Some Thoughts on Lenovo's Acquisition of Motorola Mobility from Google
by Anand Lal Shimpi on January 29, 2014 7:55 PM EST- Posted in
- Smartphones
- Lenovo
- Motorola
- Mobile
Earlier this evening Google announced the sale of Motorola Mobility to hardware manufacturer Lenovo for a deal valued at just below $3 billion. Given my fondness for the Moto X and Moto G, two of the best ergonomically executed handsets in the Android space from my perspective, I had a bunch of thoughts about this deal that I wanted to get down in writing.
I'll start off with a bit of praise for Motorola. The transformation of the company post-Google-acquisition has been nothing short of awesome. The in-hand feel of the Moto X and Moto G remain unparalleled by any competing Android device in my opinion. I absolutely understand that's personal preference, but the next three points aren't. With the Moto X, Motorola bucked the trend of higher CPU core counts (disregarding their driving-me-to-drink 8-core messaging for a moment) and instead opted for two high frequency CPU cores that ultimately delivered better thermally bound CPU performance than the quad-core alternative. Motorola also was the first Android vendor I came across to think of addressing the issue of random IO performance, in this case by deploying a NAND Flash aware file system (f2fs) on the Moto G and X. Finally, Motorola is one of very few Android OEMs that doesn't blatantly cheat in a whole host of terrible smartphone benchmarks. In short, I like the new Motorola. The good news is that I'm not sad to see the company go to Lenovo.
Lenovo doesn't have a history of ruining brands. Its acquisition of IBM's PC business seems to have done well, and I can only assume that Lenovo has the same intents with Motorola. Acquisitions that strengthen the position of the acquirer are (understandably) sensible ones, and here we're talking about two relatively small players in the overall smartphone industry combining with hopes of increasing market (and revenue) share. With both Motorola and Lenovo controlling single digit percentages of the smartphone market (1.3% and 5.1%, respectively, according to Gartner) it's clear that neither party has a chance independently. Lenovo could leverage its position in China, while Motorola would hopefully be able to do the same in the US (although with a much steeper slope to climb). So far the deal makes sense, although it doesn't guarantee anywhere near instant success.
The basic fact is that it seems like it's difficult to turn a profit, even in the face of substantial revenue, in the smartphone space. LG and HTC have both struggled here, while Apple and Samsung do quite well. Apple aims squarely at the high end, while Samsung arrives at great profits through a combination of factors - not the least of which is its ability to act as both an integrator and supplier of technologies.
While odds against turning a substantial profit would point to this deal being a bad (or neutral) one, if there's a company that knows how to successfully compete in a low margin business it's Lenovo. In a world where being a PC OEM is hardly desirable, Lenovo seems to have done fairly well. Leveraging its presence in China as well as higher margins from its corporate business, Lenovo has been able to support and reinvent its consumer facing PC business. It's entirely possible (likely?) that Lenovo views it can repeat the same success in smartphones.
(Side note: if smartphones end up being low margin businesses for most companies, that potentially increases the reliance of smartphone vendors on reference designs from silicon vendors - drawing an interesting parallel to how things work in the PC space.)
Google's position in all of this is interesting. CEO Larry Page posted his thoughts on the sale to Google's official blog. I'd like to call out a couple of important quotes:
"...the smartphone market is super competitive, and to thrive it helps to be all-in when it comes to making mobile devices."
and
"As a side note, this does not signal a larger shift for our other hardware efforts. The dynamics and maturity of the wearable and home markets, for example, are very different from that of the mobile industry. "
The first point solidifies Google's position with regards to Android. It will be an OS and services provider, relying on its partners to build the hardware. Monetization comes from mobile search advertising, location based advertising and general mobile data mining. At a high level this is the Windows/PC ecosystem strategy, except instead of charging a ton for an OS license Google makes its money in these other ways. Note that there's an obvious implication for what happens to the Nexus line but we'll wait and see how that pans out.
I have to point out that although Microsoft was once a proponent of this approach, as of late it seems to have lost some faith (for good reason) in the PC OEM ecosystem and chose to throw its hat in the ring with Surface. It took PCs a very long time to get to this point, and I suspect if the same end result happens to the Android ecosystem it will take a while before it gets there either. Following the Microsoft model makes a lot of sense from the perspective of growing marketshare. Given how Google primarily monetizes Android today, being in the software/services business and leaving hardware up to its partners is absolutely the right move for the company. If we've learned anything from watching the PC evolve however, it's that OEMs participating in a low margin business tend to prioritize profits first and user experience second. My hope for a Google-owned Motorola was a device vendor that was independent of that mess, but as I just mentioned I don't see this being a problem for some time to come.
Larry's side note above also makes sense, it tells us a lot about Google's willinginess to play in the hardware space. In a sense, Google won't be a fast follower but it will gladly reap the rewards of a being a first mover in any industry. Focus is extremely important for the success of any company, big or small, and in this case Google is doing right by its shareholders and being focused. Google is absolutely an early mover in the wearables space and with its acquisition of Nest you can say the same thing for its role in the connected home. As I wrote about the Galaxy Gear not too long ago, with those in the smartphone space addicted to exponential growth, a maturing market drives almost everyone to look for the next big thing. There are a handful of these markets that seem feasible in the near term: automotive tech, connected home and wearable computing (+ maybe a category for things like the Oculus Rift).
Android is turning out to be the mid-90s Windows of the mobile space, while Google wants Glass and Nest to be the iPhones of wearables and the connected home. I can definitely see the former, and I think Nest absolutely puts Google on the right right for the latter, I am uncertain about how Glass plays out in the wearables space over time. The wearables market is still very much in its infancy.
