The Motorola Conundrum

Recently, in the most puzzling of sales, Google sold Motorola Mobility, that it had bought last year for $12.5 Billions, to Lenovo for under $3 Billion. It may seem that Google is undoing its misguided Motorola purchase — the unit doesn't fit with the rest of Google’s businesses and even clashes with its efforts to convince other companies to make Android phones and tablets. But there are some lingering questions around the deal.

Google bought Motorola for $12.5 billion and they’re selling it for $3 billion. Why would they be incurring a loss of  $9.5 Billion?

Contrary to popular belief, Google didn't take a $9.5 Billion bath on Motorola, instead it's coming out ahead. When Google bought Motorola, it received the following in the package :

1. A mobile phone business
2. A set top box business
3. Roughly $5.5 Billion in cash and tax credits
4. A massive patent portfolio

Google said from the outset that its interest in Motorola was primarily about those patents. At the time, Google had just lost a bidding war for a major patent portfolio owned by the bankrupt Nortel. It believed acquiring Motorola’s patents was the next-best way to defend Android against seemingly-likely legal attacks from the likes of Apple and Microsoft.

With the Lenovo deal, Google is getting $2.9 billion for Motorola’s phone business (which now also includes tablets). Google is not selling Motorola’s patent portfolio. Google will keep the “vast majority” of those patents, with Lenovo getting a license to them and some other intellectual property. Google has also raised another $2.3 billion by selling the set top box business to Arris Group before the Lenovo takeover.

Being one of the pioneers of smartphone technology before hitting a slump, Motorola owned a massive patent portfolio that was said to valued at over $5.5 billion by Google before the takeover. Now, in order to protect Android handsets from lawsuits filed by Apple and Microsoft, Google has absorbed all those patents and has somewhat safeguarded the Android users from potential legal turmoil. Having Motorola meant Google was getting ever more involved in legal fights about Android handsets, because it's much easier for companies making handsets, rather than OSes, to get sued.

However, aside from Motorola’s enormous trove of patents, the only other reason for Google to buy Motorola was to transform it into a healthy counterweight to Samsung, which sells the overwhelming majority of Android smartphones. (Tellingly, Google is retaining the rights to Motorola’s patents, but will license them to Lenovo). Also, Google has placed one of their own, Dennis Woodside, as the CEO of Motorola, meaning that essentially, Google has created a competitor to Samsung, headed by an ex-Google guy, belonging to a company (Lenovo) that has a major share of low to mid end range of smartphone and PC business.

For Lenovo, this deal means that they now can stamp their authority in the North American market under the Motorola brand name in addition to their current stronghold in the Asian and other emerging markets. So, all in all, this deal, that was quite puzzling at first, could prove to be a win-win scenario for all the parties involved.

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