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Lenovo To Buy Motorola Phone Business from Google

Less than a week after reaching a deal to buy IBM's x86 server business, Lenovo turned around and cut a deal with Google for the Motorola Mobility smartphone business.

In a deal announced Wednesday, Lenovo will pay approximately $2.91 billion for the smartphone business.

Google will hang on to a "majority" of the patent assets, which was one of the main reasons Google bought Motorola for $12.5 billion in a deal that closed in May 2012. Google CEO Larry Page had said when the deal was announced in August 2011, "Our acquisition of Motorola will increase competition by strengthening Google's patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies."

Lenovo's purchase will involve $1.41 billion at close, including $660 million in cash and $750 million in Lenovo stock, with the remaining $1.5 billion coming via a three-year promissory note.

The fact that Google is selling Motorola's handset business for about a quarter of the price that it paid shows which part of the business (patents versus phone manufacturing) Google values more. Lenovo will receive more than 2,000 patent assets and a license to use the larger cache of patents that Google is retaining.

Last Thursday, Lenovo and IBM reached a $2.3 billion deal for IBM's x86 server business.

If the Google deal closed today, Lenovo would be the No. 3 Android smartphone manufacturer in the United States and also command strong positions in the Latin American and Western European markets, according to Lenovo.

"The acquisition of such an iconic brand, innovative product portfolio and incredibly talented global team will immediately make Lenovo a strong global competitor in smartphones. We will immediately have the opportunity to become a strong global player in the fast-growing mobile space," said Yang Yuanqing, chairman and CEO of Lenovo, in a statement.

Yuanqing said Lenovo's experience at "embracing and strengthening" the IBM Think brand after acquiring IBM's PC business in 2005 will serve the Chinese company well in integrating the Motorola business.

In a statement, Page also indicated that Lenovo's previous experience with the PC business was important to Google, as well. "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," Page said.

If the deal clears regulatory hurdles, and Microsoft's Nokia deal also goes through, it will leave Microsoft alone as a vendor with both an OEM business model for its smartphone OS and its own handset manufacturing division. When Google acquired Motorola, there had been speculation that the move would scare away other handset manufacturers. However, Android smartphone sales have continued to rocket upward and Samsung, rather than the Google-owned Motorola, has been dominant.

Meanwhile, it could mean that Lenovo, one of Microsoft's most important OEM partners in the PC and, soon, the server business, would be a serious rival to Redmond on smartphones.

Posted by Scott Bekker on January 29, 2014