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Now, Apple Has a Direct Competitor That May Make Samsung Look Conservative In Comparison
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: 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. 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 Motion, Microsoft, Ericsson, Sony 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. 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.
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:
And from The Street:
The breakout success of Google's Android operating system has sparked an intense arms race in technology patents particularly related to mobile.
May I remind readers of Google's true business model from historical posts...
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RE: Apple. I believe Reggie's strategy is as follows:
"On a long enough timeline, the stock price of everything drops to zero"
OMG - Here we go again !
ONE OF THESE DAYS, Apple is going to fail. Or something. Reggie will be right!
This is becoming comic.
Sorry Reggie. I love our Housing analysis but this will be a huge flop for Google. You have been wrong about Apple for more than a year now and will continue to be.
Apple will continue to innovate and eat every other phone manufacturer for lunch. Google is the most overhyped company in the world! More than a decade ago they created a great search algorithm and since then they have failed at just about everything else. (Don’t make me list them!)
They still generate most of their revenue from search and will continue to for years to come.
The only real competitor to Apple right now is Samsung. If they can get margins down and if they can be the first to patent Graphene based screens (Think unbreakable, foldable) then they would really have something.
You are gonna start losing credibility if you keep barking up this Google tree.
I haven't been wrong about Apple once - at least not yet. I have been very right about Google, RIM, and thus far Apple as well. I'm happy to admit fault if you can show me where I was wrong (what I said, not what fanbois posted in comments).
Too many are so emotionally close to Apple that they can't see the forest for the trees. You know how you love my housing analysis, well those who were in love with the housing boom thought I would lose credibility if I kept espousing the truth about housing. So did those who worked for Bear Stearns, Lehman and the SQUID swear I would lose credibilty if I didn't stop knocking the best and the brightest banksters...
You know, there are more than a few Europeans who felt I would lose credibility last year if I kept harping on Euro zone issues.
Listen to the facts at hand, as they are presented, not how you want them to be said, and you will probably hear a different story.
Reggie,
I appreciate your response. Too many "contributors" write nonsense and don't back it up. I am no lover of Apple or Google. I honestly can't wait till Apple finally misses their "low ball estimates" but Qtr after Qtr they continue to dominate. I don't know where all these Fanboi's come from. Someone posted to my comment about an ecosystem and I agree. Once you buy your computer, phone, iPad, games, songs, books etc from one vendor it is really ard to forsake that.
But you did say you purchased some options on Apple that you had to lose out on. All Companies that are the top of the heap have a target on their back. Nokia was the king of phones just a few years ago and before that the Motorola flip phone was huge (That was 2006 I believe!) So eventually Apple will fall. But I don't see that happening anytime soon unless a company comes out with something so killer people are willing to forsake all the toys they have bought from Apple and start over.
The one thing Android does have over Apple is open source, but so far that had not been enough for users to switch to android.
Reggie, this is nonsense, you have been wrong about apple, we are not imagining things, you've been wrong about the iphone and ipad numbers. i've pointed out specifics in the past. this has nothing to do with emotions. Show us your iphone number predictions.
All I see is words, my friend. I said show me where I was wrong. Unless I'm mistaken, all you can do is talk about me being wrong. I don't make iPhone or iPad number predictions unless I'm trying to illustrate a general point not related directly to said numbers. Singular, insular product predictions for a minute time period are relatively meaningless and also too easy to get wrong. What's the use? In addition, any real investable analysis on this topic is behind the paywall, a wall which I'm sure you've yet to pay to get behind. The only exception are numbers that would apple to the most recent reporting period and I believe I came in closer than the vast majority of the street, definitely the mean consensus.
So, as I said, show me where I was wrong or admit that I was right.
Did Google outperform analysts estimates by a wide margin and consequentely undervalued? Check
Did Google move to the number one OS spot? Check
Did Google's Android growth rate surpass everyone esle? Check
Did RIMM crash and burn? Check
Did Apple get more aggressive in defending share? Check
Did Microsoft (sythetically) acquire Nokia? Check
Damn, sounds pretty right to me. Then again, I could be wrong. I'll just sit back here as you point that out for me, but in the mean time... Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check! Check!
I hope that gets on your nerves, because then you'll know how I feel when you post with undeserved invective. Damn, I'm really in a mood today, aren't I?
There is a world beyond the Fisher-Price toy / psycho-attentive media drugs that Apple has second-party information acquirers salivate over. Digital ADD works for the fakebook crowd for as long as they stay close together and buzz in the joy of universal robotic synching. Now Google and by this extension, Motorola, are doing and all about the Individual and Mobile. The gasoline-powered mobility era is so over and the future is traveling inside anytime with the cloud. Mobile and Google info-tweaked, free music will drive universal wireless hot-spots like you wouldn't believe. Hold your second derivatives.
Apple locks you into their ecosystem, which every other OEM is trying to do as well.
