Now, Apple Has a Direct Competitor That May Make Samsung Look Conservative In Comparison

Reggie Middleton's picture


CNBC reports Google to Acquire Motorola Mobility for $40 a Share in Cash. This gives Google the hardware chops to release reference quality mobile computing devices without the need for:

  1. Carrier subsidies
  2. carrier bloatware
  3. vendor bloatware
  4. slack in technology refreshes, which will lead to..
  5. extremely rapid tecnology refresh cycles which have averaged nearly quarter for Google's Andorid OS.
This means trouble for many competitors if Google can pull the hardware execution off, and I beleive they can. It also gives them an immense advantage over the other handset makers because they, by defaut own Android, the "Driod" moniker (through MMI), the IP to implement the newest Android tech in near real time, and most importantly nearly 50% of the world's market share in OS coming out of the gate.
Expect Google to immediately drop margins, and therefore prices across the board while simultaneously raising the bar significantly in terms of functionality and performance, not to mention the tech refresh cycles. I would imagane the refresh cycles will be concentrated in the software side, assited by the hardware which will show no customization of the interface therefore allowing instant adotpion of updates. Expect to see a firmware SIM card, independence from carriers, and fully subsidized smartphones that will probably best the performance of the iPhone 5 before the 2 tech refresh.
What should not be overlooked is how Google is able to hit two birds with one stone here - patent protection AND hardware manufacturing capabilities. From Forbes.com:

Google has just closed its biggest acquisition to date, and surprisingly enough its in the burgeoning world of cellphones. The company announced this morning that it was buying smartphone and tablet maker Motorola Mobility for $12.5 billion in cash, paying a whopping 63% premium on Motorola’s closing share price on Friday.

Shares of Motorola Mobility, traded on the NYSE, shot up by 60% in pre-market trading, while Google’s shareholders didn’t seem to like the deal, sending its shares down by 3% in pre-market trading in New York.

The companies said both boards had approved the deal, which will give Google complete control of the manufacturer of smartphones and tablets like the Xoom, which run the Android operating system.

Google’s CEO and co-founder, Larry Page, said on the company’s official blogthat the acquisition would also “supercharge the entire Android ecosystem,” and boost its patent portfolio, which would “enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies.”

According to The Street, Motorola Mobility holds 17,000 patents.

And from The Street:

With 17,000 patents, Motorola Mobility is the best mobile partner Google's Android could ever wish for as industry hostilities heat up.

"We believe this is the singular most important issue for the smartphone industry at the moment," JPMorgan analyst Rod Hall wrote in a research note Monday. 

Google has complained that the current patent system is broken and does not encourage innovation. But that doesn't mean Google isn't interested in acquiring more. The company said it's adding a collection of 1,000 patents from IBM that it acquired in a deal struck last month.

The battle lines in the patent war were drawn earlier in July, in the surprise aftermath of the Nortel patent auction.

Apple's formation of Rockstar Bidco, a super consortium including Research In MotionMicrosoftEricssonSony and EMC -- the group that won the $4.5 billion auction -- is the best example yet of how the powers are aligning.

The consortium illustrates the establishment of two distinct camps: Google and its partners against the rest of the field.

As relative newcomers to the mobile industry, Google and Apple have very little legal ground to stand on when it comes to connected devices and wireless patents. Apple helped boost its position a bit with the Rockstar Nortel patents acquisition, a move that the Wall Street Journalsays is being reviewed by the Justice department.

But Google is a software company whose fortunes in mobile are riding on the success of smartphone partners like Samsung, Motorola, HTC and LG.

Android-shop Samsung is in a legal battle with its former ally Apple. In April, Apple filed a lawsuit against Samsung for copying its iPhone and iPad. In June, Samsung sued Apple for patent violations.

Motorola, however, is far better positioned to defend the Android camp. Not only does Motorola have far more patents than its nearest competitors, it appears to have more of the key patents that may help the Android camp in a battle against Apple.

"It is interesting to note that Motorola asserted 18 patents against Apple, and sued Apple first, whereas Apple has asserted just six patents against Motorola," Morgan Stanley analyst Ehud Gelblum wrote in a research note last month.

So while Apple might have a Rockstar consortium, Google has a friend with deep patent portfolio.

May I remind readers of Google's true business model from historical posts...

Google's investment history has been phenomenal, besting the vast majority if financial acquisition players and enabling Google to place itself at the top of several diverse markets in a record amount of time. The mobile computing market is but one example or many. It would be unwise to blindly bet against their having throught and strategized this move through. As excerpted from A Realistic Look At The Success Of Google's Investment History:

As promised, I am presenting historical justification of the logic behind my call of absurdity in the drastic drop in share price after Google announces a redoubled effort in investment and marketing of its nascent businesses. I went into the logic in detail via our Google Q1 2011 earnings review - Google’s Q1 2011 Review: Part 2 Of My Comments On The Gross Misvaluation of Google. The following pages are excerpted the subscriber forensic analysis (63 pg Google Forensic Valuation, to plug in your own assumptions see Google Valuation Model (pro and institutional).

To begin with, Google apparently realized early on that it could better realize returns by investing shareholder capital through acquisitions. It has actually been quite acquisitive, making 88 purchases over the last 13 year. Last year was Google's most acquisitive year, ever!

Looking at the Results of Google's "Negative Cost" Business Model Employed Through Android: Google's business model is to create negative cost products and services that take the floor from under the competition by compressing margins to zero or very close to it - or using network effects to prevent competition from gaining the momentum to become or remain effective. They have been very successful in doing this in the news distribution arena, internet adverstising, an obviously mobile computing OSs, reference the result of their efferts in the performance of what use to be the USs number one smartphone vendor - As Forecast Last Year and Clearly Demonstrated This Year, Research in Motion's Problems Are Far From Over.

I believe I have been one of the most accurate pundits over the last two years regarding Google's prospects, by far: Did A Blog Best Wall Street's Best of the Best In Guaging The True Value of Google? We Have To Think More Like An Entrepeneur & Less Like A Wall Street Analyst

Webcast Information

Google and Motorola Mobility will hold a conference call with financial analysts to discuss this announcement today at 8:30am ET. The toll-free dial-in number for the call is 877-616-4476 (conference ID: 92149124). The call will also be webcast live athttp://investor.shareholder.com/media/eventdetail.cfm?eventid=101369&CompanyID=ABEA-3VZHGF&e=1&mediaKey=A21887C59EBAAC12F1BCF4D43C080953. The webcast version of the conference call will be available through the same link following the conference call.