Lenovo Group agreed to acquire Google’s Motorola Mobility handset unit for $2.91 billion, as the Chinese personal computer maker continues a buying spree of U.S. hardware companies.
The sale includes $1.41 billion in cash and Lenovo stock paid at the close of the deal, with $1.5 billion to be paid in a three-year promissory note, Google said in a statement Wednesday and according to filings. Google will retain a majority of Motorola Mobility’s patent portfolio, with Lenovo receiving a license to the intellectual property.
“We will immediately have the opportunity to become a strong global player in the fast-growing mobile space,” said Yang Yuanqing, chairman and chief executive officer of Lenovo, in a statement.
The deal would follow Lenovo’s agreement to purchase International Business Machines’ low-end server unit for $2.3 billion earlier this month. In 2005, Lenovo acquired IBM’s PC division. The company has been looking to counter falling PC shipments by expanding storage equipment and the servers that run corporate networks.
Buying Motorola would give Lenovo a stronger presence in the mobile phone market in the U.S. and Western Europe. Lenovo is the fifth-largest smartphone vendor globally, with a range of inexpensive handsets. It has begun to expand into premium smartphones in a bid to challenge Samsung Electronics and Apple In September, the company released the Vibe X, which runs the Google Android 4.2 mobile operating system.
“They’re not afraid of going out there and acquiring brands, especially to help them grow internationally,” said Andrew Costello, a principal with IBB Consulting.
A sale would also let Google shed a handset business it acquired as part of a $12.4 billion deal in 2012. Buying Motorola pushed the Mountain View, Calif.-based Internet search company into hardware after 14 years in which Web advertising accounted for almost all of its revenue. It also gave Google ownership of 17,000 patents to protect devices running its Android mobile operating system in legal disputes with competitors. Google later sold part of Motorola — the set-top box business — to Arris Group.
“This move will enable Google to devote our energy to driving innovation across the Android ecosystem, for the benefit of smartphone users everywhere,” said Google CEO Larry Page in a statement about the deal.
While Google has invested in Motorola, the unit’s revenue has declined. Motorola’s third-quarter revenue fell about one third, even as the company began selling Moto X, the first smartphone introduced under the direction of Google’s leadership.
In November, the company announced it was rolling out a lower-cost smartphone called the “Moto G,” which was aimed at getting customers who can’t afford higher-end devices from rivals such as Apple. At the time, Motorola CEO Dennis Woodside had touted the phone as a key to winning market share.
“When we looked at the smartphone market, we actually think the industry has really failed 5 billion people,” Woodside said in an interview. “With Moto G, you’re going to have consumers who have not had a smartphone before.”
Motorola’s patents have also shown signs that they weren’t a bargain. Google has lost patent cases or was delivered disappointing sums in cases that involved some of the intellectual property. Google had estimated in regulatory filings that $5.5 billion of the purchase price for Motorola was for patents and developed technology.
The deal comes two days after Google signed a patent-licensing agreement with Samsung to share their technologies. The agreement covers existing patents and those filed during the next 10 years.
Google reports quarterly earnings Thursday.
As recently as October, Page had praised Motorola’s progress, pointing to the launch of its high-end “X” phone in the third quarter.
“Although it’s still early days Dennis and the team have already transformed Motorola’s product quality,” Page said during a call with analysts in October. “Now they’re working to build out marketing and distribution.”
The top five global smartphone vendors in 2013 by International Data Corp.’s rankings were Samsung with a 31.3 percent market share of shipments; Apple with 15.3 percent; Huawei Technologies with 4.9 percent, LG Electronics with 4.8 percent and Lenovo with 4.5 percent.