The Big Acquisition: Lenovo acquires Motorola

The Big Acquisition:

The world’s leading PC manufacturer Lenovo acquired Motorola Mobility from Google for ~ USD 2.91 Billion. With this deal, Lenovo acquired the MOTOROLA brand and Motorola Mobility’s portfolio of smartphones such as Moto X, Moto G and the DROID™ Ultra series. In addition to current products, Lenovo gets ownership of the future Motorola Mobility product road map. However, Google retained ownership of the vast majority of the Motorola Mobility patent portfolio, including current patent applications and invention disclosures.


With this deal, Lenovo will not only be able to expand its current portfolio of handsets, add a rich heritage of mobile handset design, engineering and manufacturing expertise but. Also gains Motorola’s brand and access to key North America & Latin America markets. This instantly makes Lenovo almost the third largest smartphone player in the global smartphone segment competing head-on with Huawei. Following table highlights the global smartphone sales and market share of the two companies in 2013 (Source: Market Pulse Service):

Chart 1: Global Smartphone Sales and Market Share, Jan-Dec 2013 (in million units)

Global Lenovo and Motorola Smartphone Sales and Market Share, Jan-Dec 2013 (in million units) 

Learning from the past, Lenovo efficiently utilized the brand value of IBM ThinkPads after acquisition and maintained it well, hence we expect Lenovo to maximize advantages of this acquisition and boost its competitive edge on a global level.

According to our quarterly Market Monitor service, Lenovo is the second largest smartphone vendor in the world’s biggest market, China. Lenovo is making strides to expand its presence outside of China entering into key emerging markets such as India, Russia and South East Asia. To become a global smartphone player, Americas market presence and growth is the key. Lenovo will look forward to leverage Motorola’s strong brand presence, mind-share and strong carrier relationships to succeed. Although Google retained Motorola Mobility’s key patent portfolio, including current patent applications and invention disclosures; still these companies together can offer handsets having innovative features and applications.


In light of the deal, Lenovo has stepped up promotions for its flagship Vibe X not only ahead of Chinese New Year season but also is evident in newspapers and roadside billboards in markets such as India to gain maximum mind-share. Lenovo has been pretty aggressive with its pricing in its domestic market which is evident from the wholesale ASP for this Chinese vendor. Lenovo’s portfolio and hence sales are heavily skewed towards the high-growth sub-US$100 segment. What Motorola deal could help Lenovo is to first create a strong mid-tier to high-tier smartphone portfolio.  This would help Lenovo boost its ASP, top-line and bottom line. For comparison, Motorola has been commanding healthy ASPs for its portfolio thanks to premium portfolio across key US carriers and generous subsidies. But, lately Motorola with Moto X & G has looked to create “affordable premium” portfolio which could disrupt the market and chimes well with Lenovo’s low-cost strategy.  Following is a snapshot of Motorola & Lenovo’s wholesale ASP over the past several quarters, sourced from Counterpoint Research’s Market Monitor service.

Chart 2: ASP, 2012Q1-2013Q3 (in USD)

Counterpoint Research - Lenovo Motorola Smartphones Wholesale ASP


Along with Motorola’s brand, engineering expertise, strong presence in Americas, Lenovo inherits a company which is operationally challenged. Motorola over the last several quarters have generated steep losses. This will remain a challenge for Lenovo on how it not only becomes the third largest vendor by volume but also becomes a profitable global smartphone brand.  Thus moving up the price-tiers in smartphone segment and gaining foothold in key subsidy driven markets will be   the key to become profitable by generating enough scale and balancing overall costs.

Furthermore, when such an acquisition occurs, human resources of the acquired company is impacted the most. There will be changes in terms of organizational structure, culture, company policies, etc. Moreover, employees at Motorola initially faced some challenges getting accustomed to Google’s culture over the last one year and now they will have to align to a Chinese company’s culture which might take a huge toll on these key resources. Brain drain effect and retaining key Motorola talent, as a result of acquisition, is going to also be one of the big challenges for Lenovo.

Also, acquiring Motorola does not necessarily mean that Lenovo will get instant access to the US operators’ selves and subsidies budget. The company will need to prudently leverage Motorola’s existing strong relationships with American channel partners to first get foot-in-the-door and then prove its low-cost leadership for long-term success.


