By Miguel Helft
January 30, 2014

FORTUNE — After trying and failing to compete effectively in the handset business, Google is selling its Motorola business unit to Lenovo, the world’s largest and fastest-growing PC maker, for $2.91 billion in cash and stock.

MORE: Can Lenovo do it?

After the deal, Google (GOOG) will retain the vast majority of patents it acquired with the $12.5 billion purchase of Motorola Mobility in 2012. Motorola’s patent portfolio was seen as the main reason why Google purchased the company, as it and its Android partners faced a growing tide of lawsuits over inventions that are key to smartphones.

In a blog post announcing the deal, Google CEO Larry Page said he was pleased with the progress that Motorola had made with its product line, but admitted that it didn’t make sense for Google to remain in the handset business. “The smartphone market is super competitive, and to thrive it helps to be all-in when it comes to making mobile devices,” Page said. “It’s why we believe that Motorola will be better served by Lenovo — which has a rapidly growing smartphone business.”

MORE: eBay CEO: Icahn’s call for PayPal spin-off is old news

Despite releasing well-reviewed phones like the Moto X and Moto G, Google was not able to translate Motorola’s acquisition into profits. In the most recent quarter, the unit reported a $249 million loss.

Lenovo (LNVGY), which last year became the largest PC marker in the world, has set its sights on the mobile business. In little more than two years it has become the No. 2 seller of smartphones in China, where it is based, and is expanding aggressively in other markets. Lenovo was recently ranked No. 4 in the world among smartphone vendors — behind Samsung, Apple (AAPL), and Huawei. The addition of Motorola’s business will boost Lenovo’s global market share in smartphones only marginally, but it will give the company entry into the American market, where Lenovo has no presence so far.

“We will immediately have the opportunity to become a strong global player in the fast-growing mobile space,” Yang Yuanqing, chairman and CEO of Lenovo, said in a press release. “We are confident that we can bring together the best of both companies to deliver products customers will love and a strong, growing business.”

MORE: Is time running out for Marissa Mayer?

Interestingly, Google is getting out of the handset business just as rival Microsoft (MSFT) is getting into the handset business through its acquisition of Nokia. Many analysts believe Microsoft is buying Nokia in part to compete with Google.

The acquisition will require regulatory approval, including a likely national security review. It’s the second review Lenovo will receive, following the announcement last week that it would purchase IBM’s (IBM) low-end server business for $2.3 billion. Lenovo operates more openly and transparently than many of its Chinese rivals, and has previously been cleared to acquire American companies on multiple occasions.

You May Like