Introduction
The transfer of Motorola’s ownership was a good deal to both Google and Lenovo. Both companies have obtained what they needed to match their corporate and international strategies. Google acquired Motorola because it offered an opportunity to create synergies with its core business, which includes Internet searches, and Google adverts. Lenovo acquired Motorola to gain access to the patents for making smartphones, and use the brand’s global recognition.
The number of people using smartphones is increasing at a higher rate than the number of PC users. Google will be more successful by targeting smartphone devices. Holding the Android system patents, Google has offered Lenovo part of the task for the mutual benefit of the two firms.
Google’s reason for acquiring Motorola
Google acquired Motorola because it offered an opportunity to create synergies with its core business. Google’s core business is to offer Internet services, such as Google play, and Knowledge Graph. Google benefits when more people have smartphones that enable them to access the Internet (Google Inc. 3). Currently, Google estimates Android users to be about half a billion worldwide. It would mean more business opportunities for Google in terms of advertisement, and Internet usage (Google Inc. 13).
Google would become more attractive to firms that seek to market their products. Google’s main target was the Android operating system, which is used by multiple phone makers. Google would benefit from making the companies, which use the Android system for free, to post Google adverts. Google’s main target was not making devices. The patents benefit Google’s core business directly and indirectly.
Benefits and challenges of the acquisition to Google
One of the benefits is that other firms would make devices available to more people. Google would benefit from increased access to its services, and increased attractiveness to businesses that need marketing services. Google would also benefit from increased number of people accessing the Internet. On the other hand, its position as a marketer would be strengthened, which will include more marketing deals at higher prices.
Another benefit is that Google already had broad expertise in managing software systems. It had a greater opportunity to modify the Android operating systems to become superior in the competitive phone business (Google Press par. 2). If the Android system emerged as a superior product, then most smartphone makers would want to use it in their devices. It would benefit Google’s core business. Another benefit is that Google acquired Motorola at a discounted price (Google Press par. 1).
One of the challenges of acquiring Motorola Mobility is that the firm kept losing money, even after reducing the number of employees. Motorola had a lot of employees. They were reduced to about a fifth of the initial number.
The firm never stopped making losses despite launching two new products, the Moto X and Moto G. A phone maker has to sell a large number of phones to be profitable. The industry is associated with low profit margins. Google appeared to have bought a firm that was overvalued.
A firm’s worth relies on the investor confidence that the firm attracts. Google’s acquisition of Motorola made it lose part of the investor confidence required to boost stock prices.
Motorola acquisition within Google’s corporate strategy
Google’s corporate strategy is to have more Internet users across the world. The sale of PCs was declining. Smartphone became the best device to target. More people were using smartphone to access the Internet. The number of people using smartphones was increasing at a higher rate than PC users. Google could be more successful by targeting smart phone devices.
Its strategy was to target Android, which is a superior operating system for phones. It would allow Google to benefit from entering into contracts with smartphone makers using Android systems. The phone makers would increase the number of phones worldwide, and Google would have a right to deliver its services through the devices that use Android systems.
Google is a leader in making devices, even though it has chosen a few unique devices to diversify its business. Google’s main focus was not devices, but the acquisition of the large number of patents. It acquired about 20,000 patents valued at $5.5 billion (Liedtke par. 5). The patents have given Google a higher bargaining power to engage phone makers into contracts that support its core business.
Google’s decision to sell Motorola
Google is not a strong competitor in making devices. The launch of the Moto X and Moto G smartphones made it clear that Google was unlikely to make a profit by engaging in making smartphones. Motorola was likely to continue incurring losses.
Google wanted to retain the patents, which makes it well off selling the other parts. The patents augmented its core business. It would benefit more by holding the patents than holding the entire acquisition. Android is a superior system, which is likely to gain value. Google has the ability to make Android system appreciate in value. Google got rid of losses (devices part), and retained the profitable part (Android ecosystems).
Lenovo is a good choice because it is a more competitive maker of devices than Google. Google is likely to create strong and lasting synergies with Lenovo. Lenovo will be able to compete with Samsung and Apple in the global smartphone market.
Google has a corporate duty to create value for shareholders. Google’s stock prices rose after the announcement of the sale of Motorola, a firm that was reducing investor confidence in Google’s stock.
Motorola was a good deal for Google
Motorola may be considered a good deal for Google, even though only a few analysts support that argument. When the acquisition of Motorola and the sale of its parts are put into consideration, Google has retained exactly what it wanted initially. It has released the parts that made loses to Lenovo (Miller and Gelles par. 5). Lenovo has set its goal as mass production and the sale of Motorola phones. When Lenovo succeeds, Google will benefit too.
