Google abandons bid to be like Apple, CEO Larry Page under pressure

Summary:Google's hardware strategy is in tatters after huge losses. Will Larry Page find his voice and face Wall Street analysts at the Q4 earnings call?

Cracked
Google's cracked strategy in handsets.

 

Lenovo agreed to buy Google’s Motorola handset business for $2.91B. Larry Dignan and Zack Whittaker  report :

Google confirmed after markets closed on Wednesday that Lenovo has acquired Motorola Mobility in a deal valued at $2.91 billion, just two years after the search giant bought it for $12.5 billion.

Lenovo will pay $1.41 billion when the deal closes in cash and shares and the remainder will be in a $1.5 billion note over three years.

In a company blog post, Motorola confirmed Google will retain the "vast majority" of the patents it acquired when it first bought the mobile company in 2011, including "current patent applications and invention disclosures." Lenovo will license the patents as part of an ongoing relationship with the search giant.

Foremski’s Take:

Google kept the patents because it needs them so it can protect Android OS app developers from legal claims by signing cross-technology license agreements, such as the recent one with Samsung. Intel, Microsoft and PC makers all engaged in cross-technology licensing agreements in the 1980s and 1990s and it helped expand the PC market.

Big U-turn…

The sale represents a U-turn for Google, and for Larry Page, CEO. Google has been trying to build an Apple-like hardware business consisting of smartphones, music players, portable computers, and TV Internet devices. It has now abandoned the smartphone handset business.

Google has been laying off thousands of people trying to make its smartphone business profitable. But very high marketing costs and an always-listening smartphone that was good, but didn’t wow the geek community or regular people, left it holding a business with mounting losses.

[Google’s Ad Partners Suffer As It Pursues An Apple-like Business, And Cuts 5400 Jobs]

Google gives away its Android operating system and it must also continue to support it with new features, which is an expensive burden. Google does not disclose the percentage of revenues it receives from mobile advertising but it is a growing revenue stream.

When will mobile revenues cover the costs of maintaining Android and also defending it from legal challenges? That’s a question I’d like Wall Street analysts to ask tomorrow, when the company reports Q4 2013.

Good decision…

The decision to sell to Lenovo was a bold one for Larry Page, CEO because it will be seen as a mark against him. He took over as CEO in April 2011, from Eric Schmidt, former CEO at Novell.

Page’s management of Google’s hardware strategy would certainly be something that Google shareholders would have a right to complain about. They can’t do much but complain because the founders and insiders hold shares that give them majority voting control.

Will Page find his voice and face Wall Street analysts for the Q4 report on Thursday? He said last year that he has a medical condition affecting his voice and will likely not do any more earnings calls.

It is better to pull out earlier than later and he has made the right decision. Shareholders will benefit because hardware is a low margin business if you aren’t in a premium position, like Apple, and it will drag down earnings per share. 

The more $GOOG tried to be like Apple, the more it risked alienating shareholders. If its investors wanted to own a hardware company they would have bought $APPL. 

In after-hours trading Wednesday Google was up more than 2%.

Topics: Google

About

In May 2004, Tom Foremski became the first journalist to leave a major newspaper, the Financial Times, to make a living as a full-time journalist blogger. He writes the popular news blog Silicon Valley Watcher--reporting on the business of Silicon Valley.Tom arrived in San Francisco in 1984, and has covered US technology markets for leadi... Full Bio

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