News Column

China's Lenovo to buy Motorola Mobility for nearly $3 billion

January 30, 2014

By Kathy Bergen, Chicago Tribune

Jan. 30--Motorola Mobility, the Libertyville-based cellphone-maker with a longtime Chicago pedigree, will have Chinese ownership under a deal announced Wednesday.

Google, which owns Motorola Mobility, said it will sell the smartphone business for $2.91 billion to Lenovo, giving one of China's most prominent technology companies a broader foothold in the United States.

Motorola -- which invented the commercial cellular phone -- was the industry leader and innovator as recently as a decade ago, but over time the company fell behind more nimble competitors such as Apple. The sale to Lenovo is another reminder of that lost promise, just as it reflects the rising ambition and wealth of Chinese corporations.

Lenovo gained notice in 2005, when it bought IBM's PC business, and it has continued to grow as a global company. Last week Lenovo said it would buy IBM's low-end server business for $2.3 billion.

In the Motorola deal, Lenovo will get the Motorola brand and products, including the Moto X and Moto G, and it will gain access to the company's patents. Lenovo, which ranks fifth globally in handset sales, sees the Motorola deal as a way to make quick headway into U.S. and Latin American markets.

Lenovo executives said the company would retain Motorola Mobility's management team, led by Chief Executive Dennis Woodside. Plans to move the smartphone company's headquarters to the Merchandise Mart next month will proceed, they said, adding there are no plans for layoffs.

The headquarters employs more than 2,000 people, a company spokesman said.

"We are buying this business, we are buying this team because we believe they are a treasure," Yang Yuanqing, Lenovo's chairman and CEO, said in a conference call.

Peter Hortensius, Lenovo's chief technology officer, said in an interview with the Tribune that future staffing levels will depend on how the business performs.

"We acquired it to grow it, and make it bigger and stronger," he said.

The Lenovo deal, if completed, would be the latest in a string of high-profile transactions in which Chinese firms buy global brands. In the U.S., Shuanghui International bought pork producer Smithfield Foods last year.

"The reality is that as China becomes wealthier and companies become wealthier, they will look to investment opportunities around world, including the U.S.," said Ivo Daalder, president of the Chicago Council on Global Affairs.

Such foreign direct investment "means more money coming into the city," he said.

The Lenovo deal is subject to approval by U.S. and Chinese authorities.

Chinese companies faced the most scrutiny over their U.S. acquisitions in 2012, according to a report issued in December by the Committee on Foreign Investment in the United States. Analysts say political issues could cloud the deal, especially with Lenovo trying to seal the IBM deal at the same time.

Motorola has a storied place in Chicago business history.

The company, founded as Galvin Manufacturing in 1928, pioneered the car radio and walkie-talkies.

After success with early pagers and radio phones, it introduced the cellular phone in 1984 and became an industry leader.

Motorola's 2004 Razr mobile phones were revolutionary in that they weren't just functional but a fashion accessory, an idea others -- notably Apple -- would run with, and eat into the company's once-substantial market share. The company never regained its footing.

Motorola's rich history was part of the appeal for Lenovo.

"They not only invented the first mobile phone, but they created household products like the Razr," Yang said, noting his first cellphone was a Motorola.

Google will retain most of Motorola Mobility's patent portfolio, but Lenovo will receive a license to the portfolio and other intellectual property. It also it will receive more than 2,000 patent assets and the Motorola Mobility brand and trademark portfolio.

When Google bought Motorola Mobility for $12.5 billion in 2012, about a year after Motorola split into two companies, the main attraction appeared to be Motorola's patents.

They would help protect the company from disputes with other companies. Google received $3 billion in cash and subsequently sold one business unit and multiple factories, so it's difficult to analyze whether it's taking much of a loss on the Lenovo sale.

The deal with Lenovo appears to resolve another issue for Google: the complication of owning a handset-maker while also doing deals to license Google's Android operating system to other phone-makers, such as Samsung.

In a blog post Wednesday, Google CEO Larry Page highlighted the strategic choice in selling the Motorola handset business.

"The smartphone market is super competitive, and to thrive it helps to be all-in when it comes to making mobile devices," Page wrote. "This move will enable Google to devote our energy to driving innovation across the Android ecosystem, for the benefit of smartphone users everywhere."

Motorola Mobility wasn't making money; it had operating losses of $248 million in the third quarter.

Globally, five companies dominate the business these days -- two of which are Chinese. The top, according to industry research firm International Data Corp., are Samsung, Apple, Huawei Technologies, LG Electronics and Lenovo.

In the United States, the Chinese companies continue to grapple with low brand awareness, perceptions of inferior quality and even security concerns.

"Using Motorola, just as Lenovo used the IBM ThinkPad brand, to gain quick credibility and access to desirable markets and build critical mass makes a lot of sense," said Forrester Research analyst Frank Gillett.

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(c)2014 the Chicago Tribune

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Source: Chicago Tribune (IL)


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