The smartphone industry is getting increasingly competitive with
patents playing an important role in establishing an edge over
competitors. In the recently held auction for Nortel's patents
portfolio, Google (NASDAQ:GOOG) was outbid by a consortium of Apple
), Microsoft (NASDAQ:MSFT), Research in Motion (NASDAQ:RIMM), EMC (
), Sony and Ericsson. At root here is the strategic value of not
letting Google hold these patents, which span the spectrum of
wireless, data, optical, voice, Internet and other patents. After
Google's initial $900 million bid, the club of Google rivals
finally trumped the search giant with a $4.5 billion bid.
Apparently along the way, Google's bid of
or $3.14 billion - was also trumped.
Our $576 price estimate for Google stock
is about 10% above market price.
Implications for Google
The issue for Google is that if it doesn't agree to license the
wireless patents held by competitors, it could find itself
mired by patent lawsuits. Which ones and for what? We don't know
because we are not exactly sure what patents are included in the
portfolio that will not be divided among the winners.
According to Nortel, the portfolio is comprehensive:
The agreement includes the planned sale of approximately
6,000 patents and patent applications spanning wireless, wireless
4G, data networking, optical, voice, internet, service provider,
semiconductors and other patent portfolios. The extensive patent
portfolio touches nearly every aspect of telecommunications and
additional markets as well, including Internet search and social
Clearly the winning group saw enough reason here to combine
their balance sheets against Google to ensure it wouldn't win due
to a combination of: 1) Google would have claims on patents that it
could then use against some of these companies in the form of
lawsuits or royalties, and 2) use for its own businesses which
spans spectrum mentioned in Nortel's statement and thus make Google
that much bigger and stronger competitor in the respective
Just last week Oracle (NASDAQ:ORCL) cited in a claim that it is
seeking $2.6 billion in damages from Google as part of its patent
infringement lawsuit over Java, a key software used in Google's
Android operating system. Apple and Samsung are suing each other in
the Korea and the U.S. So clearly there are strategic motives at
play as the IP wars are heating up.
In the event that Google is sued or forced to pay higher
licensing fees and royalties, this could impact its profit margins.
We don't know the outcome yet, but either way Google is not happy
about how this auction turned out.
Drag the trend line below to see how Google's value is impacted
by changes in profit margin.
See our complete analysis for Google stock