UPDATE 2-Lenovo nears $3 bln deal to buy Google's Motorola unit-sources

NEW YORK, Jan 29 (Reuters) - China's Lenovo Group is nearing a deal to buy Google Inc's Motorola handset division for close to $3 billion, people familiar with the matter told Reuters on Wednesday, buying its way into a heavily competitive U.S. handset market dominated by Apple Inc.

Lenovo is in the final stages of talks to buy the Google division that makes the Moto X and Moto G smartphones, as well as certain patents, the sources said.

A sale of Motorola would mark the end of Google's short-lived foray into making mobile devices and a pullback from its largest-ever acquisition. Google bought the U.S. cellphone giant in 2012 for $12.5 billion but has struggled to revamp the money-losing business.

It also would mark Lenovo's second major deal on U.S. soil in a week, as it angles to get a foothold in major global computing markets. The Chinese electronics company last week announced a deal to buy IBM's low-end server business for $2.3 billion in what was China's biggest technology deal thus far.

An announcement could come as soon as Wednesday. Shares in Google were up 1.5 percent at about $1,123 in after-hours trading.

Lenovo in 2005 muscled its way into what was then the world's largest PC market by buying IBM's personal computer division. It has powered its way up the rankings of the global smartphone industry primarily through sales on its home turf but has considered a U.S. foray of late.

It will use a combination of cash and stock as well as deferred payments to finance the deal with Google, the sources familiar with the matter said, asking not to be named because the matter is not public.

It was unclear if the latest Motorola acquisition will draw regulatory scrutiny. Chinese companies faced the most scrutiny over their U.S. acquisitions in 2012, according to a report issued in December by the Committee on Foreign Investment in the United States.

Lenovo is being advised by Credit Suisse Group while Lazard Ltd advised Google on the transaction, the people said. Representatives for Google, Lenovo, Credit Suisse and Lazard did not respond to requests for comment or declined to comment.


Lenovo's purchase of Motorola gives it a beach-head from which to do battle with Apple and Samsung Electronics as well as increasingly aggressive Chinese smartphone makers in the highly lucrative American arena.

In two years, China's three biggest handset makers - Huawei , ZTE Corp and Lenovo - have vaulted into the top ranks of global smartphone charts, helped in part by their huge domestic market and spurring talk of a new force in the smartphone wars.

But in the United States, they continue to grapple with low brand awareness, perceptions of inferior quality, and even security concerns. In the third quarter of last year, ZTE and Huawei accounted for 5.7 percent and 3 percent of all phones sold there, respectively, trailing Apple's 36.2 percent and Samsung's 32.5 percent, according to research house IDC.

Lenovo had negligible market share.

Globally however, it ranked fifth in 2013 with a 4.5 percent market share, according to IDC. That's up from 3.3 percent in 2012 and virtually nil a couple years before that.