Google’s $2.91bn sale of its struggling US mobile phone company Motorola Mobility to China’s Lenovo has been called into question after US authorities said they may want to examine the deal in regard to privacy and national security issues.
Lenovo’s purchase of the mobile handset and equipment manufacturer for almost $10bn less than Google paid for it two years ago was announced last week, but was always subject to approval by Chinese and US authorities. The latter is taking an interest as part of a governmental drive to prevent excessive technology transfer to China, potenitally calling the $2.91bn deal into question according to the FT, as it may attact political attention due to it being the largest Chinese technology deal ever undertaken in the US.
The Committee on Foreign Investment in the United States (CFIUS) will oversee the mandatory technology transfer probe. Due to the fact that the separate Motorola business unit which makes communication and defence technology for the military is ring-fenced, however, the likelihood of the sale being prevented is thought to be small. It could easily be delayed though, depending upon how long CFIUS takes to examine the deal.
The majority of Motorola Mobility's lucrative patents, including one for Android software, will also remain with Google under the proposed $2.91bn sale to Lenovo. The US search giant wants to exit the unprofitable and “super competitive” hardware manufacturing side of the mobile phone manufacturing business and is therefore still keen to see the $2.91bn sale to Lenovo progress.
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The $2.91bn acquisition of Motorola Mobility is intended to give Lenovo the ability to build up its smartphone unit still further in its strong Chinese base, but particularly to aid its global development in western markets such as the Americas, where the Motorola brand still has some cache.
The deal is viewed as a way to provide room for growth at Lenovo; aid its global branding versus Asian domestic rivals such as Huawei, LG and so forth - which similarly control around 5% of the Chinese marketplace behind Samsung and Apple - and as a means to diversify revenues as its personal computer PC and laptop hardware business slows.
The Motorola deal, which is likely to still go ahead subject to the US authorities approval, follows on from Lenovo’s earlier $2.3bn acquisition of IBM’s low-end server division this quarter. The Chinese technology vendor also purchased its PC and laptop business from IBM a number of years ago, so has experience of the CFIUS procedure. Like many other western tech firms, IBM at the time decided that it instead wanted to focuses on non-commoditised consultancy and value-added activities that attract higher profits.
The purchase is set to make Lenovo the world's third-largest smartphone manufacturer after Samsung and Apple, overtaking other rivals such as HTC, Huawei and LG. It should benefit from economies-of-scale savings, if the deal goes ahead as planned, and from increased access to high end micro-processing chips.