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darwinosx - Thursday, January 30, 2014 - link
Yet somehow other companies, like Apple sell premium products at premium prices and do quite well. Ditto for HP workstation laptops. I don't think much of a lot of HP's products but their workstation laptops are excellent.Lenovo simply decide to go to a lower level of quality on all of their products.
darwinosx - Thursday, January 30, 2014 - link
Absolutely right. Lenovo quality is far from IBM Thinkpad quality. prices are far lower but they cut everything to get the price down. Quality of components and quality control of manufacturing.darwinosx - Thursday, January 30, 2014 - link
They already are. Motorola phones are made in china and have been for some time.gdansk - Wednesday, January 29, 2014 - link
I really liked the Moto X. I didn't think it was a worth it to upgrade from my Nexus 4, though. We'll see if Motonovo can be as competitive this next year.I'm interested to see if Lenovo keeps manufacturing in Texas.
Penti - Wednesday, January 29, 2014 - link
What a loss?! While not giving much thought about why they would sell, they are not really a hardware company and it's a separate unit so it makes sense at some point, but for $3 billion well then Lenovo at least should be able to make something of it, but Google bought it for 12.5 billion. Selling other business from that unit for what? Another 2.35 billion US. Now Lenovo gets the phone-business for just 660M US up front. Well I guess they at least will take the European market serious now, Motorola/Google didn't really, while at the same time taking over the remnant of the former major US-player and a strong brand.Since Nokia's departure with their new direction 2011, that effectively makes the business only in the hands of the Koreans, Chinese, Taiwanese and Japanese now. The companies in Europe and US gave up as always. If not by themselves then with help by North American executives. High tech seems not to be anything for us today, and inventing much of the consumer goods, refrigerators, mobile phones, semiconductors as well as the science doesn't matter if you loose the drive.
Malih - Wednesday, January 29, 2014 - link
"The companies in Europe and US gave up as always. If not by themselves then with help by North American executives."I suppose that's the reason why the likes of Samsung and ASUS grow big, although it remains to be seen with Apple trying to break the cycle by starting to manufacture in the US.
errorr - Thursday, January 30, 2014 - link
Don't forget the 3B in cash on the books.It was always about the patent portfolio that Motorola basically blackmailed Google into this stealth buyout.
Impulses - Friday, January 31, 2014 - link
It's a global economy, get used to it, yada yada... However, it's worth keeping in mind that while the job of design and integration that these OEMs carry out is important, what's actually going into the devices is probably more important still... A lot of that is still designed by US companies (Qualcomm, NV, Intel, etc). Not all mind you, stuff like display tech is strictly up to the likes of LG, Samsung, Sharp, etc.Penti - Friday, January 31, 2014 - link
It's a good company for Lenovo to buy, loss of competency and industrial leadership is more worrying on a nation level however I think Lenovo would rather contribute here so it's more of a leadership and ownership issue. As everything can't be managed by people overseas, but here in Sweden we still do some handset development at Sony as well as some at the offices of the mainland Chinese vendors. Finland should kick out the remnants of Microsoft's handset business as quick as possible though, as they quickly removed any potential to develop it even before actually buying the business. So it leaves room for other businesses. ST - Ericsson cooperation fell through though so no SoC's from us anymore, but Ericsson still does modems, and the modems from the Finns/Japanese ended up at Broadcom I think. As long as it's not totally erased there's at least some potential left.While much of the new high-tech technologies ended up in Asia and semi-new players it's amazingly to a large extent in the high-cost OECD-countries. While we can't even make lead-batteries in Sweden any more let alone lithium cells It's Korea and Japan that's leading there, and the Taiwanese and Chinese battery makers mostly use their cells. But that only makes it more sad when a country truly gives up on something they are good at. But it's not really the case here, Motorola went down long before a small resurgence with android based devices. At least Sweden and Finland designs and develops, even does some of the assembly and manufacturing of base-stations while that business is none existent in the US and North America where every player and most of the technology has fallen and been forgotten while law-makers yell about excellent Chinese equipment that they don't want to buy even though there is no US-designed stuff any more.
European and Japanese players have removed themselves from much of the consumer electronics businesses they built though, on the Display side it's only Sharp and Panasonic that actually develops and manufacture large panels any more in Japan or has any financial interest in manufacturing/buying them. That means that companies like Hitachi, Pioneer, and Fujitsu fully stopped making and selling TV's exiting the market all together with the changes, those are to a large extent based on domestic problems though.
Motorola and Nortel where giant's in their industries at some point and large conglomerates, it doesn't take that much to erase most of the business and divide it up in half a dozen companies.
Semiconductor design and Semiconductor manufacturing still is within the grasp of the Europeans, Japanese and Americans though. Taiwan is mostly a merchant player, while Korea's Samsung has one of their most advanced merchant fab in Texas. Common platform partners has fabs in US, Japan, Europe and other parts of Asia. But it often depends on companies – at least in a regional sense – that can't afford to loose their direction. Qimonda just dropped of the earth, and Elpida got bought by Micron because they couldn't finance themselves for example. There is both pretty competitive while in a semi-related field by another player it's not really competitive any more, so it depends greatly on industry and respective market-segment. As always. Some segments have other emerging players, some don't. An missed investment and trusting others to supply you can spell the end of a companies entire field.
Penti - Thursday, February 6, 2014 - link
Didn't mention Mitsubishi's exit or Toshiba's exit from making LCD-panels there. Now Sony has finally announced that they are withdrawing (planning to) from the TV-business too. As expected. Well at least if they can get someone to take over the new company that will run the TV business.Philips did the same here in Europe, first divested itself from joint ownership of a LG LCD-fab and later gave up their TV-business to TPV that already ran and operated the company selling philips-branded monitors as well as manufactured most units for them. Though they still had some ownership that they gave up now in January. Those remaining is those that still manufactures panels pretty much.