iSuppli Analysis: Google to Buy Motorola Mobility for $12.5 Billion

Google and Motorola Mobility Holdings (MM) announced a definitive agreement that will see Google acquire MM for $40 a share in cash, making the total deal worth about $12.5 billion - a 63% premium over the last closing price before the announcement. 

Motorola Mobility Holdings is the former Mobile Devices division of Motorola Inc., which was spun off as an independently traded entity on January 4th 2011. 

The deal takes place in a litigious period in the handset industry, with companies such as Microsoft and Apple filing procedures on alleged patent infringements from Android licensees (but not Google directly to date). Motorola boasts over 17,000 patents issued worldwide and claims 7,500 other patents are pending approval (in comparison, Nokia holds approximately 10,000). 

Google plans to run Motorola as a separate business, with Motorola an Android licensee. Google pledged the continuation of an "open" strategy for Android.

Competing Android smartphone manufacturers HTC, Sony Ericsson and LG provided similar statements officially welcoming the deal and Google's commitment to "defending Android and its partners".

Besides its phone business which is focused on developing smartphones and tablets running the Google-led Android operating system (OS), MM is also active in the set-top box,  (STB), cable modem and cable infrastructure businesses through its Home division. It is currently the number 2 player in the STB business with a 14.3% market share of shipments in 2010.

It is difficult to imagine that a Motorola acquisition was a desired outcome for Google, whose management repeatedly stated it did not intend to become a player in the hardware space outside its "Nexus" family of flagship devices mostly intended for development and feature showcase.

Google didn't acquire MM for its global handset reach or brand equity. It is indeed important to remind that Motorola generates two thirds of its handsets revenues from North America, and a further 17 per cent in Latin America; which leaves a rather weak 17 per cent of sales on other continents, the Europe/Middle-East/Africa region being its weakest area with a mere 4 per cent of MM's handset revenue.

Actually, the handset market is so competitive, and its economics unattractive to a new entrant, that it wouldn't be surprising to see Google hold onto the patent portfolio and eventually divest or wind down all or parts of its hardware operations.

The main reason for this acquisition is the increasingly heated legal context surrounding smartphone intellectual property (IP). On June 30th, a consortium comprised of Apple, EMC, Ericsson, Microsoft, Research In Motion and Sony outbid Google for bankrupt Nortel's patent portfolio with a final offer of $4.5 billion. 

Such a portfolio (mostly centered around wireless technologies) would have provided Google significant counterweight against current and future IP litigation - instead, it went to a collective comprising two of the most aggressive Android - and to a wider extent Google - competitors, namely Apple and Microsoft. The acquisition actually pulls Google into direct ongoing litigation between Motorola and both Apple and Microsoft.

HTC already pays Microsoft a patent license for each Android handset shipped. Should such a trend continue, Microsoft could very well earn more money from licenses derived from Android than direct revenue from Windows Phone licenses.

Although the patent portfolio now puts Google and its licensees in a stronger position than before, it also puts Google in competition with its partners. By owning Motorola, Google might face conflicting objectives of confirming Android as the most widespread OS, while competing directly with companies it needs to achieve such a lofty goal, namely Samsung, HTC, LG and Sony Ericsson.

There could also be concerns about Motorola gaining preferential access to Google software, essentially undermining the very notion of "openness" and fairness Google strived to communicate with Android.

IHS Screen Digest expects Android to ship on over 500m smartphones in 2015, way ahead of its nearest rival iPhone with 125m units (excluding iPod touch and iPad). Microsoft Windows Phone is expected to ship 115m smartphones in 2015.

For MM shareholders, the deal provides a successful exit with a very generous premium. The handset market grew increasingly competitive over the past years and Motorola had failed to counter a downward trend for its mobile business. In calendar Q2, Motorola shipped 10.6 million handsets (of which 4.4m smartphones), a stark contrast to its peak of 65m handsets in Q4 2006. Recent management declarations touted the strength of MM's patent portfolio and implied Motorola was looking for a suitor, with patents as a unique selling proposition.

Given the estimated $8bn annual revenue from Motorola and its rather unprofitable nature (very thin margins at best), Google still primarily needs to target its legacy mass-market advertising revenue. To do so, it needs to ensure mobile usage is as free of lock-ins as possible (except Google's own, of course).  IHS Screen Digest expects the global mobile advertising spend to exceed €18 billion in 2015.

The deal could shift media focus back to the Microsoft-Nokia alliance, but IHS Screen Digest believes a Nokia takeover from Microsoft is highly unlikely. Indeed, Nokia is already deeply committed to Windows Phone as its next major smartphone platform, to the point where it cannot afford to lose. There is therefore little more to gain for Microsoft in such a move.

Review Article Be the first to review this article
Downstream : Solutuions for Post processing PCB Designs

Featured Video
Peggy AycinenaWhat Would Joe Do?
by Peggy Aycinena
H-1B Visa: de Geus’ tragedy looms large
Peggy AycinenaIP Showcase
by Peggy Aycinena
IP for Cars: Lawsuits are like Sandstorms
More Editorial  
ASIC/FPGA Design Engineer for Palo Alto Networks at Santa Clara, CA
Technical Support Engineer EU/Germany/UK for EDA Careers at N/A, United Kingdom
Technical Support Engineer for EDA Careers at Freemont, CA
Lead Java Platform Engineer IOT-WEB for EDA Careers at San Francisco Area, CA
Mechanical Designer/Engineer for Palo Alto Networks at Santa Clara, CA
CAD/CAM Regional Account Manager (Pacific Northwest) for Vero Software Inc. at Seattle, WA
Upcoming Events
Embedded Systems Conference ESC Boston 2017 at Boston Convention & Exhibition Center Boston MA - May 3 - 4, 2017
2017 GPU Tech Conference at San Jose McEnery Convention Center 150 West San Carlos Street San Jose CA - May 8 - 11, 2017
High Speed Digital Design and PCB Layout at 13727 460 Ct SE North Bend WA - May 9 - 11, 2017
Nanotech 2017 Conference & Expo at Gaylord National Hotel & Convention Center WA - May 14 - 17, 2017
Verific: SystemVerilog & VHDL Parsers

Internet Business Systems © 2017 Internet Business Systems, Inc.
595 Millich Dr., Suite 216, Campbell, CA 95008
+1 (408)-337-6870 — Contact Us, or visit our other sites:
AECCafe - Architectural Design and Engineering TechJobsCafe - Technical Jobs and Resumes GISCafe - Geographical Information Services  MCADCafe - Mechanical Design and Engineering ShareCG - Share Computer Graphic (CG) Animation, 3D Art and 3D Models
  Privacy Policy