Lenovo aims high with Google-Motorola deal

Google finally gets rid of an expensive headache while Lenovo looks set to leapfrog its rivals as a serious player in the smartphone market.

Google’s decision to flog the Motorola Mobility business is instructive in two ways. Firstly, the internet giant has managed to hang on to the patents that compelled it to buy Motorola in the first place. Meanwhile, an acquisitive Lenovo, which last week bought out IBM’s x86 server business and promptly divided its operations into distinct PCs and mobile units, has found a sweet platform from which make its presence felt in the US – something that its peers Huawei and ZTE have had some trouble doing.

The biggest hurdle has been poor brand perception and that’s something Lenovo has taken care of in one fell swoop. This is exactly the same play that worked for Lenovo when it bought IBM’s PC business for $1.25 billion in 2005 and should pay dividends this time around as well.

As for market share, well, adding Motorola should be a positive. Despite having no presence in North America nor Western Europe, Lenovo finished the quarter in the number four position, according to IDC's latest results. 

Lenovo's strength lies in its strong presence within key emerging markets and a well-segmented product portfolio. Time will tell where the Motorola devices will fall within the portfolio.

As for Google, selling the handset business was always on the cards for the internet giant and some might even wonder why it took them so long to sell. After all, the whole play was for the treasure chest of patents and there was never any intent to go into the handset business full time.

Google boss Larry Page makes the strategic choice to sell the unit quite clear in his blog post. Google is better off sticking with enhancing the Android eco-system than trying to sell smartphones.

The smartphone market is cutthroat, the developed markets are near saturation point and if all the action is in the developing markets then you probably couldn’t find a better partner than Lenovo.

But back to Lenovo, Forrester Research analyst Frank Gillett Lenovo’s keenness to pick up Motorola is aligned to its aspirations to becoming a leading smartphone maker globally.

According to Gillett, the biggest plus for Lenovo is that it gets its hands on a leading Google Android offering in a premium smartphone market.

“Lenovo used the IBM ThinkPad brand to gain quick credibility and access to desirable markets, and built critical mass,” Gillett said in a blog post.

“But Motorola has not been shooting the lights out with designs or sales volumes in smartphones. So the value is simply in brand recognition to achieve market recognition faster – and to dramatically expand the design and marketing team with talent experienced at US and Western markets,” he adds.

More importantly, the buy puts Lenovo in position to have leading Android offerings on phones, tablets and PCs. This unified hardware eco-system play actually goes hand in hand with the trend of consumers choosing to migrate to one online ecosystem.

Gillet says that this two-fold process will see consumers primarily choose one hardware maker. Lenovo wants a piece of that pie and Motorola gives it a high-profile entry point.

Page said in his blog post that the Motorola sale does not signal a larger shift in Google’s other hardware efforts. The latest makeover for Google Glass and the purchase of Nest would attest to that, but let’s remember the wearable home markets space is still a work in progress, not a mature segment like smartphones.

It will be interesting to see how Samsung reacts to this deal because the implications cut both ways. On one hand, Samsung should be pleased that Google isn't interested in building and selling phones, making Samsung the premier Android player. However, the Google-Lenovo deal creates a new strong premium Android alternative to Samsung’s offerings.   

While Samsung’s primacy in the smartphone market isn’t under immediate threat, expect the South Korean giant to keep a closer eye on Lenovo, once the deal goes through.