There has been a lot written about this in the past week and I guess I have a few comments and observations to make about this. Like any big acquisition there is a positive and a negative, though in this case the positives outweigh the negatives by quite a bit.  Google has not really owned Motorola for that long.  They acquired the original company in a $13 billion deal that was completed in June 2012.  But as was written then and is being written now , it was never the handset division Google was after it was the patents. In selling to Lenovo, Google is only getting rid of the extra fat it did not want.  So before all you math whizzes go up in arms as to why sell for $2.9 billion, what you paid $13 billion for the real question is what is the value of the piece Google is keeping?  I don’t believe that Google was ever that committed to building their own handsets, so selling off the division has a whole lot of benefits

What does Lenovo get?  My simple question is what has taken a PC manufacturer so long to do this?  The PC business is declining and in need of new revenue streams.  For years now it has been rumored that Dell might make one, but it has been stuck in rumor land for some time.  It seems like most PC manufacturers have been focused on creating a better tablets, but have never been that interested in building a smartphone.  Maybe it is out of fear of having to work with carriers.  The only desktop company that I think has tackled this is Apple.  the others have just sat idly by, waiting for something to happen.  If seems all PC manufacturers should be trying to get into this game and enhance their portfolio’s. Since Lenevo was formed over ten years ago they have taken a leadership role in the industry and positioned a Chinese company in a global leadership position in the tech world.

Google is getting a strong partner.  By selling the Motorola devices division they can lock a strong partner into supporting the Android OS, not to mention an increase in search revenues.  It also gets them out of the awkward position of manufacturing and competing against their partners, namely Samsung.   Lenovo has the marketing strength to effectively promote these new smartphones and make a serious run at generating some market penetration.  Beyond this Google will strengthen a partnership that will lead to new Chromebooks and Android Devices.  As noted earlier Lenovo is a global tech company but by doing this deal Google just positioned itself well for access into the gigantic Chinese market.  Lenovo can navigate Chinese bureaucracy in a way western companies will never be able to.  Many pundits will focus on the fact the Google is perceived to be losing a lot of money on the deal, as hey “bought high and sold low”.  I disagree as in my view Google has always been good at evaluating their portfolio and cutting losses early.  Google is good at making hard cutting decisions when it comes to the future.

This is bad news for Apple as it just got another major competitor and as much work as they have done to get into China, they will be challenged by Lenovo.  Not that Apple is not used to this.  They have always been a company with a “we will do it alone” mentality.  But as they try to extend their global reach they will be challenged by lower end, lower cost devices, primarily lead by Google’s Android partners.  Apple is primarily a North America and European play, based on its high barrier to entry.  The Android world continues to challenge and improve.  I don’t care ho which you are if you can get an equal device for less you will likely go that route.  On top of that the consumer market everyone wants to get into, China, now had a strong local player.  Just like in the US where we see ads that say, “Buy American” will Lenovo play the “Buy Chinese” card?  Patriotism is always a strong hand to play, Lenovo would be foolish not to play that hand.

Another loser in this deal is Microsoft who are struggling to make Windows phone relevant and will not have a big competitor in a channel they usually own.  Lenovo will, at least in the short-term, be in no hurry to launch a new smartphone with the Windows 8 OS.  Microsoft has been entering new territory the past several years as the OS market they have so rightly owned is beginning to fragment as there are OS choices with applications on the market.  I can also see that Lenovo will have an opportunity to enter emerging markets with a low-cost Android smart phone.  Though I will admit if Microsoft plays their cards right with the Nokia acquisition they are better positioned to win in this space as Nokia has a strong presence in emerging markets.  It is just a question of getting the pricing right to move consumers from old mobile devices to newer smartphones.

On eth surface there will be those that consider this a failed endeavor by Google, but the handset piece was always a side-show to what the real deal was about which was patents.  Google was way behind in this category and needed protection from companies like Microsoft and Apple who have huge patent portfolios.  If Lenovo proves successful then Google will make its money back from the mobile search revenue it will receive from each device sold, bit just phones and tablets but potentially laptops as well if Lenovo becomes a strong supporter of Chromebooks and Android based laptops.  In my opinion any money lost in the short run will be more than made up in the long run.

Good Night and Good Luck

Hans Henrik Hoffmann, February 5, 2014