Okay, what just happened? The story of Motorola, Google and Lenovo.

Okay, what just happened? The story of Motorola, Google and Lenovo.

By Bijoy Babu

A couple of years ago, 3 to be precise, I was sitting at home and reading the news like I normally do. To be honest, I love reading the news, especially technology news. Reading about what giant tech companies like Google, Samsung, Intel, Microsoft and Nvidia fascinate me. So when I come across an article entitled: “Google to buy Motorola Mobility for $12.5 billion.” I go crazy. It would become Google’s largest acquisition to date. I have been waiting a long time for someone to come in and save the dying Motorola company. Even though Motorola had invented the first cellphone about 30 years ago and has seen increases in revenue and profits, in the last few years it has been spilling cash left and right.

The above image shows movement of stock prices since Motorola split into it’s two divisions in February of 2011. You can see that Motorola Mobility has been steadily decreasing since then. In August of 2011 is when Google announced it had purchased Motorola Mobility.

According to CNN Money, Google’s acquisition of Motorola in August of 2011 had many people worried that even though Motorola is getting financial support from Google to become once again a competitive player in the smartphone industry, “Analysts expressed concern that buying Motorola Mobility will anger Google's other handset manufacturing partners.” These manufacturers include Samsung, HTC and LG Electronics, some of Google’s biggest clients in their Android software division. Seeing that Motorola had become a Google company, other manufacturers get suspicious of money being transferred back and forth between these two companies. If this was not enough bad news, on August 15th, 2011, the day Google finalized the purchase, Motorola Mobility shares went up by 78%. Although it was seen as a short term success, Motorola and Google will soon realize that the success will soon fade away.

After about a year of mediocre earnings and five straight quarter losses, Motorola had finally made the announcement people all over the world were waiting for. The first Motorola smartphone since the Google acquisition. On August 23rd, 2013, Motorola unveiled the Moto X. A completely new android smartphone line that was designed and manufactured by Motorola which was built in the United States. The phone had received numerous awards for its unique features such as Motorola’s Active Notifications, contextual voice recognition systems, user friendly experience and a behemoth of customization options through its Moto Maker website. With all of these features driving the Moto X to be one of the best smartphones of 2013, Motorola had also announced disappointing results a couple of months after launch. Many analysts criticized Motorola for not expanding sales outside of the U.S and for the somewhat expensive price tag. Even though the smartphone was built in the U.S, it is a very expensive process that coupled with last year’s internal hardware make many people ignore the phone for some other phone with the latest hardware.

The Moto X pictured above in a variety of custom colors. Even though the phone was praised for its simple user interface and unique features, it failed to meet the demand and sales of Motorola’s competition including Samsung and Apple.

After all of the hard work and frustrating losses that Motorola and Google had endured, it was time for a shift in business strategies. At the time, I did not realize that Motorola was doing so poorly. The Moto X was without a doubt the next phone I was going to buy. (If I can ever get rid of my current one) It was starting to become a popular choice for people who wanted a unique experience like none other. The fact that people knew what the Moto X was was a clear sign that sales were going up. This is partly due to Motorola cutting $100 off the full retail price, adding more customization options and spreading sales across the world. As more and more people became familiar with Motorola’s strategy to give you a phone that you will enjoy and find helpful without the gimmicks is a true achievement. Too bad this story lasted for about 2 months.

On January 29th, 2014, CEO of Google Larry Page had announced that Google had made a deal to sell Motorola Mobility to Lenovo for 3 billion dollars. Now this came as a surprise that I did not expect, nor did I really want it to happen. Lenovo at this time is still the number one PC manufacturer in the world and the fastest growing, but its smartphone division is lacking in growth. People had started expressing their concerns all over the internet on why Lenovo could kill the once household name of Motorola Mobility and their great line of products. So did Google sell Motorola because other manufacturers were getting skeptical of the acquisition, or was it because Google wanted to get rid of Motorola as fast as they could because of the disappointing sales. The answer is actually none of these reasons. The main reason why Google sold Motorola to Lenovo is to not only help Lenovo grow their smartphone business, but to keep the 17,000 patents that were once owned by Motorola. According to The Economic Times of India: “While Google's business depends on phones getting into the hands of more people around the world, it benefits from selling the ads on those phones, not the phones themselves. Selling Motorola is an acknowledgment that Google is better off focusing on its core competencies - making software and selling ads - particularly as the profit margins for phones are shrinking overall.”

The above picture breaks down the key areas in which Google had benefited from the Lenovo purchase of Motorola.

So, the deal ultimately was a jackpot for Google. Not only did Google keep the 17,000 Motorola patents, but it is helping out a wider market of smartphones since Lenovo has a large presence in the Asian and European Markets. By holding on to a brand name like Motorola, Lenovo can expand its smartphone business and hopefully in the future grow sales that will match that of competitors like Samsung and Apple. Motorola may have been tossed around here and there, but they are truly the star of the show. Hopefully, only time will tell if Lenovo and Motorola together can give us products that we will cherish for many years. Hopefully the marginal benefit will exceed the marginal cost.

SOURCES:

Goldman, David. Google to buy Motorola for $12.5 billion. 18 August 2011. 25 March 2014 <http://money.cnn.com/2011/08/15/technology/google_motorola/>.

Sikka, Puneet. Must know: Why did Google sell its Motorola business to Lenovo? 11 March 2014. 25 March 2014 <http://marketrealist.com/2014/03/must-know-google-sell-motorola-business-lenovo/>.

Miller, Claire Cain. Google sells Motorola to Lenovo for $2.9 bn, after paying $12.5 bn to buy it. 30 January 2014. 25 March 2014 <http://articles.economictimes.indiatimes.com/2014-01-30/news/46828242_1_motorola-mobility-android-mobile-operating-system-larry-page>.