Google and Lenovo: Motonovo

Google and Lenovo: Motonovo

Jan 30th 2014, 9:52 by M.G. and V.V.V. | SAN FRANCISCO AND SHANGHAI

MAKING smartphones these days is a bitterly competitive business and even stars such as Apple are finding it harder to keep their sales growing. That is no doubt why Google, which only entered the smartphone market in a big way some 19 months ago when it finalised the $12.5 billion acquisition of Motorola Mobility, is already heading for the exit. On January 29th the web giant announced plans to sell Motorola’s handset business to China’s Lenovo in a $2.9 billion deal.

The proposed transaction, which will need a green light from government bodies in America and China, will give Google a way out of a business that it has struggled to make headway in. The company bought Motorola primarily to get its hands on the firm’s vast portfolio of patents, which it said it needed to help defend its Android mobile operating system against legal challenges by rivals. Much of the hefty purchase price reflected Google’s estimate of the value of those patents, many of which it is hanging on to. (As part of the deal, it has agreed to licence some patents to Lenovo.)

The web firm sold Motorola’s set-top box and cable modem business for $2.3 billion soon after acquiring the company. But it kept the handset business in the hope that it could help it to churn out stunning new phones that would force all other makers of Android devices to raise their standards too. Although Motorola has produced some respectable new offerings such as the Moto X, these have failed to set enough pulses racing. Google lacked the in-house know-how to turn the business around and the scale to make it viable. In a blog post announcing the deal, Larry Page, Google’s chief executive, acknowledged that Lenovo’s expertise in device manufacturing made it a more attractive home for Motorola.

For Lenovo, the acquisition makes sense on two counts. First, it should fuel its steady rise in the league table of smartphone manufacturers. IDC, a market researcher, currently places Lenovo fourth globally, behind Apple, Samsung and China’s Huawei. Its phones sell well in China, Indonesia and Russia, but have struggled to make headway in Latin America or the United States. Lenovo says it will retain Motorola’s strong brand in those markets. Yang Yuanqing, the firm’s boss, also touts Lenovo’s “much shorter” product development cycle and ability to cut manufacturing costs through scale efficiencies.

This week’s deal is also a part of Lenovo’s grander quest. In 2005 the firm bought IBM’s struggling personal-computer business; despite the global shift from PCs to handheld devices, the firm has managed to rise to the top of this sector. Last week Lenovo also agreed to buy IBM’s low-end server business for $2.3 billion. Mr Yang says his long-term goal is to transform Lenovo into a global technology innovator on par with Samsung and Apple.

Google will no doubt be happy to see another powerful player align itself behind Android. And firms such as Samsung may feel better now that they will no longer compete head-on with the operating system’ creator in the handset business. Google and Samsung recently struck a deal that involves cross-licensing patents, which should also reduce tensions between them.

In his blog post, Mr Page said that although Google is making a tactical retreat in the “super-competitive” smartphone market, it still has big ambitions in other areas of hardware. The firm recently snapped up Nest, a maker of smart thermostats and home alarms, for $3.2 billion, and is championing wearable computers such as its Google Glass smart specs, which can now work with prescription lenses. It has also bought a range of robotics companies. Not all of these will turn out to be money-spinners. But expect Google to dial up its investment fast in those areas that are.