Google Follows Apple Into Hardware, But With Weak Hand

Investing

Published: August 15, 2011 7:46 am

Last Updated: August 15, 2011 12:57 pm

Google (NASDAQ: GOOG) will buy mediocre handset firm Motorola Mobility (NYSE: MMI). It is probably a play to compete with Apple. The difference is that Motorola has a relatively weak line of products, particularly compared with market leaders HTC, Samsung, and LG. At least most Motorola phones run Google’s Android OS. The iPhone from Apple Inc. (NASDAQ: AAPL) grabbed 21% of the smartphone hardware market in the second quarter of 2011, compared with just 5% for Motorola Mobility. Research in Motion Ltd. (NASDAQ: RIMM) captured 14%, while Samsung and HTC Corp., both Android licensees, combined for 34% share. Nokia Corp. (NYSE: NOK) gets 13%, even as the company preps new models running the latest Windows Phone operating system from Microsoft Corp. (NASDAQ: MSFT).

The deal looks a bit like the joint venture between smartphone also-ran Nokia and Microsoft. Microsoft did not make an outright acquisition, but the arrangement is close. It gives Nokia an operating system other than its ancient Symbian product, and marketing dollars from Redmond. Microsoft gets a platform for its Windows wireless OS product, although the size of the Nokia platform is shrinking at an unusually rapid pace.

Most analysts have discussed the hardware aspect of the M&A move, but perhaps the more important aspect is the patent aspect. Google is effectively buying some 24,000 or so patents in the Motorola Mobility acquisition.

Motorola’s best years are far behind–back half a decade to its successful RAZR product. Motorola was never able to replace it as the cellphone product aged.

Perhaps the most stunning thing about the Google buyout of Motorola is the price. Google will pay $40 a share–$12.5 billion. That is a 63% premium. Before the acquisition, Motorola’s stock had fallen from $36.34 in February to its present $24.50–down 20%.

Google must see something in Motorola that no other company did. There were no other suitors knocking on the door

Douglas A. McIntyre

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