Google Wins By Losing On Motorola

$GOOG is climbing after announcing late Wednesday that it will sell its Motorola smartphone business to Lenovo for about $2.91 billion.

StkCon

Jan. 30 at 9:00 AM

$GOOG up on Lenova acquiring Motorola unit.

At first glance, the positive action in Google’s stock seems surprising. Why would it be a boon for Google to sell a business it bought for $12.5 Billion less than three years ago for a fourth the cost? It would seem that Google’s then offer of $40 per share, a 63% premium over Motorola’s stock price at the time, was a gross miscalculation.

But SunTrust analysts make a solid case for why Google selling the business at a steep loss is actually a coup for the Internet giant. The sale enables Google to shed the albatross weighing down its growth and profitability, writes SunTrust analyst Robert Peck in a note to clients this morning. Motorola generated operating income losses of $800 million in the past 12 months.

The sale to Lenovo creates a number two player in the Android phone market, Peck adds, which will help sales and negotiations. Right now Samsung controls 40% of the Android market.

Also, the comparison of the $12.5 Billion Motorola purchase price to the $2.91 Billion sale price isn’t exactly fair as Google sold the Motorola Home business to Arris last year for $2.2 Billion.

Perhaps most importantly, Google will retain much of Motorola’s patent portfolio, which was one of the main reasons for the high purchase price three years ago. Lenovo will license much of the patents from Google, according to Google’s press release.

Everyone else will have to license access as well. Peck estimates that the worth of the patents is about $100k each. Google will retain 22,500 of them so the IP portfolio that it is hanging on to should be worth about $2.3 billion.

d_ramsden

Jan. 30 at 7:19 AM

“Long the patents, short the commodity” – $GOOG. “And vice versa” – Lenovo. http://stks.co/j0DuL

Perhaps that’s one reason for CEO Larry Page’s enthusiasm in the press release.

“Lenovo has the expertise and track record to scale Motorola Mobility into a major player within the Android ecosystem. This move will enable Google to devote our energy to driving innovation across the Android ecosystem, for the benefit of smartphone users everywhere,” said Larry Page, CEO, Google.

~ via Catherine Holahan (@cholahan)


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