Google has stopped the Motorola losses from dragging its profitability, just two years after the acquisition. It may seem as a sale at the right time. The indirect benefits of the acquisition have not been accounted for, but they may exceed the $1.65 billion discrepancy between the acquisition price and the sale price.
Reasons for Lenovo’s acquisition of Motorola
Lenovo acquired Motorola to gain access to the patents for making smartphones, and global recognition supported by the brand. Lenovo required smartphone patents that would allow it to compete with Samsung and Apple without the likelihood of litigation over the violation of patent rights.
It would have been the case if it were to use the smartphones it produces in China. China has weak intellectual property rights. The company has shielded itself before venturing into new jurisdictions with strong patent rights. It has acquired 2000 patents associated with making smartphones (Lenovo Press par. 4).
Motorola is a globally recognized brand. Motorola’s position allows Lenovo to enter the global smartphone market without using extensive marketing with an aim of building a new brand. The analysts recognize that the Motorola deal opens the North American, Latin American and European markets for Lenovo’s operations.
Lenovo wanted to compete with Samsung and Apple in all three aspects, which included PCs, tablets, and smartphones. Lenovo already has expertise and success in making the three devices. It can easily transfer the experience into making smart phones targeting the global market.
Benefits and challenges Lenovo faces with the acquisition
One of the benefits of the acquisition to Lenovo involves the acquisition of patent rights to make smartphones. Another benefit is a brand with global recognition. The benefits may help Lenovo to enter the American, Latin American and European markets with ease. Motorola has been the third largest maker of smart phones in the Latin American market, and the U.S (Lenovo Press par. 5).
One of the challenges Lenovo faces is the loss of investor confidence in the firm, even though it has a track record of making recognized brands more successful (Einhorn par. 2). Loss of investor confidence has caused its stock prices to decline.
Another challenge is that Motorola is continuously losing its brand recognition, due to its inability to remain dominant in innovation. One more challenge is that Motorola’s R&D personnel lack commitment to the firm, which may reduce the firm’s future growth prospects in innovation. The industry is dominated by innovation, and firms have to lead by innovating new products.
Suitability of Motorola with Lenovo’s business and corporate strategy
Lenovo’s business strategy is to make Motorola smartphones popular in the U.S., and Latin America (Lenovo 10). Its corporate strategy is to compete with Samsung and Apple globally. If Lenovo becomes the third global smart phone maker, it would be more successful than relying on the saturated Chinese market (Einhorn par. 3).
Motorola fits Lenovo’s business strategy because it offers access to global markets, which it intends to capture with smartphones (Lenovo Press par. 5). It fits its corporate strategy because the sale of smartphones has a high growth rate while the sale of PCs is declining. If the company wants a high growth rate, it has to venture the global market with a product that has a high sales growth rate.
Motorola is a good deal for Lenovo
The acquisition of Motorola is a good deal for Lenovo because it has competitive abilities that are likely to make Motorola more successful than Google. Lenovo has been looking to acquire a smartphone firm that would allow it to venture into the global market. It has found one at a lower cost because Motorola is currently making losses. The firm may make losses for a few years, but will overcome competition eventually, based on China’s comparative advantages.
Conclusion
The acquisition of Motorola was a good deal for Google. Google acquired Motorola, and sold what was creating losses. It retained patents, which is what it targeted in the acquisition. Lenovo was looking for a brand with which it could enter the global smartphone market. When Lenovo succeeds, it opens more opportunities for Google because it has retained most of the patent rights. Google has remained with exactly what matches its corporate strategy. Lenovo has acquired what it needs to achieve a higher growth rate.
Works Cited
Einhorn, Bruce. Motorola Phones from Lenovo? Investors Aren’t Impressed. 2014. Web.
Google Inc. Google Inc.: Form 10K. Web.
Google Press. Google to Acquire Motorola Mobility. 2011. Web.
Lenovo. Annual Report 2013.:Transforming Lenovo for the PC+ Era. Web.
Lenovo Press. Lenovo to Acquire Motorola Mobility from Google. 2014. Web.
Liedtke, Michael. Google cuts losses on Motorola, Sells to Lenovo. 2014. Web.
Miller, Claire, and David Gelles. After Big Bet, Google Is to Sell Motorola Unit. 2014. Web.