Doesn't matter what Samsung does, if you live in Apple's iEcosystem, then you're not going to switch.
http://www.gizmag.com/transparent-flexible-graphene-based-electrodes/19397/
game over for TXN and QCOM?
Big deal; when are smart phones going to get a linux system? I FUCKING HATE the embedded software that cannot be deleted. Why hasn't anybody proposed legislation that states if you buy it, you can say how it operates and what software you will permit on the thing that...oh I don't know, YOU BOUGHT!?!
sometimes i wish someone had the patent for trolling... Trav?? can you put in a cease and desist here?
Somebody should legislate more of your infantile entitlement fantasies. Daddy?!?!
What do you see as infantile?
I interpret as infantile:
the expectation and conception of legislation to mandate control of OS by the individual consumer. They made that razor; you get to buy the blades or shave yourself, jack.
Thanks for answering.
I just want to control my smart phone the way I do my computers; I will decide what runs and when it can run at all times. If something pisses me off; I like going to the registry and ripping it out, never to deal with it again.
The whole "take it or leave it" approach really chaps me when everyone wants to tout how great their 'customer service' is. Guess I'm old fashion like that.
King Farouk in the early 1950's couldn't dream with all his money for the toys and second-party information tools you have become addicted to that didn't exist a year ago. I just know you were born A.R. (After Reagan), when entitlements were somebud's business model.
"The whole world is in revolt. Soon there will be only five Kings left--the King of England, the King of Spades, The King of Clubs, the King of Hearts, and the King of Diamonds."
But he could read the writing on the wall.
I was born pre-Reagan.
I've never taken a single dime from any social entitlement program.
What I can't buy, I make with my own hands or do without. I haven't had cable TV for years and think FaceBook is the great lighthouse for the pathetic. I just know your bathroom mirror thinks you are a genius >;)
Peace
There is no light in the mirror but mine, nor room for one more genius.
Probably for the same reason you can't put a Ford Mustang engine in a leased Honda.
You can do whatever you want to the physical "phone" that you "bought". But there is no guarantee it will work. The terms of the service contract require a specific software to receive a signal.
Cell phones are more of a lease than a purchase.
Reggies never ending quest to justify his never ending slamming of Apple continues unabated.
Good luck with that one.
yep this one was boiling over with googleness love
I dunno Reggie, I like your stuff, but you are making a heroic assumption here. Motorola is a failing, not winning, hardware outfit... and Google doesn't know the first thing about running a hardware outfit.
Running a hardware outfit,and running a software outfit, are two entirely separate and distinct challenges. Apple is the only company that has done both successfully. That is a monumental achievement that you are rather severely underestimating. Bill Gates refused to get into the hardware game for 30 years because of this fact. And when they finally did get into hardware (XBox), it took them the better part of a decade to get their feet under them.
It will take time (i.e., YEARS) for Google to make this acquisition work... IF they can make it work at all.
I smell FAIL.
Motorola made a hit with the original Droids. Its failing because it didn't have the resources to push the product out at the speed of its competitors in SEA. Google will supply those resources and the Android expertise will make Mot almost impossible to match. Google doesn' t have to run a hardware shop, they bought one ready made. Palm computing had a similar problem, they didn't have the resources to capitalize on superior tech. HP simply moved to slow to make a difference. When was the last time you accused Google of moving too slow? Android hardware/software combos materially outlcasses iOS/phones/tablets as it is (reference transformer/Galaxy 10.1/ Galaxy SII, etc.). Imagine when Google puts out its reference hardware, probably starting next month with Google branded and built Ice Cream Sandwich devices.
And here we have the Apple RDF in full effect (that's "Reality Distortion Field" for all of you "non-nerds"). If Apple was the only company to have successfully ran software and hardware, then the last 8 years of RIM controlling the US smartphone market didn't happen, eh? Maybe the last 10 years of Nokia controlling the GLOBAL smartphone market didn't happen either. You know, Motorola was on top before both fo them. Remember the Startac and Razr. I mean, they are not on top of thier respective games not, but why is that? Because Google forcibly knocked them off of their perches with Android.
I pull out my handy-dandy, BoomBustBlog branded RDF nullifier (it looks something like the "ultimate nullifier" that Reed Richards used to threaten Galactuse when he came to eat Earth) and brandish it thoughout the dedicated Apple orchards, and I find that Apple has only been selling smartphones for 4 years, and has ony had a leading product for 3 of those years. Therefore, we have absolutely no idea if (or how long) Apple may be on top because it hasn't even been a full business cycle yet.
Xbox currently rules the console space and the kinnect push the 6 year old hardware (that's right, no refresh since 2005 or so) to record sales this year, ahead of ALL of their competition! Did Bill Gates make the right decsision?
Do you see how the playing field doesn't look so Apple certain when facts are thrown into play in lieu of marketing mantras. Please don't let my smart ass demeanor offend you, I'm just in one of those moods today :-) Thanks for liking my stuff.