We believe the company should retain the name ‘Motorola’ or even the brand name “Moto” to reap maximum benefits and launch new premium products with this brand especially in key Americas markets. Lenovo should follow the same co-branding strategy as they did by co-branding with “Thinkpad” brand and maintained the mind-share and market share in global enterprise PC market Furthermore, Lenovo should continue its “affordable premium” and “low-cost” aggressive strategy in key emerging markets to offer more value to the consumers and capture maximum market share and gain scale.  The next logical step for Lenovo would be to invest in software and services as well as R&D (for cellular IP) to compete with bigger players such as Samsung, Apple and Nokia.

Moto G : Motorola's Emerging Markets Play With Google At Heart

After almost a couple of years of efforts to revive the once popular “Razr” brand again (but  in the smartphone space) with limited success, Motorola the device company, was on the verge of a complete overhaul to survive in this cut-throat smartphone market. And all commenced with the launch of new colorful and customizable Moto X this summer infused with rejuvenated marketing, attitude and portfolio. What we saw with Moto X was Motorola trying to differentiate by focusing more on user experience finding  solutions to various pain points maybe by offering more options to customize the phone to nuances like touchless gesture control leveraging its hardware expertise while growing further on embedded software engineering curve. I have been testing Moto X for couple of months now and pretty satisfied with the usability, features and buttery experience on the device.

The new flagship device hardly left the US shores and also didn’t make any dents in the competition but we believe Moto X is a step in good direction to see a “revived” Motorola. Our Monthly Market Pulse service estimates Moto X sell-out was roughly less than 500k units till end of October since launch in late August 2013. If Motorola can increase its reach in coming months with aggressive holiday season pricing and some marketing dollars influx (maybe from Google) could capture share away from likes of LG, HTC, Huawei, etc. But is this enough to become (again) a global company once Mototola was? No, and we think Motorola also understands that.

Moto Portfolio X & G

Realizing this, Motorola yesterday announced the new smartphone,  Moto G,  broadening the “Moto” portfolio positioning it for the prepaid emerging markets,. The superphone in terms of hardware specifications sports a 1.2 GHz Qualcomm Snapdragon 400, 1GB of RAM, 3G radios and a bigger 4.5 inch 720p HD display all starting at an exceptional unsubsidized unlocked retail price of US$179. Moving down the price-bands should help Motorola expand reach in emerging markets.

Moto G is “the killer” semi-premium type device which industry was hoping Apple would launch in terms of “iPhone 5C or iPhone Mini” to disrupt the emerging markets but Motorola (now a Google company) has taken the first plunge. We believe, Motorola is slowly moving towards a narrower portfolio (like iPhone) to maintain scale, unified design and offerings unlike its earlier broader portfolio of SKUs.

This (extremely low) pricing strategy for a high-price band specced device depicts that Motorola is no longer a device manufacturer at heart and its parent Google has started to heavily influence the overall Motorola’s strategy. In addition to the ‘Nexus’ line, Google now thus has ‘Moto‘ portfolio in its arsenal to get maximum higher specced device in hands of emerging markets consumers at lower price-points and multiply its (directly controlled) installed base. Motorola’s core business model and strategy has now started to align closely with that of Google’s, its all about reach, Google experience and eyeballs.  

However, to succeed in emerging markets such as Latin America, India and others distribution reach is the key in addition to a good brand, product and marketing muscle. Over the last few years, Motorola has done exactly opposite i.e. shrunk its global reach compared to what it enjoyed during the Razr mania times. Motorola will have to work actively smart and lean to expand its reach to gets it disruptively priced (but low profit) Moto G into the hands of consumers & maintain healthy balance sheet. Google’s ($$) contribution will be of utmost importance as the Motorola’s operating losses have continued to widen over the last few quarters.

It remains to be seen whether operators in prepaid markets of Europe warm to Moto G which could be a killer device to help them increase smartphone subscribers and hence data ARPU. However, there is a big question mark on Motorola’s China strategy as the vendor’s market share in the world’s largest smartphone market has hit an all-time low according to our latest Market Monitor Q3 2013 report. In Latin America, though Motorola should be able to compete well against Samsung, LG and Alcatel-TCL with $179 price tag and comparatively stronger brand equity.

In summary, Motorola moves ahead expanding  “Moto” portfolio across price-bands and geographies but with a renewed goal & strategy closely aligned to that of Google’s. Finally, Motorola is now a Google company.

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