Google-Motorola Mobility deal set: Welcome to the hardware business

For Google, there's a larger issue ahead. Google has become hardware happy overnight and Motorola Mobility could be a distraction.

The Department of Justice cleared Google's purchase of Motorola Mobility just hours after European regulators gave the deal the nod. Now Google is officially in the hardware business---for better or worse.

In a statement, the Department of Justice said it was closing its investigation into the Google-Motorola deal and also closing a probe into the sale of Nortel's patents by a consortium led by Apple. In other words, everyone is happy with their patents.

For Google, there's a larger issue ahead. Google has become hardware happy overnight and Motorola Mobility could be a distraction. Google absorbs about 19,000 employees once the deal closes. Motorola Mobility will contribute revenue growth to Google, but the device maker doesn't bring a lot of earnings to the party.

Related: Google and the hardware dream: Can it capture the wow factor? | DOJ approves Google, Motorola Mobility merger | European Commission clears Google, Motorola merger | Google's home entertainment foray: Why the Motorola deal may work | Google's $12.5 billion Motorola Mobility bet: 6 reasons why it makes sense

Barclays Capital analyst Anthony DiClemente handicapped the profit margin issues. He said:

We forecast Motorola Mobility will generate $13.2 billion in revenue and $153 million in pro forma operating income in 2012, with the Mobile Device business generating $9.8 billion in revenue and a (1.5)% pro forma operating margin, and the home business generating $3.4 billion in revenue and a 9.0% pro forma operating margin. We think the biggest optical change for investors will be EBITDA margins, which would become significantly lower. Google's EBITDA margins could be 40.9% in 2012 (from 55.2% pre-acquisition).

The good news for Google is that the Motorola Mobility purchase allows it to defend Android better. Google will also get a set-top business to better target the living room.

Nevertheless, questions abound about Google's Motorola Mobility deal. Among the key ones:

  • Can Google truly integrate hardware and software well?
  • Will Google continue to manufacture Motorola branded devices?
  • How will Google juggle Motorola Mobility with its other Android partners?
  • And can Motorola Mobility decidedly alter the company's standing in digital entertainment?

Answers to those questions are elusive today. Give it a few quarters though.

Newsletters

You have been successfully signed up. To sign up for more newsletters or to manage your account, visit the Newsletter Subscription Center.
Subscription failed.
See All
See All