Lenovo bought Motorola for $2.9 billion on Wednesday. What seems like Google cutting its losses could mean big benefits for Android in the enterprise.
Android may have just gotten the boost it needs to break into the enterprise market, with combined forces of two mobile device giants.Lenovo bought its way into the brutally-competitive American mobile market Wednesday with a $2.91 billion acquisition of Google's Motorola Mobility unit. Lenovo recently went through a reorganization after their $2.3 billion acquisition of IBM's x86 server business, splitting the company into four units - mobile, PC, enterprise, and cloud. This move gives a lot more legitimacy to their mobile business unit now that they have a foothold in the world's most lucrative mobile market, where they had previously been slow to build the carrier relationships they needed.
In 2011, Google acquired Motorola Mobility for $12.5 billion, so it seems like they are just cutting their losses. Lenovo immediately paid $660 million in cash and $750 million worth of Lenovo shares and they will pay off the remaining $1.5 billion over the next three years. Lenovo is not a household name in the American mobile market, but they were already the no. 3 worldwide smartphone vendor in 2013's Q3 according to Gartner, well under Apple and Samsung but just barely above LG.
The deal gives Lenovo access to the Moto X, Moto G, and Droid Ultra series as well as over 2,000 patent assets. Lenovo will also receive a license to Google's patent portfolio and some of their intellectual property, no doubt furthered by the fact that Google is now a shareholder in Lenovo, positioning them to take their newly-minted mobile unit into America and other major markets. It could also have larger implications for the Android ecosystem in the enterprise, where Apple still has a significant advantage, with iOS activations accounting for 72 percent of total activations in Q3 of 2013.
"Right now this is a consumer play and a geography play, not an enterprise play," said Gartner's Ken Dulaney. "Motorola was focused on consumer and had abandoned its enterprise focus. Lenovo will have to do quite a bit to make this enterprise. That will take about a year, but I think they will, in part, go this direction.
Lenovo has had a hard time trying to break into the U.S. mobile device market so far. Their purchase of IBM's PC division gave them control of the "Think" brand and propelled them into a strong market standing in laptops and desktops, but they haven't been able to translate that into the sale of mobile devices. According to Brion Tingler, Lenovo's Director of Global Media Relations, that is the direction that Lenovo is heading.
"Our CEO has made it very clear that we want to the leader in the PC+ era," he said.
This deal is strategic in that it is plays to the strength of each company. Google is a software company and Lenovo is a device company. Lenovo and Motorola both have long histories in the enterprise space and the combined resources of all three raise the stakes on what this can mean for Lenovo in North America and Latin America. According to Boris Metodiev, a Senior Analyst at The Yankee Group, the deal will also help Google clear the air with manufacturers of Android-based phones.
"It makes it easier for Google to operate its platform and to maintain relationships with its vendors," Metodiev said.
Now that Google doesn't own a manufacturer, it eliminates the fear that Google would offer better alignment to Motorola. Metodiev said that Google selling Motorola will help keep them from becoming like Windows is to Nokia, with vendors scared of playing second fiddle to a manufacturing partner. Companies like Samsung can now focus solely on what they were doing, selling the crap out of Android phones. Google has realized that hardware is not the main commodity anymore, the Android ecosystem is.
Metodiev said that the rumor is that Lenovo will maintain branding where the name is most powerful. So, Motorola will remain Motorola in North America and the devices will be Lenovo in Asia and emerging markets. Motorola is an American company that is manufacturing devices in the U.S. and was previously owned by another American company. Metodiev said that will give Lenovo a "better perspective on what the American market is all about."
With that perspective, Lenovo has the potential to become the next Android giant, easing Google's reliance on Samsung. They have the potential to scale to compete with Samsung, and it could mean big problems for smaller vendors, including former Android giant HTC. Lenovo will be uniquely positioned in both major and emerging markets, covering the globe equally.
While the disparity between amount Google paid and the amount paid by Lenovo, it might not be as bad as it looks. ZDNet's Larry Dignan asserts that Google didn't get hosed and may have even broke even on the deal. Regardless of the numbers, it's likely a relief for Google and a big opportunity for Lenovo to play ball in a major market. Dulaney said that Samsung and Apple could be under threat, similar to what happened in the PC market when Lenovo and Acer swooped in a decade ago and took market share away from heavy-hitters like HP and Dell.
He summed it up: "The Chinese are coming."