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Breakingviews: Why Google's Glass Is Half Full

posted 30 Jan 2014, 03:18 by Mpelembe Admin   [ updated 30 Jan 2014, 03:19 ]

 

BVO -  REUTERS BREAKINGVIEWS ASIA EDITOR, PETER THAL LARSEN

"Two years ago, Google paid 12.5 billion dollars for the Motorola mobility business. Now, it's selling that business to Lenovo for a price that could be up to 2.9 billion dollars. That looks like a pretty big destruction of value in a short period of time. Actually, Google is doing a slightly better deal than that because in the meantime, they've done a couple of things. They sold the Motorola set top box business for a couple of billion dollars, they also had a one billion dollar tax credit that came with the business when they bought it. And the business had three billion dollars of cash in it, which Google will keep as a result of this deal.

"Google is also keeping the patents which are part of the Motorola mobility business, which is what they were really interested in in the first place. So when you add all that up, it looks like Google is actually coming out slightly better. They get some patents, they get some technology and mobile. And they get rid of this handset business, which is something that they didn't really want to own, and Lenovo does.

"Lenovo has just a couple of weeks ago announced this deal to buy the IBM server business. Now they're buying a load of handsets. Added together it's about five billion dollars' worth of acquisitions. They're really going for it. I think the strategy is that - it's not entirely clear because they're not really telling us - but we think the strategy is sort of two-fold. They think handsets are very important, and they really want to strengthen their business in that.

"They have a big handset business in China, but not so big outside China. And obviously buying Motorola gets them a brand name that is recognized in other parts of the world, particularly theUnited States. Servers, it's a bit less clear how that fits in, but the strategy with the IBM servers business basically seems to be that they can improve the profitability of that business by mashing it together with their PC business - buying the same components, assembling it at the same time. But nonetheless, it looks like integrating these two big acquisitions, which are both loss-making, is going to be a big ask for Lenovo.

"There is also a potential security issue. Lenovo, for both of these deals, Lenovo needs the approval of the Committee on Foreign Investment in the U.S. which basically vets all foreign takeovers for whether they have a security implication. Now, Lenovo is a global business, they have a big business in the U.S. It shouldn't be a problem for them. But on the other hand, if some politicians in the U.S wanted to do a bit of China-bashing, then Lenovo has really just given them an opportunity to do that."


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