Lenovo is Google's nudge stick against Samsung

Posted by Emory Kale
Hot on the heels of buying up IBM's PC server business, the Chinese manufacturing giant just took the loss-making smartphone manufacturing business of Google. It is these billion dollar debt and more debt transactions piled on top of loss making businesses that have stymied our desire to enter the Fortune 500.
 
You see, if we had billions of dollars of debt and we could find billion dollar business with hundreds of millions of dollars in red ink, and a need for billions of dollars in investment, we, too, would be out there buying up stuff. We'd buy up Blackberry, for example. Because we could.
 
Lenovo, unlike us, can do whatever it wants. Back in 2005, it bought up IBM's PC business, and immediately catapulted itself into a market leading position. It hasn't actually profited much from the deal, but it is the world's second leading PC vendor, and damn it, we love Thinkpads.
 
A week ago, Lenovo bought up IBM's PC server business. Fair enough. Servers are a better business than desktops and laptops. But, still, slim margins, plenty of competition. Doesn't matter. Lenovo is second to HP. Even with slim margins, which Lenovo doesn't seem to mind much, it is poised for number one.
 
Now, Lenovo has acquired Google's Motorola stuff and become an end to end manufacturer of technology from smartphones to servers. Sounds pretty good, eh?
 
Lenovo needed to be in the handset business where the likes of Samsung and Apple are just eating up the market. With the Google Motorola buyout, Lenovo is instantly a brand name participant in the worldwide smartphone game. It's going to do exactly the same thing as it did to Dell and HP in the PC space.
 
The company claims to have the financing required to do more acquisitions, as needed, but that it will, mercifully, focus on integrating the existing purchases and making them work. Probably a tacit admission that Lenovo needs to make the moving parts mesh up and work together, and it may have enough for now to improve operations.
 
A major factor in Lenovo's favor: the company did a good job of protecting the Thinkpad brand, and it will no doubt do the same for Motorola. Although, it is spending $5 billion in less than a month to grow out its business, that's not a lot in comparison to the overall market opportunity. Apple sold 51 million iPhones last quarter and its revenues for the same period were over $40 billion. Lenovo may not have Apple's brand but it certainly has Samsung's.
 
In the meantime, the sale begs the question, what is Google trying to do in the smartphone business? Sure, the Motorola acquisition got the company a bucketload of patents, and strategically, Google needed them to fight off Apple, but Google paid out $12.5 billion for Motorola and got $2.9 billion from Lenovo for most of the business.
 
You could argue that Google just spent $10 billion to create a competitor to Samsung and that it is creating a much bigger opportunity for itself and Android. Google also gets a big tax write-off on any loss, which it can use because, it makes so much, so much, money that it needs all of the write-offs it can get. Lenovo and Samsung against Apple? That sounds better than when it was just Samsung, and Google has set up Lenovo in such a way that it can create an immediate impact in the marketplace.
 
So, Google is using Lenovo to nudge the Android market in directions that it favors and giving itself a foil to Samsung's ambitions, just in case. Good move for all.