Google Sells Motorola for what Looks Like a Loss but Probably Isn’t
Google has announced that it is selling Motorola Mobility after owning the company for only a year and a half. Chinese technology company Lenovo, the 4th largest smartphone manufacturer in the world, bought it for $2.91 billion.
Lenovo is no stranger to buying technology brands and turning them around. In 2005, Lenovo bought IBM’s personal computer business and the ThinkPad brand as well as IBM’s global sales, support and manufacturing. In 2011 (the last year for which I have numbers) Lenovo was the number one supplier of computers in mainland China and the world’s number two supplier of personal computers.
Obviously this is a good deal for Lenovo, since Google paid $12.5 billion for the company in 2011. But was it a good deal for Google? It appears so.
Google’s primary motivation in buying Motorola was most likely the thousands of patents that Motorola owned as a long-time innovator in cellular technology (they built the first one in 1973). At the time of the acquisition, Apple’s competitive strategy was to sue everyone for patent infringement, doing to them in the courts what they were unable to do in the marketplace. Motorola’s stable of patents provided a strong defense, since Google could counter sue Apple anytime Apple came after them. And, of course, if Apple had acquired Motorola first, it would likely have been “game over” for Android.
Like every sophisticated business transaction, the price tag isn’t what it seems at first glance. Google sold off Motorola’s set-top box business for almost $2.5 billion, plus Google got to keep whatever cash was in Motorola’s bank account. And, since Motorola was posting a loss in the cell phone business, Google could use those substantial tax credits to offset their own profits. Tim Worsthall of the Adam Smith Institute wrote in Forbes that the whole deal might have cost Google only $1.5 billion.
Now it’s starting to look like a pretty good deal, especially when you consider that the patents don’t go with the Lenovo sale; just a license to use them. Google now has in Lenovo a powerful ally committed to the continued success of the Android operating system and dedicated to protecting Google’s intellectual property in the world’s largest market.
I’m a technologist, not an accountant, and I have access to neither Google’s internal financials nor the inclination to read their public documents in detail, so these are all rough numbers. Still…