In Motorola Purchase, Lenovo Gains Big Footprint in Smartphones Motorola sells its flagship phone, the Moto X, in the United States for more than double the price of some Lenovo smartphones in China. TOKYO - Apple and Samsung Electronics dominate the smartphone business, controlling about half of the sales and most of the profits. An ever-changing roster of also-rans has struggled to close the gap. Now one of those challengers, Lenovo, has broken free of the pack and pushed itself into a clear No. 3 position with an agreement to buy Motorola Mobility from Google. Assuming the deal is completed, do Samsung and Apple need to start looking over their shoulders? Not yet, it seems. With a combined share of 6.4 percent of smartphone sales in the fourth quarter of 2013, Lenovo and Motorola would still be only a distant third to Samsung, with 29 percent, and Apple, with 17 percent, according to Counterpoint Technology Market Research. Motorola, with barely more than 1 percent of the smartphone market share, is a shadow of the company whose Razr handsets were the must-have devices of the pre-smartphone era. No other mobile phone maker has managed to climb back after falling from the heights. And Google piled up millions of dollars in losses from Motorola during a brief ownership that began in 2012. Lenovo on Deal for Google's Motorola Andrew Ross Sorkin talks with Peter Hortensius of Lenovo on the Chinese company's $2.91 billion deal for Google's Motorola unit. But Lenovo executives say the Motorola brand remains valuable. And analysts agree that the deal includes other assets that could give Lenovo a better chance of eventually challenging the top two than other second-tier smartphone makers. "Lenovo now has extra scale in smartphones and a seat near the top table," said Neil Mawston, an analyst at Strategy Analytics, a research firm. Some analysts said the deal was reminiscent of Lenovo's 2005 acquisition of IBM's PC business, which turned a parochial Chinese electronics company into a global technology power. After several other acquisitions, Lenovo is the biggest PC maker in the world, and it moved this month to expand its computer-making operations further by snapping up IBM's low-end server business. Investors are worried about the cost of the two most recent deals: more than $5 billion. Lenovo shares fell 8.2 percent in Hong Kong on Thursday. But analysts say that if the company can successfully integrate Motorola, it could gain considerable advantages. For one, there would be geographical benefits, which Lenovo executives pointed out in separate conference calls with reporters on Wednesday in the United States and on Thursday in Asia. Although the company has been pushing to expand its smartphone business internationally, more than 90 percent of its sales are still in China. Lenovo has entered a few other developing markets, but it has not begun selling phones in the United States or Western Europe. Lenovo executives said they would retain both brand names, and in some cases, the two brands might be sold alongside each other. "We are not restricting Lenovo to China or Motorola to the U.S.," said Wai Ming Wong, the Lenovo chief financial officer. They are two different brands with different sets of propositions for the customers. The key for us is to sell more devices to the market. Motorola sells its flagship phone, the Moto X, for $399 in the United States without a mobile service contract. That is more than double the price of some Lenovo smartphones in China. Although Motorola is not a big player globally, it has distribution relationships with more than 50 mobile carriers, Mr. Wong said. Analysts said it could take several years to rebuild the brand in Europe, where it has mostly disappeared, but Motorola would give Lenovo a more immediate entree into the United States. Milestones in Lenovo's History The PC behemoth has recently made bold moves in the smartphone business. The company is founded in China. It will later be called Legend before re-branding to Lenovo. The millionth Legend PC is produced. The company buys IBM's PC business, making it the third largest computer company at the time. Its chief executive, William J. Amelio, sells the company's fledgling mobile business for about $100 million in an effort to focus on PCs. The company, under a new chief, Yang Yuanqing, buys back the mobile unit for double the price. Lenovo introduces a laptop-tablet hybrid that runs on the Android operating system and includes a flippable touch screen. The company becomes the world's no. 1 PC vendor, besting Dell and Hewlett-Packard. It sells more smartphones and tablets than PCs, though PCs still account for 85 percent of its revenue. The company buys Google's handset unit, including the Motorola brand, making it the no. 3 smartphone maker. One of the biggest barriers to entering the American smartphone market for Lenovo has been its lack of a strong patent portfolio. This would have made it vulnerable to so-called patent trolls - entities that buy patents to collect royalties from technology manufacturers. Under the agreement, Lenovo said it would receive more than 2,000 patents and license others from Google, affording it a measure of protection. "Motorola understands the smartphone market very well, especially in the mature markets," Mr. Wong said. Because the $2.9 billion price of the Motorola sale includes $750 million in Lenovo stock, the deal also gives Lenovo what it described as a "strategic relationship" with Google, developer of the Android mobile operating system, which is widely used by Lenovo, Samsung and other phone makers. By aligning itself more closely with Google, Lenovo can keep pace with Samsung, which this week announced a 10-year deal to share patents with Google. That agreement, along with the planned sale of Motorola to Lenovo, eased concerns over possible strains in the Google-Samsung alliance. "With these agreements, Google gets away from unnecessary friction with the manufacturers," said Tom Kang, an analyst at Counterpoint. Close ties to Google are important for Lenovo and Samsung because they build official versions of the Android operating system into their phones, integrating them with Google's other online services. Some other phone makers use so-called forked versions of Android, which are stripped of some of their Google functions. "Lenovo has the expertise and track record to scale Motorola into a major player within the Android ecosystem," Larry Page, the chief executive of Google, said in a statement. When Google acquired Motorola, the move prompted speculation that it was trying to free itself from its dependence on Samsung phones and create a more integrated system combining hardware and software, along the lines of Apple. Samsung began developing more of its own software, including a new operating system called Tizen. This week, Lenovo announced a restructuring that created a separate unit to develop "ecosystem and cloud services." But analysts said they expected Lenovo to continue to use Android in its mobile phones, rather than develop its own mobile operating system. "For Lenovo, it's the cheapest and best-performing solution," Mr. Kang said. By relying on Android, Lenovo - like Samsung - falls short of the level of hardware and software integration that Apple provides. But the addition of Motorola would give it a range of hardware that few others could match. "This puts Lenovo in position to have leading offerings in smartphones, tablets and PCs - a vital trifecta that no other global manufacturer has - besides Apple," said Frank E. Gillett, an analyst at Forrester Research. Correction: January 30, 2014 An earlier version of this article misstated the price Lenovo is paying for Motorola. It is $2.9 billion, not $2.9 million.