Google Inc. (GOOG) took a more serious position in the mobile space today, announcing plans to acquire Motorola Mobility Holding Inc. (MOT) for $12.5 billion. The move, if approved, would give Google direct control over a device maker and a direct channel to distribute its Android mobile operating system.
The deal calls for Google to pay approximately $40 per share for Motorola’s now-independent handset business, or a 63% premium over its closing price last week. Motorola said that following the deal it will remain a separate business under Google and will remain a licensee of the Android platform. Google added that the Android platform will remain open.
Currently, Google has agreements with just about every device maker to use the Android OS, though the device makers can customize the OS in any way they see fit. Google does have a bit of a history of partnering with select device makers on Google-branded devices that run a more “pure” version of the OS. That original deal was the Nexus device with HTC Corp., and more recently the Nexus S model from Samsung Electronics Co. Ltd.
A recent report from Nielsen showed that Android controlled 39% of the domestic smartphone market, with Apple’s iOS controlling 28%.
“We expect that this combination will enable us to break new ground for the Android ecosystem,” said Andy Rubin, SVP of mobile at Google. “However, our vision for Android is unchanged and Google remains firmly committed to Android as an open platform and a vibrant open-source community. We will continue to work with all of our valued Android partners to develop and distribute innovative Android-powered devices.”
The deal marks the potential end for a tumultuous time for Motorola’s handset division, which a half-dozen years ago was riding the crest of its Razr devices, only to see that overreliance mixed with the launch of Apple Inc.’s iPhone and the industry’s sudden move to smartphones wipe away Motorola’s market position. The company has since seen its market share plunge and more recently saw it tear apart its operations, separating the more lucrative handset business from its network operations business.
Motorola was one of the early proponents of Google’s move into the mobile space, at one point announcing a deal to put a dedicated “Google” search button on its feature phones. Motorola was also Apple’s first device partner with the Rokr device that included an embedded version of Apple’s iTunes music player.
When it came to smartphones, Motorola was initially behind Microsoft Corp.’s Windows Mobile platform with the introduction of the successful Q lineup of devices. More recently, Motorola has gone all-in with Google’s Android platform, using it as the basis for its entire smartphone lineup.
Motorola announced late last month that it lost $56 million during the second quarter with shipments of 11.1 million devices, including 4.4 million smartphones and 440,000 tablet devices running Google’s tablet OS.
Analysts were positive on the move, especially for Motorola’s shareholders.
“Even if the Motorola Mobility unit of Google doesn’t end up being highly profitable, owning a credible manufacturer where you can begin to incubate, pre-test, and implement new mobile-centric solutions is a good thing for Google,” noted Steve Hilton, principal analyst at Analysys Mason. “Google will now own a hardware vendor where its OS and applications can – in theory – be leading-edge. Some consumer will be willing to pay for those types of solutions.”
Google said it expects the deal to close by early next year.
