Google's Motorola purchase: Was it worth it?

Google's Motorola purchase: Was it worth it?

Summary: Google bought Motorola Mobility for $12.5 billion, closed the deal in May 2012 and then went about closing facilities and selling parts of it. Were the patents and handset unit worth it?

SHARE:

Google closed its Motorola Mobility acquisition in May 2012 and the returns remain to be seen. One thing is clear: There's no question that the Motorola Mobility purchase was all about the patents.

motoroladroid

In recent weeks it's clear that Google has dismantled Motorola Mobility via assets sales and restructuring. The Motorola Mobility question for Google is timely given a series of events in recent weeks. Consider the following:

  • The Federal Trade Commission said that Google must license key Motorola patents. The FTC said:

Under a settlement reached with the FTC, Google will meet its prior commitments to allow competitors access – on fair, reasonable, and non-discriminatory terms – to patents on critical standardized technologies needed to make popular devices such as smart phones, laptop and tablet computers, and gaming consoles.

In other words, Google can't use its $12.5 billion acquisition of Motorola Mobility (and the patents that came with it) as a weapon.

Was the Motorola Mobility purchase worth the effort? In many respects, Google's returns remain to be seen. Google has left much of Motorola's manufacturing efforts behind. The actual focus of Motorola seems to be unclear. Patents are the big sell here for Google, but the FTC may have taken away some of the search giant's thunder.

A few of the moving ROI parts:

  1. Google's sale of Motorola's home division takes 5,000 employees off Google's books.
  2. The sale to Arris, however, removes 29 percent of Motorola's revenue and 1,000 patents.
  3. Motorola's manufacturing capacity has been curtailed and that should help profit margins.
  4. Motorola hasn't delivered a killer smartphone since being owned by Google.
  5. The patent portfolio acquired by Google in the Motorola deal looks like a keeper.

Add it up and the math goes like this. Jefferies analyst Brian Pitz outlined the returns.

At $12.5B, Motorola is Google’s largest acquisition to date. Google paid $40 / share in cash, but received ~$11 / share in cash and $8 / share in deferred tax assets. Thus the value ascribed to operations + patents was about $21 / share, or $6.3B, reflecting a multiple of ~0.5x sales and 12x EBITDA. Now adjusting this further for the $2.35B total consideration Google is expected to receive for the Motorola Home business, we get a purchase price of just under $4B for Motorola's handset business and patent portfolio (17K patents and 7.5K patent applications). This compares very favorably to recent patent deals such as Apple, Microsoft, RIM, Sony, Ericsson, and EMC paying $4.5B for 6K patents (July ’11) and Microsoft paying $1B for 800+ AOL patents (April ’12). Based on a sum of the parts, one could conclude Google acquired either the handset or its patents for a very minimal cost.

The bottom line here is that Google bought Motorola for the patents and has largely dismantled it. The patents appear to be going rate for Google. However, Google was also supposed to become a hardware player. The jury is out on that one so far.

Topics: Mobility, Android, Google, Smartphones, Tablets

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

54 comments
Log in or register to join the discussion
  • Who is the real target?

    I keep seeing that the X Phone is to compete with Apple. I don't understand this logic. I think it is to protect themselves against Samsung, et al. Samsung is already diversifying its OS lineup. And it isn't any stretch to see them take Tizen and create a fork of Android in the future, cutting out the value to Google.

    The only people that the X phone would compete with Apple for are first time smartphone buyers, and there are already plenty of good options out there from Samsung, Motorola, and HTC. The X phone will have to follow that Google business model of being "free" or cheap off contract to have a chance.

    What I don't understand? (Full disclaimer, I have 3 Macs, 2 iPhones, 2 iPads, and 2 iPod touches in my family of four) Why is Samsung the king of Android? In my opinion, yes, their phones look nice, but the minute you hold one, compare it to some of the recent Motorola phones, it just feels cheap. I really don't get it.
    srs2273
    • Who is the real target?

      srs, I agree. There is NO comparison between Samsung phones and Motorola. I'm no iAnything person but recognize the quality of the product. IMHO Apple and Motorola products are far ahead in quality when compared to Samsung.
      NascarJezmo
      • Hardware quality is irrelevant in smartphones

        Having owned many Motorola phones in the past, the smartphone paradigm has caused a change in the concept and value of build quality.

        I am now in possession of my third Motorola Droid Razr Maxx with a cracked screen. Even the slightest fall will shatter the screen.

