Lenovo’s $2.9 billion move to acquire the smartphone business of Motorola Mobility from Google isn’t setting well with Lenovo investors.

“This time Lenovo may have jumped the shark,” Alberto Moel, an analyst at Sanford C. Bernstein & Co. in Hong Kong, told Bloomberg news. He called Motorola “that faded gem of the early wireless era.” Moel rates Lenovo stock as outperform, and Lenovo shares had rallied in recent weeks. The $2.3 billion deal announced last week for parts of IBM’s server business had also driven up shares.

But this time the reaction is different.

In Hong Kong where Lenovo shares are traded, the stock tumbled more than 8 percent from near 14-year highs to $10,6 in Hong Kong dollars. It’s the largest one-day drop in Lenovo shares in nearly two years. (A Hong Kong dollar is worth 13 U.S. cents, based on the latest exchange rates.)

The selloff came despite assurances from Lenovo Chairman and CEO Yang Yuanqing that the deal fits with Lenovo’s strategy to diversify away from reliance on PC sales. The company is the world’s No. 1 computer seller and in just four years has risen to become the No. 5 smartphone seller worldwide. 

WRALTechWire coverage of Lenovo-Google deal:

  • Why Lenovo made the deal: In a series of slides, Lenovo justifies the sale.
  • Lenovo’s top exec defends the deal in his own words.
  • Google’s misstep may be a boon for Lenovo.

The addition of Motorola phones such as the “Moto X” which is sold by Raleigh-based Republic Wireless, will make Lenovo the No. 3 smartphone seller behind Samsung and Apple, assuming the deal closes later this year.

“This fits perfectly with the strategy we have pursued for a couple of years,” Yang Yuanqing, chairman and chief executive officer of Lenovo, said in an interview. “Before, we only had PCs as a core business. Now, we’ve built two pillars: the first is enterprise, and the second is this mobile business.”

Lenovo, which operates its executive headquarters in Morrisville, earlier this week announced a major corporate reorganization to deal with the IBM acquisition and the addition of 7,500 employees.

The Motorola deal would add another 4,259 workers, including 2,500 engineers. 

The sale includes $1.41 billion in cash and Lenovo stock paid at the close of the deal, with $1.5 billion to be paid in a three-year promissory note, Google said in a statement. Google will retain a majority of Motorola Mobility’s patent portfolio, with Lenovo receiving a license to the intellectual property.

“A Global Player”

“This fits perfectly with the strategy we have pursued for a couple of years,” Yang Yuanqing, chairman and chief executive officer of Lenovo, said in an interview. “Before, we only had PCs as a core business. Now, we’ve built two pillars: the first is enterprise, and the second is this mobile business.”

“We dream to become a global player,” he added. “This deal is a shortcut to enter mature markets.”

Yang told Bloomberg the Google deal came together over the last two months after Google Chairman Eric Schmidt called and said Google wanted to talk. He said the company has long been interested in Motorola, including competing with Google to buy the business in 2011. When Lenovo lost out, Yang said he had Google Chairman Eric Schmidt over for dinner in Beijing. Over the meal, Yang said he told Schmidt that if Google ever wanted to sell Motorola’s hardware business, Lenovo would be interested.

Yang said Schmidt called him in November, setting the deal in motion.

Targeting the U.S.

One of those “mature markets” is the United States, where Lenovo pushed back plans to begin selling phones to 2015 from 2014. Company executives had said they wanted to strengthen the Lenovo brand and be able to scale quickly before taking on Samsung and Apple. The deal would give Lenovo a 3.5 percent market share head start in North America and another 8 percent in Latin America.

Google is keeping most of Motorola’s patent portfolio. Google bought the patents and phone business for $12.4 billion in May 2012. Under Google, Motorola has lost nearly $2 billion and trimmed its workforce from 20,000 to about 3,800.

Lenov  has continued to drive up sales and market share in smartphones as part of its “PC Plus” strategy. An aggressive plan to drive growth in markets outside North America with a variety of new devices and promoted by NBA star Kobe Bryant produced 45.5 million sales in 2013. That’s nearly double the 2012 total and gives Lenovo the No. 5 spot in the industry, research firm IDC reported Monday. Lenovo shipped 45 million phones in 2013, 5 million above its target.

Some Motorola phones are made in the U.S.

In a conference call, Yang set a target of 100 million smartphone sales. He noted that Lenovo will continue to use the Motorola name.

“The acquisition of such an iconic brand, innovative product portfolio and incredibly talented global team will immediately make Lenovo a strong global competitor in smartphones. We will immediately have the opportunity to become a strong global player in the fast-growing mobile space,” Yang said in a statement.

“We are confident that we can bring together the best of both companies to deliver products customers will love and a strong, growing business. Lenovo has a proven track record of successfully embracing and strengthening great brands – as we did with IBM’s Think brand – and smoothly and efficiently integrating companies around-the-world. I am confident we will be successful with this process, and that our companies will not only maintain our current momentum in the market, but also build a strong foundation for the future.”

Google is retaining mobile patents to provide the company with legal protection for its widely used Android software for smartphones and tablet computers.

Gaining control of Motorola’s patents was the main reason Google CEO Larry Page decided to make the most expensive acquisition in the Internet company’s 15-year history.

Google Reaction

“Lenovo has the expertise and track record to scale Motorola Mobility into a major player within the Android ecosystem. This move will enable Google to devote our energy to driving innovation across the Android ecosystem, for the benefit of smartphone users everywhere,” said Larry Page, CEO, Google.

China’s Lenovo Group is picking up about 2,000 Motorola patents in addition to the phone manufacturing operations.

Even as Google has invested in Motorola, results have been disappointing. Motorola’s third-quarter revenue fell 34 percent, even as the company began selling Moto X, the first smartphone introduced under the direction of Google’s leadership.