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How Google Sold Motorola At A Loss And Still Won

Google LogoGoogle decided to sell parts of Motorola Mobility, it had bought for $12.5 billion to Lenovo for $2.9 billion and at a glance it looks like Google has suffered a big loss with the whole deal, but the truth couldn’t be more different.

This deal will help Lenovo get a stronger foothold in US market and help eliminate competition for its lower end products in markets such as India and South East Asia. However, Google has a bigger goal in mind and it will be able to achieve that with this move.

The big win: Google will hold on to Advance Technology Group that’s working on Ara project. This group has been building modular phones, the components of which can be easily upgraded much like in a PC. By holding on to this unit, Google has ensured that it has an R&D team working on mobile phones that can now start working on Nexus line of devices.

Since it no longer controls Motorola, this unit can be rolled into the Google juggernaut. SEC or FCC cannot raise anti-competitive concerns either since Google then no longer manufactures its own devices. If Motorola was part of Google, the company would not have been able to make such a move without all its partners crying foul. After Google purchased of Motorola, bigger smartphone manufacturers such as Samsung had started working on their own operating systems while LG bought Web OS allegedly to power its smart TVs.

If Google can come up with a price sensitive set-up to build, sell and maintain modular smart phone devices, they can then license the technology to these vendors and one-up Apple and Microsoft. Or it could start manufacturing its own phones in the distant future by outsourcing the manufacturing work to companies such as Foxconn and selling the handsets exclusively online like it does with Nexus devices.

Motorola-Project-Ara

Patents: Google will hold on to most of the Motorola patents according to Techcrunch, which was reportedly one of the reasons it decided to pay top dollars for the American phone manufacturer. Buying Motorola in 2012 gave Google access to 17,000 patents, plus an extra 7,500 that were awaiting approval then.

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Out of these, Google is only transferring 2,000 patents to Lenovo. It’s not clear how many of these are FRAND category, but it’s worth noting that Google has not been able to win any case against Apple using Motorola’s patents to date. Even then, the fact that Google has managed to hold on to most of them is a big win as it gives it the freedom to work on pushing the smartphone technology without being sued at every step in the process.

How much money lost? To begin with Google had sold Motorola’s home video business to Arris for $2.2 billion cash and 10.6 million Arris shares (which is worth $2.56 billion with each Arris share priced at $25.56 now). So the value of the deal is more than $2.2 billion that everyone is reporting and around $4.7 billion+ territory.

Then deduct the $2.9 billion it’s getting from Lenovo and the $3 billion Motorola had in bank when it was bought, Google only lost $1.9 billion or so with Motorola Mobility takeover. For that $1.9 billion though, Google got Motorola’s R&D division that is working on the next evolution of smartphones and lion’s share of the patents.

So Google did not lose in this deal, instead they have figured out a clever workarounds to all the regulations and ensured that the company can play a direct role in the smartphone game which it couldn’t do with Motorola as a separate entity. They have taken all the parts of Motorola that makes sense to Google and sold of the rest at very competitive prices

So Lenovo’s the sucker? Not at all, Lenovo gets a leg up in an over saturated US smartphone market. Instead of spending billions building their smartphone brand, relationships with carriers, assembly plants etc. the company will now use Motorola branding, relations and infrastructure in US as it now has the rights for ‘Motorola Mobility’. The only sucker in this deal are the regulators who cannot raise any objection to this deal, but could have objected to Google merging Motorola into its folds.

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I'm passionate about technology and gaming. You can follow me <a>@chupchap</a>

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