        What difference does it make if it's made out of aluminum, Kevlar, or plastic if the screen cracks so easily?

        A touch screen phone with shards of glass coming out is of little value.
        MaranathaP
        • Motorola > Samsung ?

          My first smartphone was a Droid X, and then an X2 after that. Both were solid if not the fastest phone when I got them. But they were more than serviceable and I liked them better than my wife's iPhone 4. I now have a Galaxy S3. Much quicker on it's feet, but it's still not the great because the GPS absolutely SUCKS. So I am not sure who makes the better phone.
          trybble1
        • I Have Owned Them All

          Motorola Slivr could take a lickin' and keep on tickin' no problems.
          The iPhone 3G, over all not too bad, but it would hang too often. Browser Sucked!
          Then Samsung's Galaxy S (AT&T Captivate), Do not know which was worse, Samsung or Android.
          The Best so far is the Nokia Lumia 920. Only have had it a month or two, but a very solid build. Browser works great. If you do not like broken screens this is the phone to get.
          It's a little heavy and bulky but has a good feel to it.

          WP8 not that great. It works fine just some usability issues. Like no slash key on the url keyboard. Really troublesome is if you receive a call that is not in your contacts you cannot send them a Text without typing in the Number. And Vise Versa. The Text (Messaging) and the Phone are like two unrelated entities. Stupid! Too many other little annoyances to cover here.

          Too soon to say but I think the WP8 my be a solid OS with fewer bugs than iPhone and with no doubt better than Android. MS just need to improve the usability which would not be a huge effort. It just boggle my mind they can do such stupid stupid stuff.

          I saw a You Tube video that shows how tough the Lumia 920 really is. This guy "PhoineBuff" videoed dropping the 920 a few times, throwing it in the air landing on asphalt parking lot, hammered a nail in wood using the glass face, ran it over with his car face up, smacked it good batting it with a 2 x 4 sending it at least 50 feet across the parking lot. At that point the screen did not come on but the glass was STILL NOT BROKEN.

          Android NEEDS Motorola like MS needs Nokia. Samsung needs more quality control.
          The Litigious Cupertino F**ks (LCF) need to compete in the market not the courthouse.

          Quality Highest to Lowest
          Nokia
          Motorola
          LCF
          Samsung

          Some of you may argue about LCF placing so low. I have been in Telecom manufacturing since 1979. I have a hard time understanding how the current generation can put up with all these flawed products. Gauged from a Bellcore point of view (1 failure in 100,000 tolerance) Android is Horrific. It's distribution model is a disaster for developers with 57 different flavors.

          Nokia and Motorola have been manufacturing quality products a long time. They understand that it takes time to engineer a quality product. The LCF cut some corners and have had some nearly disastrous releases because of it. Samsung just spits 'em out knowing they can just replace the defective ones. And this generation accepts that type of quality model. $$ vs. Inconvenience.

          The other issue I do not understand is how so very few care about Google's hideous privacy policy and Terms of Service. Why is it OK for them to track each incoming and out going call and SMS Text? Yes they do. It is in their Terms of Service. It may be spelled out in an unrelated product ToS that does not have phone service, but all their ToS state that the ToS applies to all other Google products you use.


          #
          Patrickgood1
          • right on, brother.

            and then some.

            Also, you notice how no one ever talks about the RF capabilities of phones anymore? I assume it's because there is so much "chipset-ization" of the LNAs and RF circuitry in phones nowadays.

            But it still matters. Who cares how awesome Google's cloud-based universe is, if you can't f*ing talk to it?

            Nokia and Moto still have the best damn RF gear in the biz. It's one of the reasons why their battery life is often less than stellar. But I'll take a shorter cycle over multiple dropped connections any day.
            Moeity
          • RF GEAR

            Moeity, it is good to see there are others that see the smartphone issue as a failure of making a phone-call. How is it the major reason for the cell/mobile phone was to make voice calls, is all but ignored? I realize that it is cool to send 17 texts over a 10 minute period rather than a 2 minute phone call, but some of us want our contact to understand implicitly what we need. When texts were cheaper than a voice connection, I can see the benefit of 2 or 3 texts, but with the introduction of bundled call value, what is the point? In my office, all of the staff have to go outside to make or continue a phone conversation...brings a new meaning to mobile phones....

