China's Lenovo steps into ring against Samsung with Motorola deal

Lenovo plans buy Google Inc's Motorola Mobility handset unit for $2.91 billion in the fourth-largest US acquisition by a Chinese or Hong Kong company ever. Photo/AFP 

By Reuters

In Summary

• The deal ends Google's short-lived foray into making consumer mobile devices and marks a pullback from its largest-ever acquisition.
• With its acquisition of Motorola, Lenovo is emerging as the most viable contender to global
  inShare

Lenovo Group, the Chinese technology company that earns about 80 per cent of its revenue from personal computers, is betting it can also be a challenger to Samsung Electronics and Apple Inc in the smartphone market.

On Wednesday, Lenovo said it would buy Google Inc's Motorola Mobility handset unit for $2.91 billion in the fourth-largest US acquisition by a Chinese or Hong Kong company ever.

"We are not only the number one PC company in the world but with this agreement we will become a much stronger number three smartphone company," said Wong Waiming, Lenovo's chief financial officer, on a conference call on Thursday.

Investors, however, took a dim view of the deal, which came less than a week after the company announced it was buying IBM Corp's low-end server unit for $2.3 billion.

The stock fell 8.2 per cent on concerns Lenovo might have overpaid for a loss-making business and would dilute the value of shares by issuing new ones to help pay for the purchases.

Together with the IBM agreement, Lenovo has agreed in the last week to fork over as many as 800 million shares, representing about 7.7 per cent of its outstanding stock.

With its acquisition of Motorola, Lenovo is emerging as the most viable contender to global smartphone leaders Apple and Samsung - albeit still a distant third-place player.

The deal will allow Lenovo to step outside its China comfort zone and firmly into other regions, including the United States, where Chinese smartphone makers have struggled, and Latin America, where Motorola remains a strong brand.

Google has the opposite problem. China is one place its presence is barely felt since it left the market in 2010 because of network security concerns.

ALSO READ: Google to buy Motorola for $12.5bn

Its search engine, which dominates in most of the world, recorded China market share by usage of just 1.6 per cent in December, according to Beijing-based data firm CNZZ. Before 2010, its share reached 29 per cent, according to Analysys Mason.

Even Google's Android operating system, which Samsung also uses, has struggled in China. Only 3.5 per cent of Android devices in China have its Google Play app store installed, limiting its profit potential.

Whether the Lenovo partnership might reopen the door to China remains to be seen. Programs such as Google Maps and Google Plus, which is blocked by censors, would still be unavailable to most mobile users.

Lenovo's global smartphone market share following the acquisition will be more than 6 per cent, compared with Samsung's 28.8 per cent and Apple's 17.9 per cent as of December 31, according to Lenovo and IDC.

For Motorola, Lenovo will pay $660 million in cash, $750 million in Lenovo ordinary shares, and another $1.5 billion in the form of a three-year promissory note, Lenovo and Google said in a joint statement.