Lenovo is thinking long-term and strategically, even though its recent purchases may not make that case. Within the past several weeks, Lenovo announced plans to purchase IBM’s low-cost server line for $2.3 billion and Google Inc’s (NASDAQ:GOOG) Motorola line for $2.3 billion. If Lenovo wants to keep investors happy with expansions, then acquisitions must come into play. It doesn’t hurt that IBM and Motorola are two very well recognized global brands. However, Google’s Motorola posted a net loss of $928 million last year.
You have to wonder who will be the winner in the deal–Lenovo, Google, or both? Lenovo’s Chief Executive Yang Yuanqing recently commented on the purchase by saying, “This acquisition is good for our shareholders for the long term. It could have a certain negative impact (on earnings) in the short term.”
Despite Motorola’s net loss, Lenovo is on a winning streak. In the third quarter of last year, Lenovo posted a 30% jump in net profit. This brings the company at an overall 36% increase in net profit over the previous year. Not to mention, Lenovo receives 40% of its revenue from the Chinese market, which has helped it to afford two major acquisitions in a row.
Prior to the Lenovo purchase, Google attempted to revamp the Motorola handset line with features such as customization in addition to bringing some of the manufacturing back to the U.S. Lenovo recognizes the impact of Motorola’s image overhaul and wants to focus on handsets and mobile devices for the foreseeable future.
In 2013, Lenovo had a 4.5% market share in the mobile industry. The purchase of Google’s Motorola smartphone line will definitely bump up their place in this niche. Although, how Lenovo plans to integrate the Motorola line remains unclear.
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