) recently announced that it will lay off 4,000 of the
20,000-person workforce that it inherited from Motorola Mobility,
and will also shut down 30 of its 90 facilities worldwide.
Two-third of the lay-offs will take place outside the U.S.
Google entered into a definitive agreement with Motorola
Mobility Holdings Inc. on August 15, 2011, through which Google
picked up a 100% stake of Motorola Mobility for $40.0 per share in
cash or a total consideration of approximately $12.5 billion.
Google closed the deal in May 2012.
The reason for the acquisition was Motorola's 17,000 worldwide
patents as well as another 7,500 patent applications, which could
help Android fight off competition from the likes of
Research In Motion
) that have competing mobile operating systems.
While some feel that Google is contemplating its own hardware
business under the Motorola banner, we think it unlikely
considering the lower margins typical of a hardware business,
Motorola's lack of success in recent years and the fact that it
puts Google in direct competition with hardware partners, such as
Samsung and HTC. But much could change over the next few
Motorola has now generated losses in 14 out of 16 quarters and
the business continues to struggle. Google therefore decided to
bring it to profitability by cutting down Motorola's excessive
workforce including 40% of its top management. It is also trying to
reduce Motorola's product portfolio, which includes 27 different
models of phones including several low-end models.
Motorola has lost ground to Apple and Samsung, but Google thinks
that a few select models (with in-demand features such as
voice-recognition sensors and long lasting batteries) would enable
the company to compete more effectively.
The whole exercise will cost Google roughly $275.0 million in
severance costs, impacting its profitability in the third
Google hopes to bring the loss-making handset maker to
profitability, which could result in and some Android-based
smartphones with cutting-edge hardware going forward. Motorola's
patents and experience in the smartphone hardware segment coupled
with Google's strategic planning could ultimately help the company
to create a viable product portfolio in the already over crowded
In the second quarter, Google has done very well with its gross
revenue touching a record $12.21 billion. Revenues from both
Google-owned and partner sites continued to grow in double digits
on a year-over-year basis.
Google retains a Zacks #3 Rank, which translates into a
short-term Hold recommendation.
APPLE INC (AAPL): Free Stock Analysis Report
GOOGLE INC-CL A (GOOG): Free Stock Analysis
NOKIA CP-ADR A (NOK): Free Stock Analysis
To read this article on Zacks.com click here.