The Curious Case of Motorola Changing Hands

First announced in August 2011, Google offered $12.5 billion to acquire Motorola Mobility. Motorola is great at making devices with a total history of over 80 years, and Google on the other hand, is the pioneer at software innovation, so the marriage of these two seems to be a great idea at that time to many people. Google needed Motorola to strengthen its patent portfolio, which was crucial for Google to defend itself from numerous lawsuits from Apple, Microsoft, Oracle, along with other aggressive competitors. At the time, Motorola had 17,000 patents, with 7,500 more patents pending. It's the treasure land for Google to dig up armors and swords, and be more offensive in the smartphone patent war in order to defend its Android operating system.

It was a very interesting case because at that time, Google got outbid by Apple in a $4.5 billion acquisition deal of acquiring Nortel Networks, a Canadian telecommunications manufacturer. This gave Apple strategic advantages to go head-to-head in the battle with its main competitors in the market, including Google Android system. Ever since acquired Nortel, Apple started filing massive amount of patent infringement lawsuits in order to slow down the competition, and dominate the fast-growing market.

Just a few days ago on January 29th, Google once again dropped a bomb announcing that it would sell Motorola Mobility to Lenovo for $2.91 billion. This brings some whole new dynamics to the game. Lenovo is a Chinese technology company which acquired IBM personal computer division in 2005, and found its way to enter the US market with IBM's solid PC products.

"Using Motorola, just as Lenovo used the IBM ThinkPad brand, to gain quick credibility and access to desirable markets and build critical mass makes a lot of sense."

It's obvious for us to see the Lenovo is eager to cut a share in the U.S. smart phone market. Previously, Lenovo, among other Chinese brands such as Huawei, is experiencing distrust from U.S. customers. Chinese products are perceived as low quality and have potential security issues. But accessing Motorola's patents and having this brand name would allow Lenovo to muscle its way into the playground of smartphones, and potentially adds more conflicts in the patent wars.

If we think about it, there are many reasons why a company would want to acquire another existing business, but for the three above cases we have seen here, there is one fundamental reason for them to do the acquisition: to expand its patent portfolio, to build higher and more solid wall around its castle, which also enables the firm to attack better. Acquisitions add value in a different way that it is more strategic rather than valuing the company's intrinsic value.