Google Inc.
(
GOOG
) plans to sell off the Motorola Mobility business unit that
manufactures set-top boxes and other home-networking gear,
according to Bloomberg. Google shares rose 1.6% to $688.01, at the
close of trading yesterday.
A few sources stated that the search giant has hired Barclays to
negotiate a possible sale of the business. Though the process is
still in its early stages, Google is expecting the business to
fetch around $2 billion.
Earlier this month, Google announced that it would cut 4,000 jobs
at Motorola Mobility and close about a third of its 90 facilities,
as a part of its plan to restore the hardware firm's leadership in
the mobile market.
To recap: Google had entered into a definitive agreement with
Motorola Mobility Holdings on August 15, 2011. The company picked
up a 100% stake for $40.0 per share in cash, or a total
consideration of approximately $12.5 billion. The deal was the
biggest in its 13-year history and was completed in May 2012. The
acquisition propped up Google's portfolio with more than 17,000
patents.
When Google announced its decision to purchase Motorola Mobility,
it was apparent that the purchase would expand its expertise in
wireless technology and handset design. At the time, we doubted
Google's intention of entering the handset hardware business given
the automatic rivalry it would create with hardware partners and
the negative impact of an essentially lower-margin business.
However, the market has changed a lot since then and some hardware
partners, such as Samsung and HTC have a lot at stake. Therefore,
they are unlikely to abandon Android simply because there is
another Android device in the market.
In this respect, we should keep in mind Google's initial interest
in the mobile segment - the maintenance of its search market share.
It is now apparent that Apple is moving away from Google and could
soon remove Google as the default search engine on its devices.
This would be a big blow to Google because it is still hugely
dependent on Apple devices for advertising dollars.
At the same time,
Microsoft
(
MSFT
) is spending billions on Bing and it makes sense for the two to
combine. User experience appears to be the only thing in the way.
Therefore, Google needs a smartphone where there is a good marriage
between the hardware and software components so it can take on
Apple
(
AAPL
) and reverse the losses it would no doubt incur if Apple no longer
plays ball.
Google is a market leader in online advertising and its mobile
strategy has been bang on target so far. In the second quarter,
revenues from the Hardware and Other segment (mainly Motorola, but
also Nexus 7) accounted for 10% of revenue, with 67% coming from
mobile products and the balance from home products. Historically,
Google has always fared better than
Yahoo Inc
(
YHOO
), which has been struggling to uphold itself, and Microsoft, which
has yet to gain critical mass.
However, legal entanglements related to competitive matters or
patent infringements remain an overhang. Google retains a Zacks #3
Rank, which translates into a short-term Hold rating.
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