Not even Iron Man is able to save HTC
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Features - Samantha Tomaszczyk
March 6, 2014
Google sells Motorola for £1.8 million – £6 million less than it paid for it in 2012
Google cut its losses by flogging Motorola Mobility to Chinese rival Lenovo last week, ending a disasterous two years which saw operating losses total more than £832 million.
The software giant raised eyebrows in 2012 when it paid £7.5 billion for the US manufacturer – which then had less than a two per cent global market share in the handset space.
At the time of purchase, Google CEO Larry Page said: “It’s a great time to be in the mobile business and I’m confident that the team at Motorola will be creating the next generation of mobile devices that will improve lives for years to come.”
But since then Motorola’s downward plight has continued. Its first quarterly losses totalled $38 million (£23 million) in Q2 2012, steadily increasing to a staggering $384m (£235 million) in Q4 2013 (ending December 31).
During this period Google spent an estimated £182 million restructuring the company, which included cutting more than 5,000 staff, or nearly 40 per cent of the manufacturer’s workforce.
Motorola’s market share, according to analysts at Gartner, has continued to fall one per cent – and doesn’t even appear in its top 10 vendor list (see graphic).
Following the sale, Page last week said in a statement that the Motorola business, which it sold for just £1.8 billion (£6 billion less than it paid Motorola in 2012), would be better served by Lenovo – all but admitting the manufacturer’s commitment to hardware was no longer a priority.
“The smartphone market is super-competitive, and to thrive it helps to be all-in when it comes to making mobile devices,” said Page. “It’s why we believe that Motorola will be better served by Lenovo – which has a rapidly growing smartphone business, seventh in the global market with 2.9 per cent, and is the largest and fastest-growing PC manufacturer in the world.”
Analysts Mobile News spoke to agreed the decision to sell was the right one for Google, which can now focus on the entire “Android family” without distractions. Informa handset and devices research analyst Julian Jest said: “They’ve lost billions in operating losses over the past two years – and that seems to be a big factor.
“The hardware side was more ‘Let’s see what we can do with this’. Google wanted to see in the short term whether they could turn it around with Motorola if they gave it a couple of handsets, and if it wasn’t going to happen they always had in the back of their minds to sell the hardware side.
“They saw no strategic value and, combined with the losses they were having, I think that just accelerated the process. They have given up making hardware for now – I can’t see who else they could acquire.”
Analysis Mason principal analyst for wireless networks Chris Nicoll added: “The crux of the matter is this: margins on hardware, and the research and development costs associated with smartphone manufacturing are far different than those in Google’s usual line of business.”
Scratching our heads
They also highlighted Google’s retention of Motorola’s 17,000 patents (unspecificed), which it will licence to the Chinese manufacturer. This, they claim, means the search engine should eventually make back the £6 billion loss from the sale.
CCS Insight director Martin Garner added: “We were always scratching our heads a bit over what Google would do with Motorola. It cut costs and released a few phones but Google hasn’t really made a big move to get it back to where it had been.
“And so it was languishing, losing money, not really getting any better at Google, and it was clear that something needed to happen.”
Informa’s Julian Jest said: “Their primary purpose was to get access to Motorola’s intellectual property – and they’ve got that.”
The sale is also an attempt to keep other manufacturers who rely on Google’s Android operating system “sweet”, the analysts said.
Samsung’s attempts to lessen its reliance on Android means it is set to launch its own operating system – Tizen – at Mobile World Congress (MWC) this month. This concerned Google enough to make it buy its own manufacturer, the analysts said, but this concern has now faded thanks to a new Google-Samsung agreement and the other Android manufacturers performing well.
On January 27, Samsung and Google announced they have signed a global patent cross-licensing agreement aimed at reducing the potential for litigation.
The deal, which Samsung said will cover “a broad range of technologies and business areas”, applies to both existing patents and those filed over the next decade.
Jest said: “Other Android smartphone companies had voiced their concerns over Motorola competing with them in the hardware business, by supplying them with the OS.
“We are starting to see companies like Samsung experiment with their own operating systems – so I think this sale is Google trying to keep the Android family sweet and reassure them that the Motorola period was more of an experiment with hardware.”
Nicoll added: “Google is seeing excellent take-up of Samsung and others on Android – the strength of the Android market seems stronger than ever. The hardware from HTC, Samsung, Huawei, and LG is state of the art.”
Out on a limb
Garner told Mobile News he believes Google had planned to do something with Motorola but as a result of the success Android was having in the market, particularly with leader Samsung, the need for having your own manufacturer “went away”.
“Google has just secured Samsung’s cooperation for the next 10 years or so with a patent deal, so actually Android’s position is fairly well cemented and that left Motorola out on a limb – it’s usefulness as a manufacturer was not so great any more.
“There was definitely a conflict of interest there. We have always had a sense that Motorola was a bit of a back-up plan.
“If the other manufacturers left Android, then Google could pump Motorola up and release handsets itself, but they didn’t do that because Android has been so successful.
“Having their own manufacturing put them in competition with their partners like Samsung and Sony so at this point it seems to make sense to sell it.”