Some fair points here, but you're still off base. My comments:
-- You are putting a lot of faith in Motorola. Maybe you know more about the internals of the organization than you are letting on? Because from the outside, to an educated observer, it appears that Motorola's problem is Motorola's management, and not any lack of resources. They had a few lucky hits that they were unable to capitalize on because they were incompetent.
-- XBox rules the console space?? Nintendo are the ones making the real money there, last time I checked. XBox might beat Sony, but Sony is a company run by idiots. That I can speak to, personally.
-- RIM didn't control smartphones, they controlled hand-held email readers. Nokia didn't control smart phones, they controlled basic cell phones. They both failed because they couldn't make the transition to smart phones. Another example of Apple moving the marketplace into their sweet spot (instead of trying to move their sweet spot in the marketplace). If you can convince me that Google has a plan to transform the smart phone into something way beyond what it is now, and this plan somehow involves them moving the market into their Search/Adwords sweet spot, then maybe your arguments will hold up.
I Google sees management incompetance, one can be assured that said management would be excised. Its a good deal. Think of Google paying for the strongest patents in the mobile industry and getting a leading operating vendor for a billion or so.
Nintendo is fading fast. They had one hit over the last decade, and that is quickly losing favor. Xbox sales are accelerating while Wii sales are quickly declining. I have three kids and tend to be rather childish myself. I can attest from personal experience.
Blackberries are smartphones, whether you want to admit it or not. They are not very good smartphones (I'll freely grant you that), but they are still datacentric computers used for communiction.
Nokia did control smartphones globally, just not in the US where RIMM reigned supreme for 8 years or so. You have to think outside of the US. I love this country to, but we are not the world.
As for Android, they have already redefined the smartphone space by being TOTALLY cloud-centric. iOS 5, which is still in beta mind you, is just catching up to (or will catch up to once its released) what Android released in the beginning of the year. ICS, androids next edition, is due to launch and potentially before Apple releases iOS 5.
If Google fires Motorola's management, then what was the point of buying them in the first place??? If that happens, then that will be a strong early signal that the acquisition has been a FAIL.
Remember always, Reggie, that the fish rots from the head. Eric Schmidt rode Sun and Novell into the ground. I think Google has succeeded in spite of him, and not because of him. Eventually that will catch up.
Cloud-centric isn't a big enough innovation in my mind, but I'm willing to admit I could be wrong. However, I fully expect Google to fuck up on the execution of this Motorola acquisition, and when they do, it might just undo all the good work they've done so far with Android.
We'll see I suppose. It's been fun debating this with you!
Don't be too surprised to see the Blues Brothers appearing about now to get the old Mobile band back together. A few patents here and there can make it happen. Patents are just tolls on the road that some visionary bet on long ago. No worries; please feed the brains, don't depend on the zookeepers.
Prefer phone7
Not available on Verizon, which is where I went after T-Mo sold out to those f'ing bastards at AT&T. Yes, yes, I know it's not a done deal yet, but why wait and I got in before Verizon chopped the legs out from underneath "unlimited" data plans.
Stuffed a pay-go sim in the Winfo7, does the ringy-dingy thing fine, but that is about it, for now.
Verizon offers one Windows Phone 7 handset, the HTC Trophy. It is a good 3G phone, but WP7 is missing a lot of features that Android users have.
I see this mainly as quick way to get armed in the patent war.
It's on, and Google needs to play catchup with patents to defend against Apple/Microsoft.
Google/Moto should also have great hardware as well, too bad the 4g VZW Bionic won't be one of them
Google's Nexus reference handsets will be phenomenal now that they will have complete control. All other vendors will be forced to raise their game, or get out of the game.
As for vendors and customers leaving Android, where will they go? No other OS is even remotely as profitable, remember the negative business costs.
In addition, now Google can and will aggresively defend their partners at the same time they compete with them through the use of the patent portfolio.
We now know why Google played games and had fun in biding pi - billion $ on those Nortel patents as pundits questioned the wisdom of Google's apparently frivolous actions. In reality, they never really wanted the portfolio and succeeded in causing ALL of their major competitors to not only bid the prices of these ancillary profits up, but then go on to overpay for them.
Motorola seems to possess the most patents of all phone manufacturers (about 12k recieved, 6k pending, followed by Nokia with roughly about 10k).
Remember, Motorola made the first mobile phone - that briefcase-like device - as well as the first second generation phone as well, the banana phone, then the first flip phone as well (if I'm not mistaken), so they should have the possibility to break many other phone manufacturers strategies, revenue streams and business models with their patents.
Hi Reggie,
what do you think will happen with HTC and Microsoft? If I recall correctly, HTC is paying M$ 15 dollars for every handset with Android they sell. Will HTC stop paying hoping that Google will leverage those patents to protect its partners?
Great work.