Menu
Jeff Goldblum Stars in funny GE Link Ad

Jeff Goldblum Stars in funny GE Link Ad

iPhone 6c is possible as iPhone 5c Sales Surge

iPhone 6c is possible as iPhone 5c Sales Surge

Pee-Wee Herman stars in New TV on the Radio Video

Pee-Wee Herman stars in New TV on the Radio Video

Windows 10 Preview Download Release is Today

Windows 10 Preview Download Release is Today

William Shatner and Leonard Nemoy to Star in New Volkswagen e-Golf Commercial

William Shatner and Leonard Nemoy to Star in New Volkswagen e-Golf Commercial

Lenovo Swallows Motorola, Indigestion Coming?

Jan 30 2014, 6:10am CST | by , in News | Technology News

Lenovo Swallows Motorola, Indigestion Coming?
 
 

YouTube Videos Comments

Full Story

Lenovo Swallows Motorola, Indigestion Coming?

I commented last week that Lenovo (HKEx: 992) Chairman Yang Yuanqing didn’t seem extremely enthusiastic about his landmark deal to buy IBM’s (NYSE: IBM) low-end server business, and now perhaps we know why. It seems that as Yang was discussing that deal, the largest ever for Lenovo at the time, he was close to finalizing an even bigger purchase of Motorola, the faded former cellphone titan that was purchased by Google (Nasdaq: GOOG) in 2012. Lenovo is paying $2.9 billion for Motorola, a lofty price but still much less than the $12.5 billion Google paid just 2 years ago. That indicates to me that the company Lenovo is buying is probably just a shell of the Motorola that Google purchased, making the deal look somewhat questionable.

All that said, no matter how you look at it, this latest deal by Lenovo is certainly a ground breaker. It’s the biggest ever tech acquisition by a Chinese company, coming just a week after Lenovo’s purchase of IBM’s low-end server unit claimed a similar distinction. (company announcement; English article; Chinese article) Lenovo will make the purchase with $660 million in cash, $750 million in Lenovo shares and another $1.5 billion in the form of a 3-year promissory note. Most notably, Google will keep most of Motorola’s mobile patents, considered the company’s most valuable assets.

The 2 purchases mean that Lenovo is on track to spend $5.2 billion or more on M&A this year, assuming that both the IBM and Motorola deals close. That’s quite a large figure, though Lenovo is being quite creative by paying for a big portion of the deals with its stock. Strategically, the Motorola deal also looks a bit more attractive because it involves smartphones, an area where Lenovo needs to improve to compete with global leaders Samsung (Seoul: 005930) and Apple (Nasdaq: AAPL).

The only problem is, if Google is keeping most of the Motorola mobile patents, then what exactly is Lenovo getting from this deal? The answer appears to be mostly the Motorola brand name. That name was certainly quite valuable as recently as 6 or 7 years ago, when Motorola was the world’s second largest cellphone brand behind only Nokia (Helsinki: NOK1V). But both Motorola and Nokia focused too much on the lower end of the business and missed the big swing to smartphones, with the result that both have now become nearly irrelevant in the current mobile market.

In that light, the Motorola brand doesn’t look all that exciting to me. In many ways this deal resembles TCL’s (HKEx: 1070; Shenzhen: 000100) purchase of the TV-making business of France’s Thomson nearly a decade ago. Like Motorola, Thomson was a well recognized brand that was notably past its heyday at the time of the deal. Historians will recall that the deal ended in disaster for TCL due to integration issues, and that the Thomson name wasn’t worth very much in the end.

Lenovo’s purchase is unlikely to be quite as disastrous as TCL’s, largely because Motorola has already shuttered many of its factories, most of which were based in China anyhow rather than in Europe where expenses are much higher. Still, I have serious doubts about whether consumers will suddenly re-discover Motorola under its new parent, since Lenovo’s very limited smartphone experience is almost all at the low-end of the market.

From a broader perspective, I do also sense that Yang and Lenovo could be biting off more than they can chew with 2 such major deals in such a short period. Neither of the deals looks particularly bad to me, and I even commented last year that the IBM server deal looked smart. But that said, 2 such major purchases of companies whose core businesses aren’t too robust could bode poorly for Lenovo, setting the stage for a big case of M&A indigestion in the next 2 to 4 years.

Bottom line: Lenovo’s main gain in its Motorola purchase will be the US company’s name, which will have limited value and could lead to a case of corporate indigestion.

Doug Young is a former China company news chief for Reuters who teaches financial journalism at Fudan University in Shanghai. To read more of his commentaries on China tech news, click on www.youngchinabiz.com.

Source: Forbes

 

Updates


Sponsored Update


Advertisement


More From the Web

Shopping Deals

 
 
 

<a href="/latest_stories/all/all/31" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

 

Comments

blog comments powered by Disqus

Latest stories

Shay Mitchell Breaks Up With Boyfriend Ryan Silverstein
Shay Mitchell Breaks Up With Boyfriend Ryan Silverstein
Pretty Little Liars' star Shay Mitchell and Ryan Silverstein break up after one year.
 
 
Jackie Chan might be coming to your TV Screens for Rush Hour
Jackie Chan might be coming to your TV Screens for Rush Hour
Brett Ratner is in talks with Warner’s TV division to turn the Rush Hour series into a TV show. Bill Lawrence will be the runner for the show and we can anticipate a hearty good cop time on the show. The question is whether Jackie Chan and Chris Tucker will be reprising their roles as Lee and Carter on the TV show?
 
 
New iPad Air 2 Comes in Gold
New iPad Air 2 Comes in Gold
Bloomberg reports that Apple will introduce a gold iPad Air 2 to match the iPhone 6 colors.
 
 
Neil Patrick Harris reveals Details about his Wedding
Neil Patrick Harris reveals Details about his Wedding
Neil Patrick Harris told all regarding the details of his same-sex wedding with David Burtka.