Purchasing Motorola in May 2012 for $9.5bn ex-cash was confusing to many of us. Since then, Google has rationalized the business (sale of Motorola Home, divestiture of manufacturing operations and layoffs) and the net cost after asset sales and tax benefits has declined to an estimated $6-7bn.
Given Google’s timeframe for Motorola’s hardware product cycle revamp (12-18 months), it is reasonable to expect Google to launch its own high end Smartphones and tablets in Q4-2013, in time for the holidays. If Google can generate the same interest in its Motorola hardware products as it has for recent Nexus products, the product launches could be a catalyst.
We think Google sees an opportunity to build devices that will better capitalize on the functionality of the Android platform and ensure that Android’s evolution will not be dependent on competitive hardware vendors. A strong Motorola product line up could also help ensure that the Android O/S is not dominated by a single hardware vendor, such as Samsung, which reduces partner concentration risk. Motorola devices will likely showcase Chrome, Maps, Search, Google Play, YouTube, and Google+, and could provide a better UI than some of its competitors.
While Google’s stated ambition is to make money on mobile advertising, not hardware, Apple and Samsung margins suggest there is room for Google to operate a very profitable mobile HW business. If Google’s products are successful, there is room to build a profitable business around Motorola Mobility.