Is Google buying Motorola for its 24,000 patents?August 15, 2011: 9:14 AM ET
With one $12.5B deal it gets two weapons: a manufacturing arm and a rich IP portfolio
Google's (GOOG) announcement Monday that it has agreed to buy Motorola's recently spun off mobile devices business -- listed on NASDAQ as Motorola Mobility (MMI) -- for $12.5 billion could mean one of two things.
Either Google really wants to get into the Android manufacturing business -- putting it into direct competition primarily with Apple (AAPL), but also with Nokia (NOK), Research in Motion (RIMM) and Hewlett-Packard (HPQ), the other vendors that make both mobile operating systems and the devices that run on them.
Or Google really wants the 17,000 patents and 7,000 patents pending that Motorola has assembled over the years, including what CEO Sanjay Jha recently described as having
"particular strength in 2G and 3G essential, non-essential patents important to the delivery of competitive products in the marketplace, video particularly compression, decompression and security technologies and finally, a leading position in 4G LTE essential." (link)
We'd put our money on the acquisition as a patent play.
As Motorola has discovered with its unprofitable Droid smartphones and Xoom tablets, selling Android devices in Apple's shadow is a cutthroat business, with tough competition and razor-thin margins.
By contrast, the values of telecom patents like the ones Motorola owns are rising faster than gold, and Google -- whose portfolio is particularly lacking -- needs them desperately. As Larry Page put it on Google's official blog:
"Our acquisition of Motorola will increase competition by strengthening Google's patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies."
The Wall Street Journal noted Monday that shares of Interdigital (IDCC), which had soared on rumors that Google might be bidding for its patents, are down 20% in pre-market trading. If Google gets Motorola, why would it need Interdigital?
UPDATE: The Journal's Shira Ovide helpfully notes that the word "patent" came up 24 times during the conference call Google held to explain the deal to analysts.