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.
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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.