Google has acquired many companies over the years, but it’s taken no chance bigger than buying Motorola. Now just two years after acquiring the Motorola Mobility unit for $12.5 billion, Google is selling the cell phone maker to Chinese technology company Lenovo for just $2.91 billion, far less then its purchase price.
The Motorola unit has been bleeding money for a while now with its new flagship product the Moto X not doing as well as expected. Because of this Google has decided to cut its losses and essentially outsource its Android development to Lenovo while picking up a few extra bucks in the process. “They make their money from people watching YouTube ads and doing searches,” said Colin Gillis, a financial analyst at BGC Partners, to the New York Times. “They don’t necessarily need to be the hardware maker.”
The Motorola deal wasn’t a complete bust, however, as Google was able to incorporate Motorola’s hardware into its designs and hold on to billions of dollars’ worth of tech patents that it can use to defend itself in the raging patent wars. Google will retain 15,000 of the 17,000 patents originally acquired from Motorola and will grant Lenovo the ability to use some of them. This follows the announcement of a promising 10-year global patent cross-licensing between Google and Samsung.
After the announcement, Google is up over 3% in trading and is set to announce its fourth-quarter earnings. “Motorola’s been a millstone and a drag on results,” Gillis said. “You’re slipping the millstone off your neck.”
Google CEO Larry Page appears to still believe in the hardware side, though, as the company continues to strategically expand its Android market:
This does not signal a larger shift for our other hardware efforts. The dynamics and maturity of the wearable and home markets, for example, are very different from that of the mobile industry.
Page believes getting rid of the Motorola unit will allow the company to focus more on the software side of Android and leave Lenovo to expanding Motorola with Android. “Lenovo has the expertise and track record to scale Motorola into a major player within the Android ecosystem,” Page said.
Andrew Costello, a principal at IBB Consulting, concurs. “It makes strategic sense for both Google and Lenovo. It will give Lenovo a strong brand in the mobile space outside of China that they don’t have today, and it gives them deep operator relationships with AT&T and Verizon. And for Google, they’re able to focus on the services side, which is what they’re best at, and retain the patent holdings.”