In August 2011 Google bought Motorola's handset business for 12.5 Billion dollars. Today we learn that Lenovo has bought the handset business for 2.9 Billion dollars but Google keeps most of the patents it acquired from Motorola.
I wrote right from the start that Google's primary interest was the patents portfolio and Google would sell the handset unit most of all because this purchase caused irritation in the Android handset manufacturer community who didn't want their software operating system provider Google to simultaneously compete with them on making the hardware. That thesis was repatedly proven by press stories that the Android manufacturer community was not happy - and led to several significant developments of rival operating system projects (Firefox, Tizen etc) to purchases of operating systems (Palm WebOS bought by LG from HP).
Now its happened. This has several important impacts to the smartphone bloodbath. First its another consolidation move (and we are still likely to see more of these). So two smartphone brands (arguably 3) become one (by three meaning Google as smartphone maker plus Motorola as its 'independent' brand merge to Lenovo's ownership and eventually all of it will only be known as Lenovo brand just like how Lenovo did with its original IBM PC business purchase.
What does this do to the smartphone battle? Lenovo is currently mired in that mid-field battle with Huwaei, LG, ZTE, Sony, Coolpad/Yulong and HTC for who gets to be called 'third largest smartphone maker' behind the giants Samsung at 1 and Apple at 2. Huawei is the latest also-ran who sits in the 3rd ranking position for Q4 of 2013 (while we still await the last tidbits of the data to complete the Q4 and full-year 2013 results on this blog). Motorola was some years ago the world's second largest handset maker and has been as high as 4th largest smartphone maker but currently isn't even near the Top 10. Still they make in the 12 million to 15 million smartphones per year. So when we add Motorola shipments to Lenovo's latest, we get roughly 6% market share and over 60 million total shipments of smartphones annually. That is the level where Lenovo now climbs to, well above the Huawei level in the 5% market share stage. As Motorola is all running Android as is all of Lenovo, and Motorola has completed its migration of dumbphone production to smartphones the transition to Lenovo unified smartphone portfolio running Android is relatively easy (vs say MIcrosoft's purchase of Nokia where they still have to manage the costly transition from Nokia dumbphones - 89% of the handsets sold in Q4 under the Nokia brand were dumbphones and only 11% were smartphoens - to Windows based smartphones)
So Lenovo now will have about 6% market share and becomes rather clearly number 3 in the smartphone race. Note that just in 2012 Lenovo was ranked 10th largest smartphone maker and powered by mostly only in-China domestic smartphone sales (China towers as the world's largest smartphone market now more than twice as big as the USA) Lenovo had climbed to 4th biggest smartphone manufacturer. It now becomes the clear number 3. In the global handset race Lenovo will be ranked 5th as Microsoft/Nokia and LG are bigger when their dumbphone sales are added to their smartphone sales.
More importantly for Lenovo, it gains a global brand and global distributor channel via Motorola and can far more rapidly boost its market penetration by the Lenovo brand into local national smartphone markets. Motorola's strongest markets left are in the Americas North and Latin America where Lenovo had not yet done meaningful market entry in smartphones (while Lenovo had already entered many Asian markets and some Europeans already). While its market share is modest it is also well trusted in Africa and Middle East. Lenovo should be able to build very powerfully onto the Motorola brand and gains a big leg up ahead of its Chinese rivals Huawei, ZTE and Coolpad/Yulong who are all in the process of also expanding abroad.
The Motorola business has been making losses for years. The Motorola handset business has been declining in sales numbers at alarming rates until Google bought it and stopped releasing unit sales numbers - suggesting quite clearly that the troubles continued. So this is not a healthy unit. But it is a global brand which has a global distributor network something that Lenovo did not have in handsets (remembering that the PC sales distribution channel is very different from the far larger handset industry distribution system that depends on mobile telecoms operator/carrier support), Can Lenovo turn this business around? I think the IBM laptop business purchase shows a very good signal that Lenovo is able to buy a 'US' business and make it work and grow. Yes IBM's PC business was profitable when Lenovo bought it vs Motorola's loss-making but I think this is very promising compared to say Microsoft's bad history of buying hardware makers like its purchase of Danger that it messed up totally into the aborted Kin phones launch. Time will tell but I think Lenovo has a good chance to capitalize on this purchase and propel itself to a safe third-ranking in smartphone wars of the years to come.
