Google's costly Motorola manoeuvre may pay off [Gulf Times (Qatar)]
(Gulf Times (Qatar) Via Acquire Media NewsEdge) Dennis Woodside, chief executive officer of Motorola (left), speaks as Eric Schmidt, chairman of Google (centre) and Rick Perry, governor of Texas, listen during an event in Texas. Sources said yesterday by unloading its Motorola Mobility handset business to China's Lenovo, Google gains a partner that may inflict damage on rival Apple. Dow Jones/Beijing Google Inc suffered some expensive bruises in its two-year foray into making smartphones. But the expense wasn't as big as it appears, and Google may have achieved some strategic ends.
Google's primary goal in smartphones is to undercut the competition and get them into as many hands as possible. This generates more traffic to its search engine and the ads that surround it.
By unloading its Motorola Mobility handset business to China's Lenovo Group, Google gains a partner that may inflict damage on rival Apple Inc, while balancing the dominant market power held by partner Samsung Electronics. It could also resolve some nagging conflicts in its sprawling Android ecosystem.
In Lenovo, Google gains another partner with grand ambitions to penetrate the global smartphone market with low-cost phones, a segment Apple has ignored. This strategy helped Google's Android software grow to power the majority of the world's smartphones-four of every five smartphones shipped in 2013 ran Android, estimates Strategy Analytics.
By flooding the market with Android phones, Google wards off Apple's threat to bypass Google services on its own phones. In 2012, Apple ditched Google Maps and stopped installing the YouTube app on iPhones. Lenovo is already the fifth-largest handset seller, with the vast majority of its business in China. And with lean operating profit margin in handsets and tablets – less than 1% in its most recent quarter, according to Bernstein & Co estimates – it is in position to expand the market for Android handsets by addressing value-conscious consumers.
Motorola will help Lenovo to capitalise on its supply-chain and distribution strengths, similar to how it has grown into the world's largest seller of PCs after buying that arm of International Business Machines Corp in 2005.
The deal also helps Google bring more balance to the Android ecosystem. Today, Samsung dominates the Android world, selling more than six times as many phones as its nearest rival. A combined Lenovo and Motorola can help offset Samsung's strength, reducing the risk that the Android world is dominated by a single hardware maker.
At the same time, the deal resolves a big concern of Samsung and other Android-phone makers: That Google was both a supplier of their mobile software and, through Motorola, a competitor in hardware. As a sign of that frustration, Samsung in recent months had been de-emphasising Google's apps in its latest Android devices, while working on its own mobile operating system called Tizen.
Google's exit from the business should strengthen Android, said Jefferies analyst Brian Pitz in a client note, "by reducing the risk that handset makers will deploy competitive operating systems." All of that could be worth the cost of Motorola. Google on Wednesday agreed to sell most of its Motorola Mobility unit to China's Lenovo for $2.9bn, less than two years after buying it for $12.5bn. Factoring in Motorola's cash, some asset sales and Google's operating losses while running the business, its final cost will likely be closer to $6bn.
That is a lot of money, but not bank-breaking for Google. The company added more than $10bn to its cash pile in 2013, leaving it with $58.7bn at year-end. It also acquired 17,000 patents that are proving less valuable than Google first thought; regulators told Google that some Motorola patents shouldn't be used as weapons in litigation. But the patents – most of which Google is keeping – give Google more legal leverage than it had previously.
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