Google Inc. announced on January 29 that it has reached an agreement to sell Motorola’s smartphone hardware business, Motorola Mobility, to Lenovo Group Ltd. for $2.91 billion. The deal includes $660 million in cash, a three-year promissory note worth $1.41 billion, and $750 million in Lenovo ordinary stock, which will give Google a 6 percent stake in Lenovo. If approved by Chinese regulators and the Committee on Foreign Investment in the United States (CFIUS), this will be China’s largest-ever tech deal.

Google’s announcement to sell Motorola Mobility comes after a disappointing earnings report showed Motorola losing $248 million last quarter.  Along with selling Motorola’s smartphone hardware business to Lenovo, Google also sold Motorola’s cable box business to Arris Group for $2.35 billion in December 2012.

The two sales, totaling $5.26 billion, are significantly less than the $12.5 billion that Google paid to acquire Motorola. While Google has taken a loss on its acquisition of Motorola, the Lenovo-Google deal ensures that Google will maintain ownership of a majority of the Motorola Mobility patent portfolio. Lenovo will receive over 2,000 patent assets, a license to use Motorola Mobility’s patent portfolio, and the Motorola Mobility brand and trademark portfolio.

The deal has been touted by company officials as a win-win for both sides. “This move will enable Google to devote our energy to driving innovation across the Android ecosystem, for the benefit of smartphone users everywhere,” wrote Google CEO Larry Page on the company’s official blog.

The deal allows Lenovo to purchase an established cell phone business and make inroads in the US smartphone industry. Lenovo was ranked fifth in the global cell phone market in 2013 with a 4.5 percent share, though its current market share in the United States is negligible.

Lenovo’s announcement to acquire Motorola Mobility came just after the company disclosed it had signed a deal to purchase IBM’s low-end server business for $2.3 billion. Both acquisitions will have to be reviewed by CFIUS before they are officially approved. Google Executive Chairman Eric Schmidt has expressed confidence that CFIUS will approve the Google-Lenovo deal, as Lenovo received CFIUS approval when it purchased IBM’s personal computer division in 2005.

Posted by Catherine Matacic