Google to investors: We still care about hardware. Just not boring phonesJanuary 30, 2014: 7:39 PM ET
The Mountain View company announced its fourth-quarter earnings amid a flurry of M&A activity
FORTUNE -- Google reported strong fourth-quarter earnings Thursday: The company earned $16.86 billion in revenue for the fourth quarter, a 17% jump over the same period in 2012. Google's GAAP earnings per share was $9.90, up over $8.62 in the year prior. The company's stock traded up more than 4% after hours.
But analysts on the earnings call were more concerned with the company's M&A activity. Google's (GOOG) sale of Motorola Mobility, announced Wednesday, came as a shock to market observers. Part of it was sticker shock: Google only bought the handset maker less than three years ago for $12.5 billion; Lenovo would pay a mere $2.91 billion. But more so than the loss of value, the deal sent a confusing message about Google's commitment to hardware: Was the company retreating?
In its fourth-quarter earnings call Thursday, Google CFO Patrick Pichette and chief business officer Nikesh Arora artfully dodged questions about the decision to sell Motorola. They flat-out ignored a question as to whether owning a handset maker like Motorola made it difficult for Google to deal with other handset makers using Google's Android operating system. (When the deal was announced, many wondered if Google would play favorites with its in-house handset brand.) "We have always had a clear objective to support all of our partners, and after this transaction, it's very clear we will continue to be this impartial supporter of this ecosystem," Arora said.
Aside from a set of valuable patents obtained through acquiring Motorola (which are, for the most part, not included in the sale to Lenovo), the division's performance has been a dark spot on Google's otherwise stellar revenue growth. The unit lost $384 million this quarter. Arora called the sale a "win-win" for all parties involved, sticking to the party line that Motorola has strengthened the Android ecosystem.
More importantly, the executives stressed Google's commitment to hardware, even as it sells hardware assets in the most prominent hardware category, phones. Pichette made a distinction between smartphones and Google's other hardware projects. Google is focusing on hardware "in areas that are enterprising promising new frontiers," he said. In other words, not boring old handsets.
Earlier this month, Google paid $3.2 billion to acquire Nest, a smart thermostat company which blends hardware and software. It bought robot dog maker Boston Dynamics late last month. And for the past few years, Google has invested in other tangible technology like Google Glass and self-driving cars.
Google started out as a simple search engine, but has made headlines in the last year for its futuristic "moonshots," or mad scientist-inspired innovations, many of which have a hardware component. A department called Google X, led by the scientist Astro Teller, has created Project Loon, a set of high-altitude balloons which provide Wi-Fi. Likewise Google has experimented with driverless cars, smart contact lenses, and appliances which are connected to the Internet. Calico is a Google project which aims to solve problems around aging (using wearable technology?).
The company's sale of Motorola cuts off a money-losing operation in a category, smartphones, that is becoming mature and commoditized. It doesn't signal a move away from hardware for Google -- if anything, it frees up cash for more. We know one thing -- whatever new hardware project Google reveals next, it will be out there.