Must-know: Why did Google sell its Motorola business to Lenovo?

Google announces the sale of its Motorola business to Lenovo

Last month, when Google (GOOG) announced the sale of its Motorola smartphone business to Lenovo for $2.9 billion, some investors and market participants saw this as a low price. This is because Google had initially bought Motorola Mobility for $12.5 billion in 2012—its largest-ever acquisition. However, after further examining the details, the divestiture doesn’t look as cheap as some analysts and investors believe.

Must-know: Why did Google sell its Motorola business to Lenovo?

Financially, the sale isn’t as bad as some people thought

A quick look at the above chart will help us understand that Google didn’t take a loss from the divestiture. Firstly, at the time of the acquisition, Motorola had no debt and $3 billion of cash on its balance sheet that Google got to keep. Google then sold off Motorola’s cable set top box business to a private equity firm for $2.3 billion. This means that the actual loss for Google would be $4.3 billion after its sale to Lenovo. However, there’s more. According to the deal with Lenovo, Google will keep the majority of Motorola’s huge patent portfolio. The company had valued those patents and other developed technology at $5.5 billion, according to a regulatory filing last year. So in terms of valuation, a $2.9 billion sale to Lenovo doesn’t seem bad at all.

Motorola was bleeding losses

Secondly, the deal will help Google get rid of the financial headache that has plagued the company since the time it bought Motorola. Motorola has lost nearly $2 billion since Google took over while trimming its workforce from 20,000 to 3,800. The sale would also help Google focus its time and resources on the Android mobile operating system software and the new wave of smart devices.

Why did Google buy Motorola in the first place?

The main motivation of Google buying Motorola Mobility in the first place was its huge trove of patents. The idea was that the patents would help the company with legal protection for its widely used Android software for smartphones and tablet computers against competitors such as Apple (AAPL), BlackBerry (BBRY), and Nokia (NOK)—which was acquired by Microsoft (MSFT) last year. Google had always kept Motorola’s hardware business at arm’s length, in order to avoid the risk of alienating other mobile device makers that rely on Android. The result was that Google’s Nexus-branded phones often stole the spotlight.

Let’s take a look at why Lenovo was interested in buying Motorola’s smartphone business. Find out more in the next part of this series.