear why Google should keep draining its resources on Motorola and stifle its growth at the same time to ensure Android’s success. Disposing off Motorola’s handset business would also give some breathing space for Google with regulators globally.

For Motorola: The deal is a mixed bag for Motorola. It would no longer be a Google-owned company and all the perks that come with it. Google, it seems, has not sold off the R&D department headed by former DARPA Director, Regina Dugan. That department was working on future products including smart tattoos, smart pills and even a modular phone codenamed Ara. Motorola is most likely to lose all the Google-ness under Lenovo.

On a positive note, Motorola will finally be able to scale up with Lenovo. The Chinese electronics giant already has a global sales and distribution network. On the smartphone side, it has a thriving business in China, India and Indonesia – some of the largest and fastest growing smartphone markets in the world.

For Lenovo: It is the company that gains the most in this deal, which at $2.91 billion is a bargain. Even the terms – about $660 million in cash and $750 million in shares at the time of closing the deal and the remaining $1.5 billion spread over three years – it could not have asked for more favorable terms.

Apart from the financial aspect, Lenovo also gets a great engineering team as well as license to Motorola’s patents that Google would retain and 2,000 patents it will receive. It will also get to keep the trademark and copyright for the Motorola brand name. We have seen Lenovo do amazing things with the ThinkPad brand it got after acquiring IBM’s PC business in 2005.

Acquiring Motorola will also give Lenovo access into the US and Latin American markets, where it does not have a strong smartphone presence at the moment. Motorola’s relationships with carriers will come in extremely handy. The deal could catapult Lenovo as the third largest smartphone vendor after Samsung and Apple, overtaking Huawei and LG.

But most important take away from it all is the kind of access it buys Lenovo inside Google. More than anything else, Lenovo would treasure that the most for its future