With Lenovo purchasing Motorola for $2.9 billion, the world’s leading PC vendor is getting serious about the phone market. However, with a growing Lenovo-branded phone business in Asia and a profitable ledger, many will wonder why this successful company would want to acquire one that’s bleeding money. However, in a conference call, Lenovo CEO Yang Yuanqing said he believes that, with the proper investment of resources, Motorola can sell 100 million phones a year — Apple sold around 150 million in its most recent four quarters — and even bring the Moto brand to China. Despite the challenges, this move makes sense for at least five reasons.
Cinderella’s stepmother is a more loving parent than Google was to Motorola. When the search giant first announced it was buying the struggling handset maker in 2011, it did so for Motorola’s huge storehouse of patents, most of which Google retains even with the sale of the hardware business to Lenovo.
In less than two years since the deal closed in spring 2012, Google has laid off thousands of Motorola employees and thrown the vendor under the bus publicly. In 2013, Google CFO Patrick Pichette even said that Motorola’s products lacked the “wow” factor they needed to succeed. Even worse, Google chose LG to produce its two most recent flagship Nexus phones, rather than using a company that it owns and controls.
Google’s ownership of Motorola put it in danger of offending all the other companies that use Android on their phones, including Samsung, LG, HTC and Sony. If the company had thrown too many resources into Motorola, it might have alienated these valuable partners and put the entire platform in danger.
However, in Lenovo, Motorola gets to stop being the red headed step child and become a treasured asset. In his conference call, Yuanqing said that his company can do for Motorola what it did for IBM’s ThinkPad business, which it acquired back in 2005. Today, Lenovo is the leading PC vendor in a market where most are struggling.
Lenovo has been selling its own Android smartphones in China for a few years now, but the company hasn’t even dipped a toe in other markets. Company representatives always maintained that someday we’d see Lenovo handsets in the U.S., but that it could be a while.
As ASUS and Acer can tell you, it’s very difficult to form relationships with U.S. carriers and, without distribution on the big four, you shouldn’t even bother. Motorola already sells products, including the Moto X, through all the major carriers in America and even has solid distribution relationships in Canada and Latin America.
Lenovo says that it plans to continue using and building the Motorola brand in these markets rather than replacing it with Lenovo’s own handsets. So it doesn’t even have to try selling the execs at AT&T, Sprint, T-Mobile and Verizon on an unfamiliar brand and product lineup. Almost immediately, Lenovo gets a leg up in the U.S. over competing Chinese smartphone makers, including ZTE and Huawei.
Lenovo’s ThinkPads have a well-deserved reputation as the Cadillacs of business notebooks and many large outfit their employees with Lenovo products. Adding smartphones to its portfolio allows the company to offer a complete package to enterprise customers who are fleeing from the near-dead BlackBerry platform.
Though most businesses are going to a bring your own device model rather than handing out phones to employees, those that still need to purchase handsets will appreciate the end-to-end solution. Both Dell and HP have tried selling branded phones as part of their enterprise offerings and failed miserably, but neither one had the phone pedigree of a Motorola behind them.
Yuanqing said that, with this purchase, the company gets 2,000 patents in the deal along with cross-licensing access to some Google patents. To play in the U.S. market, the company needs patents to protect itself from strategic lawsuits by competitors. Lenovo clearly believes that it now controls enough valuable IP to countersue anyone who would come after it.
“Motorola’s R&D tradition is a perfect match for Lenovo,” Yuanqing said during the company’s conference call. Indeed, Motorola is an innovator, not only historically but recently. The company’s Moto X phone is the first one to offer touchless voice control and a truly customizable design. Its Droid RAZR Maxx phone is one of the longest lasting on the market and its Moto G phone is arguably the best deal.
What happens when the designers at Lenovo get together with their counterparts at Motorola and build a phone together? We could see a ThinkPad phone that has the business sense of Lenovo’s famous notebooks and the durability, long battery life and clean Android OS of a Motorola.
During a conference call with reporters, Lenovo’s CEO struggled when asked how a combined Lenovo and Motorola would truly compete with Apple and Samsung in the smartphone market. He mentioned scale and the ability to procure components for lower prices. That obviously won’t be enough to take down the smartphone duopoly. But the above reasons for the deal–combined with the 3 years Lenovo is giving itself to fully leverage Motorola–make this one tech marriage that’s likely to succeed.