Short and sweet is one way to describe this, but strategic is not a bad word to apply either, at least from a Google perspective. News out of Hong Kong is that buried in a stock exchange filing, Google will take 618.3 million Lenovo (News - Alert) shares at $1.21 each, or roughly $750. The transaction will leave Google with a 5.94 percent stake in Lenovo after the company’s sale of Motorola Mobility for $2.9 billion (revealed in late January when this transaction also was agreed to) closes.
The reason for this being strategic for Google is that it at least gets to keep a toe in the water in the handset market where the speed of innovation means that the owner of Android (News - Alert) at least has a (pardon the expression) window on that world.
While a good move for Google, this has not been something Lenovo investors have been thrilled about. The Beijing-based company has gone on a buying spree recently in an effort to move fast into becoming a dominant global hardware supplier beyond its leading position in the sluggish PC market. Along with the Motorola deal, Lenovo also is purchasing former parent IBM’s (News - Alert) low-end server business.
Investor grumpiness about the deals and their view about the wisdom of them going forward is indicated by the fact that the Lenovo has lost 24 percent of its market value since the Motorola Mobility deal was announced on January 29. And, it should be noted that major brokerages have downgraded their ratings on the company, expressing views that Lenovo may have overpaid for Motorola (News - Alert) and doubts that it has the ability to turn Motorola's unprofitable handset business into a profitable one.
The Google stake revelation is likely to help rally Lenovo’s stock, which many feel was due for a correction anyway, but it may only be a short-term fix. The handset business is tricky to begin with as companies like Nokia, HTC (News - Alert) and Blackberry (just to name a few) know, and the market is fickle to say the least. Whether Lenovo has what it takes to be a player, which is something even mighty Google could not pull off, is why investors are so concerned. It will not take long to see who is right about prospects going forward. For the moment, Google has what it wants. It is out of the woods on Motorola put keeps its hand in the game. The Chinese like to make big bets, and this one is huge. That said, the payoff could be as well.