Google sells Motorola to Lenovo for $2.91 billion

Google is selling Motorola Mobility to Lenovo, giving the Chinese smartphone manufacturer a major presence in the US market. Lenovo will buy Motorola for $2.91 billion in a mixture of cash and stock. Google will retain ownership of the vast majority of Motorola's patents, while 2,000 patents and a license on the remaining patents will go to Lenovo. At the deal's closing, Lenovo will pay Google $660 million in cash and $750 million in stock, while the remaining $1.5 billion will be paid out over three years.

Lenovo CEO Yang Yuanqing said that although his company doesn't have "an effective plan yet," it has confidence that it can turn the currently unprofitable Motorola's fortunes around. Yang also stated that, within a year of the Motorola acquisition, Lenovo expected to sell 100 million smartphones worldwide. In 2013, Lenovo shipped an estimated 45 million smartphones, a 90 percent growth from the previous year.

Google believes Lenovo can turn Motorola into "a major player within the Android ecosystem."

"Lenovo has the expertise and track record to scale Motorola Mobility into a major player within the Android ecosystem," Google CEO Larry Page said in a statement. "This move will enable Google to devote our energy to driving innovation across the Android ecosystem, for the benefit of smartphone users everywhere."

Google initially bought Motorola Mobility for $12.5 billion back in 2012, but it said at the time that it was mainly interested in the company's patent portfolio. Now, Google is offloading its subsidiary's handset business, which has been losing hundreds of millions each quarter since the purchase. Google will hold on to Motorola's ambitious Advanced Technology and Projects group, however, and it previously sold off Motorola's set-top box unit for over $2 billion.

Though patents are a large part of what drew Google's interest to Motorola in the first place, those patents haven't been as helpful as Google initially hoped. Google seems to have highly overvalued Motorola's portfolio, which hasn't been able to bring in nearly as much in royalties as either company seemingly expected. It also hasn't been able to use those patents very aggressively, seeing them fail when used in an attempt to block sales of the iPhone. The entire ownership of Motorola has been something of a headache for Google, and it appears that it's finally time for Google to cut its losses.

That's good news for Lenovo, which has been vocal about its intention to move into the US smartphone market this year. Lenovo hasn't made much headway with that until now. It made a bid for BlackBerry late in 2013, but its offer was ultimately blocked. Now, it'll see a much stronger start with the purchase of Motorola. Motorola actually marks Lenovo's second acquisition announcement this month: just last week it said that it had reached a deal to buy IBM's x86 server business.

We’ve just signed an agreement to sell Motorola to Lenovo for $2.91 billion: http://t.co/PKDXrTq6Oe pic.twitter.com/vLcDBXlvIh

— A Googler (@google) January 29, 2014

The purchase of Motorola plays to Lenovo's experience in taking an established brand and building upon it. It purchased its ThinkPad business from IBM in 2005, and has gone on to create a continually successful line of laptops from it. Lenovo is certainly hoping to do the same with Motorola, which has consistently built strong devices but has often struggled against competitors with more marketing muscle.

"The acquisition of such an iconic brand, innovative product portfolio and incredibly talented global team will immediately make Lenovo a strong global competitor in smartphones," Yang said in a statement. "We will immediately have the opportunity to become a strong global player in the fast-growing mobile space."

"We will become a much stronger number three smartphone company."

Both Lenovo and Google have high expectations for Motorola coming out of the acquisition. Motorola said the acquisition will help it to achieve the rapid growth it's looking for. "With the recent launches of Moto X and Moto G, we have tremendous momentum right now and Lenovo’s hardware expertise and global reach will only help to accelerate this," Motorola CEO Dennis Woodside said in a statement.

In an alleged email to employees, which has been leaked to TechCrunch, Page said that he believes Motorola will do better under a company that can fully commit to a focus on smartphones. "The smartphone market is super competitive, and to thrive it helps to be all in when it comes to making mobile devices," Page wrote. "It’s why we believe that Motorola will be better served by Lenovo."

On a conference call discussing the acquisition, Yang said that Woodside and Motorola's existing management team would be staying on board. Yang also said that he felt the two brands were complimentary, and that both the Motorola and Lenovo brand would remain in use where they were already strong. "A detailed plan will be made after we close the deal," Yang said.

"Why am I so confident? I have several reasons."

Despite Motorola's ongoing struggle to reach profitability, Yang is extremely optimistic about what it will do under Lenovo. "Why am I so confident? I have several reasons." Yang cites five: it will immediately make Lenovo a major smartphone company in the US and give it relationships with over 50 wireless carriers worldwide, Motorola is an established and respected brand, the deal includes important patents and licenses, it will help address new markets with a diverse smartphone lineup, and it brings along Motorola's expertise in mature smartphone markets.

Despite his intention to continue using the Lenovo name where it's strong, Yang emphasized that the Motorola name would play a major role in its ability to compete in the United States and other major markets. "We had a similar opportunity with the Think brand, and we succeeded," Yang said. He believes the acquisition will ultimately make Motorola a far stronger smartphone manufacturer, turning it into a capable competitor against the industry's giants.

"We will become a much stronger number three smartphone company," Yang said, referencing Motorola's position as the third-place Android smartphone manufacturer in the US. "Motorola brings a strong brand, brilliant engineering, great products, [and] outstanding relationships with retailers."

News of Lenovo's acquisition of Motorola comes just a day before Google reports its quarterly earnings. Investors have been interested to know what Google plans to do about Motorola's mounting losses. Tomorrow may not deliver them good news from the previous quarter, but it appears that Google has given its final answer.