Microsoft, Lenovo Scratch Each Other's Backs

Technology

Published: August 23, 2016 11:45 am

Last Updated: January 13, 2020 4:20 am

Tech giants Microsoft Corp. (NASDAQ: MSFT) and Lenovo have struck a deal under which the China-based maker of PCs, mobile devices and other gear will pre-load Microsoft productivity apps such as Office, OneDrive and Skype on some of its Android-based devices. The two companies also agreed to a patent cross-licensing deal to cover Lenovo and Motorola-branded devices.

Lenovo, which bought Motorola from Google in 2014 before the company changed its name to Alphabet Inc. (NASDAQ: GOOGL), thus avoids paying steep royalties to Microsoft for the right to bundle the software with the hardware devices.

What Microsoft gets is exposure to the millions of people who will be buying Lenovo products over the next several years. The Redmond, Washington-based company also gains the tangible benefit of increased licensing revenue, an area that has been problematic for the company recently. Year over year, licensing revenues were down more than 25% in the company’s most recent quarter, according to a report at Fortune, and Microsoft wants to recover some of that cash flow.

Microsoft has struck similar deals with Samsung, Asus, LG and Xiaomi, but other smartphone makers like Huawei, Oppo and Vivo have chosen to forgo bundling deals with Microsoft. Because companies like these last three are the best sellers in China now, Microsoft has to hope that the deal with Lenovo will recapture some of the licensing revenue the company has lost.

And even though Lenovo’s share of the mobile market has declined recently, it could recover somewhat based on this deal with Microsoft, yielding a classic win-win situation.

Microsoft stock traded up about 0.6% Tuesday morning, at $58.00 in a 52-week range of $40.39 to $58.50. The consensus 12-month price target is $59.50.