Sun Sets On Motorola As Lenovo Purchase Closes
There was never really much doubt that Chinese PC leader Lenovo (HKEx: 992) would ultimately close its purchase of Motorola Mobility, the former cellphone giant that has rapidly become irrelevant in a sector where change occurs at lightning speed these days. Lenovo has just announced that it closed the purchase of Motorola Mobility from Google (Nasdaq: GOOG), some 9 months after first announcing the deal. Now the real work will begin for Lenovo as it tries to figure out what exactly to do with Motorola, including the small possibility that it could retire the company’s storied name.
In many ways this particular deal looks like Lenovo’s landmark purchase of IBM’s (NYSE: IBM) PC business in 2005, launching its globalization campaign. That deal saw Lenovo take over IBM’s PC operations in the US, and also receive its sales channels that included many Fortune 500 companies. But there are also some big differences. IBM’s PC business and its brand were still quite well respected when Lenovo made the purchase, even though the unit was just marginally profitable. By comparison, Motorola Mobility is probably losing big money, and its name has become largely irrelevant in the cellphone space.
Another big difference lies in technology ownership. Lenovo inherited all of IBM’s PC technology when it purchased the unit in 2005. But this time around, Lenovo is receiving little or none of Motorola’s huge patent portfolio, which instead is being retained by Google. That’s a huge factor devaluing the purchase, and a big part of the reason Google sold Motorola for just $2.9 billion, a fraction of the $12.5 billion it paid for the company in a deal first announced in 2011.
Lenovo gives quite a few financial details of what it ultimately paid for Motorola in an announcement on its completion of the deal. It is ultimately paying $1.4 billion in cash and Lenovo stock at the closing, and will pay another $1.5 billion through the issue of a 3 year promissory note. (company announcement; Chinese article) Completion of the deal comes just weeks after Lenovo also closed its more controversial purchase of IBM’s low-end server business, which was ultimately clear by US national security reviewers.
All that said, let’s return to the question of what’s next for Motorola, whose headquarters will remain at its longtime home base near Chicago. If Lenovo were smart, it would follow the example of Microsoft (Nasdaq: MSFT), which recently purchased the cellphone operations of former industry leader Nokia (Helsinki: NOK1V). Microsoft decided to retire the Nokia name and begin anew with its own Lumia brand, realizing the Nokia name no longer carried much value. The main attraction for Microsoft wasn’t Nokia’s name, but instead its huge patent portfolio, and its well-developed global sales and service networks.
But Lenovo isn’t Microsoft, and I’m fairly certain the former will attempt to revive the Motorola name and position it as a high-end brand. That strategy sounds logical in some ways, as Lenovo’s own name has become associated with cheap smartphones of dubious quality. But it’s also important to remember that many of Japan’s and Korea’s most famous electronics brands also once had a similarly downscale image, though they gradually managed to transform their names into symbols of quality and reliability.
All that said, I expect we’ll see a period of transition including big layoffs before Lenovo tries to relaunch Motorola with the introduction of some new models late next year. The only problem is that Lenovo isn’t very good at designing such models, and neither is Motorola. Lenovo also isn’t very marketing savvy, unlike high-flying crosstown rival Xiaomi. At the end of the day, we can probably look forward to a Motorola relaunch that gains little or no traction, and Lenovo may ultimately decide to scrap the brand within the next 5 years.
Bottom line: Lenovo will try to relaunch Motorola as its high-end smartphone brand, but the campaign will get a lukewarm response and Lenovo could scrap the line by 2020.
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