16 August 2011

Google Joins the ‘Hardware Club’ While Microsoft Whines

If you have an interest in this blog, then you most likely already know that Google has announced its intention to buy Motorola Mobility, the handset division recently spun-off by Motorola, for a cool US$12.5bn.

There is no shortage of commentary already on the web, regarding whether or not this is a reasonable price for Google to pay, or whether the purchase is really just about boosting Google’s patent portfolio after missing out on acquiring patents from either Novell or Nortel.

Regardless of what others may be saying, we consider that Google has struck a pretty good deal, despite the fact that the price it is paying represents a 63% premium on the closing price of Motorola Mobility shares last Friday.  Firstly, this is a purchase that it can easily afford, considering that various reports place its cash reserves (prior to this deal) at around US$36bn.  The relatively high premium may simply mean that the market had undervalued Motorola Mobility.  More likely, however, the value-add to Google of acquiring the company is far greater than the price it has paid.

WHAT IS GOOGLE BUYING?

Let us just take a look at what Google is getting for its money.  According to various reports over the past year or so, since Motorola first announced its intention to spin-off its handset division, Motorola Mobility has some pretty impressive credentials:
  1. assets of US$6bn (including US$3-4bn in cash reserves);
  2. revenues of US$11bn;
  3. 19,000 employees;
  4. 17,000 patents; and
  5. virtually no debt.
Looking at these figures, it is difficult to understand why, as of last Friday, the market had valued Motorola Mobility at only US$7.7bn.  Consider, for example, that Nortel’s portfolio of only 6,000 patents sold for US$4.5bn, and that was a portfolio that was not even focussed on mobile technology (e.g. GSM, 3G, and 4G) to the same extent as Motorola’s.

And while the patents will no doubt be a great boost to Google in its ongoing battles with its competitors (see Apple v Samsung: Google Says It’s All About Android), it seems to us that the patent acquisition is not even the most significant aspect of this deal.

MEMBERSHIP OF THE ‘HARDWARE CLUB’

Think about this for just a moment – when the deal closes, Google will be a manufacturer of smartphones and tablets, as well as the supplier of one of the most popular operating systems for these devices, i.e. Android.  Google will be less like Microsoft (i.e. primarily a software company in this space), and more like Apple (i.e. a member of the ‘hardware club’, while also maintaining its own software platform).

Yet, unlike Apple, which is notorious for its ‘closed’ approach to iOS (the operating system used in iPhone and iPad devices), Google is promising that Android will remain open, and that it will continue to license the operating system to competing smartphone and tablet manufacturers (like Samsung).  As Google CEO Larry Page has stated in a posting today on the Official Google Blog:

Motorola’s total commitment to Android in mobile devices is one of many reasons that there is a natural fit between our two companies. Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners and developers everywhere.

This acquisition will not change our commitment to run Android as an open platform. Motorola will remain a licensee of Android and Android will remain open. We will run Motorola as a separate business. Many hardware partners have contributed to Android’s success and we look forward to continuing to work with all of them to deliver outstanding user experiences.

POOR MICROSOFT…

Google’s approach should ensure Android’s continuing dominance over the competing Windows Phone 7 platform, so it is perhaps hardly surprising that Microsoft has already begun harping about Google’s intentions.  Senior Director of Communications at Microsoft for the Windows Phone Division, Bill Cox (@billcox), today tweeted:

There’s a HUGE difference between partnering with all OEMs (us) vs. buying one OEM and telling the rest it’ll be OK (Motoroogle).

Oooh!  ‘Motoroogle’…  Personally, we prefer ‘Googorola’, which sounds a bit like a cross between a smelly cheese, and a stop-motion Japanese monster lizard.  But then we are not a senior director at one of the world’s largest companies, so what would we know?!

In any event, it appears that there will be interesting and exciting times ahead in the mobile business, and we are looking forward to it!

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