In a Forbes interview, Google VP Don Harrison said:
I think the Motorola transaction has been a success for us. Financially, we bought the asset for $12.5 billion. It had $3 billion in cash; we were able to sell the Home division for $2.5 billion; we ended selling the handset division for $3 billion. There were some other tax assets as well. When you work through the math, you realize we spent between $2.5 billion and $3.5 billion for the patent assets.
For comparison, it cost Rockstar Consortium (includes Apple, Microsoft, Blackberry, Sony, and Ericsson) $4.5 billion to purchase 6,000 smartphone and digital communications-related from Nortel in 2011. The Motorola acquisition doesn't seem so bad after all.
The Nortel patents may have more proven value though. As mentioned in my last post, Google/Motorola hasn't had the greatest of success convincing judges that infringement of its standards-essential patents necessitate great damages or injunctions.
Regardless, selling Motorola to a dedicated hardware company made sense. Google has little experience with hardware or manufacturing. Motorola was already operating at a loss when Google acquired it. Afterwards, the Motorola division lost $1.1 billion in 2012 alone. These losses make the Motorola acquisition even more expensive in the long run.
On the contrary, owning Motorola had the potential to hurt Google's experience with software. Preferential treatment of Motorola would discourage other, more successful Android manufacturers like Samsung, HTC, and LG. In fact, after Google bought Motorola, Samsung and LG started developing their own smartphone operating systems.
From Lenovo's perspective, it is a successful hardware company -- the number 1 PC manufacturer (although that might soon be HP). It is seeking to expand its market, especially if the market moves away from personal computers. Lenovo had just acquired IBM's x86 server division. Given Lenovo's lack of smartphone market share in the US, its success with hardware, and its success at acquiring U.S. companies, it makes sense to expand the business from personal computers to both servers and smartphones.
You make a good point about the set of Nortel patents possibly being more effective than the larger one of Motorola's. I have also read that Google may or may not be able to use those set of patents to defend itself against a recent lawsuit against Apple. While quantity is beneficial, it is more important that the acquired patents can actually be used.
ReplyDeleteI think there is a lot of room for disagreement about which company's patents will be more valuable or cost-effective. Google probably made a conscious decision to acquire Motorola instead of bidding higher for Nortel. It completed the Motorola acquisition only 6 weeks after the Nortel bid, which seems too quick to suggest that the acquisition wasn't planned ahead of time. Also, some patent analysts believed that Motorola's many standards-essential patents made it more valuable. On the other hand, some patent analysts also called Motorola's patents "crap". These deep disagreements suggest that even the experts are uncertain.
DeleteHey Dara. Although I agree with you that Motorola is Lenovo's way of breaking int a market that is moving away from personal computers toward smaller devices; I don't think that Motorola has maintained it''s brand recognition in recent years. Especially after the acquisition by Google. Because of that, I question if the merger was positive in that regard
ReplyDelete