I should note that this clearly proves that Lenovo was serious when we heard rumors that Lenovo was looking at buying RIM/Blackberry - and Nokia. I did say on this blog several times that Nokia shareholders would have been better served if they allowed the handset business to be bidded for openly (Lenovo was not the only one interested in addition to Microsoft) and that very likely Nokia could have sold only part of its handset business to some other buyer than Microsoft to get enough cash to continue but still keep at least part of its handset business... (Note that Lenovo also made a $2B purcase of some IBM server business just a few weeks ago so Lenovo obviously had that itch it wanted to buy someone and had plenty of money to burn.) But yeah, that is water under the bridge but I wanted to point this out against those who accused me of imagining things and not being in touch wtih the industry anymore haha...
What does this do to Google? Google has been having trouble in its Android manufacturer partners base as many of those in partners were pursuing various alternate operating systems to Android in some capacity or another. There is also some talk of some Android partners possibly re-joining Windows in part (most of all Sony possibly launching a business-oriented Vaio branded smartphone running Windows). This sale very clearly establishes Google's ambitions as 'pure' of not wanting to compete with its handset manufacturer ecosystem. That it was true as so many of us speculated at the time in 2011 that Google's primarly reason for buying Motorola was the patents portfolio that Google didn't want to own the handset manufacturing business. Google is a software and services company at heart. So those doubts and irrituations now recede for Google and this should help stabilize the Android base and possibly even gives motivation for some handset makers NOT to pursue alternate OS platforms. Good move by Google. Obviously the Motorola handset business never turned profitable under Google's ownership and the handset sales numbers dimished while the overall industry grew.
I should mention Microsoft and its Windows Phone OS platform as well as its Nokia purchase. I accurately predicted that when Nokia would sell its handset business or parts of it, that MIcrosoft would almost certainly end up owning the Lumia unit because Microsoft could not afford anyone else buying the Lumia unit and then ending Nokia's silly Windows project and shifting that to Android. (Microsoft obviously ended up owning all of Nokia's handset business).
I have since said that MIcrosoft will never be able to make the Nokia Windows Phone smartphone business into a viable significant-sized business into the double digits market share. Never. I have also said that in the long run MIcrosoft's Nokia handset business will be a drain to profits and it will be eventually winded down and ended quietly. I still beleive this except now after the Google Motorola purchase I would add a new scenario - Microsoft may at some point decide to sell what remains of the Nokia handset business while still trying to continue on the Windows Phone OS side... Now that Google no longer owns a handset manufacturing unit the contrast to Microsoft is even more glaring and that irritation that Google felt, will be transferered to ever bigger irritation by Windows hardware manufacturer partners against MIcrosoft. Not just in smartphones but also in PCs because of Microsoft's growing efforts in the larger computing world through its tablets like the Surface and the Nokia phablets. Microsoft's PC side is not helped by this, but the smartphone side is definitely damaged by this. What bad future the Windows Phone platform faced before today - just got even worse.
Samsung now sees clearly who is the new number 3 rival to monitor in addition to Apple's iPhone now that Nokia/Microsoft is a non-player. The new number 3 to consider as emerging rival is Lenovo. Not Huawei not LG not Sony. Lenovo. For us in the Bloodbath-watch year 5 Who is Left Alive we have yet another death and the year starts with consolidation. Who is left alive? I believe this year will see still mroe consolidation...
PS first Samsung Tizen phone leaked via Korean gaming site Moveplayer.net and is called the ZEQ 9000 - see it here for example at Digital Trends.