            I have used the various iPhones, including the 5, which my wife now has, as I didn't like having to walk outside in the Queensland heat to complete a call. And actual usability is clunky, less than intuitive and backtracking to another app can be complex. I have used and taught operating systems including Apple, since 1976, I still lecture in operating systems and the Mac is a beautiful system. But so is Free BSD, and W7, and Ubuntu.

            So I go back to (I can hear the chuckles) my Palm Pre 2+, dropped on a few occasions, but I make all my office calls in the office! The OS is one of the best systems, unfortunately HP took over, and closed off access to apps outside the US, how parochial! Next phone is a 920 after MS does an update to the OS.

            I want a smartphone that first and foremost, can make and keep a conversation without dropping out. Then I want connectivity to other apps like mail and calendar (hopefully MS will fix that issue with an update). I would really like the smarts from the Apple Newton, a 20 year old system with cursive handwriting recognition of sentences not just one word that gave you an appointment slip to fill in of the next available slot when you wrote "lunch" or "meeting" or if you put the day would show appointments on that day, or presented your contact page when you wrote the name of the person. Mine still works!

            but bottom line....complete a phone call!!!!!
            pandrew3
        • shards

          Just stop dropping your phones my friend. That's ridiculous!
          Stephanie Oaks
    • Most Android owners don't buy for 'the feel' ...

      ... Samsung phones are bought for their functions (in the knowledge that despite the 'feel' (which I never noticed), they as robust as any other - try dropping an iPhone, then tell me Samsung has a problem: it really doesn't.

      The Apple market is a different baby entirely, and I look forward with interest to see if Motorola will attempt to compete on Apple's terms; 'feel', fashion, and exclusivity, as well as function.

      Apple have nothing to fear from most Android makers; their market niche *belongs* to them. It will shrink a little further, but don't worry about the "iPhone killer" nonsense - the bloggers who say it, know that it's tosh, it's just to get a low-level to the debate so people don't notice they haven't anything interesting to say!

      You wait and see - Motorola will be labelled as 'is this an iPhone killer?' then blamed when iPhone is untouched.
      Heenan73
      • Having owned a Samsung smartphone

        As well as 3 different iPhones I can tell you from my daily usage experience with both that Apple's smartphone hardware is far superior to Samsung's in just about every way... and drop that Samsung smartphone - it won't fare any better than an iPhone, a Motorola, LG, etc. would fare in a similar drop.

        As far as the whole "iPhone Killer" thing - that's gotten really old really quickly... No smartphone has been able to "kill" the iPhone nor should that even happen... who want's to deal with havin only 1 real choice as to an OS?
        athynz
        • There is a Phone You Can Drop

          Google this: Phonebuff Nokia Lumia 920 Destruction

          Three YouTube Videos. What Does it Take is the best. Although using the glass face of the Lumia 920 to hammer a nail in to a block of wood is pretty cool. But noting beats batting it with a 2x4 fifty feet across a parking lot without shattering the glass.

          If MS could pick up their game with WP8 from a usability standpoint it would be a hands down better than the iPhone. From a hardware standpoint the Lumia is much better build. A little heavy and bulky but still a good feel. The best thing is the Browser works great.

          Will it "kill" the iPhone? Not this year. Smartphones are in their infancy stage. It appears you went out of your way to avoid the word never (shroud ever). Good move.

          I am not in any way saying the iPhone will not be a major player, but I have serious doubts. History shows the first industry leader never (almost never?) dominates a major industry.

          Personally I will not buy a product from a company that feels the need to compete in a courthouse. I like the way the UK courts handled the LCF (Litigious Cupertino F**ks) v Samsung much better than it shamefully played out in the US.
          Patrickgood1
          • So in other words

            No matter if they have a legitimate case or not they should not go to court and they only ruling that you could see as correct is if Apple loses regardless of the case and evidence? I want to see everyone compete in the market rather than the courtroom but there will always be legitimate cases to be heard in court.
            non-biased
        • Well, don't drop the phone...

          I work outside a lot and my Galaxy phone is safely tucked away in one of those rubber "Otter Boxes." The guy at the Verizon store demoed it for me by bouncing his own protected phone off the wall - pretty hard - and then making a call with it. If dropping your phone, regardless of the brand, is an issue then get an Otter Box.
          neverhome
      • think again

        Just read this one article many more out there http://bgr.com/2013/01/04/samsung-smartphone-sales-projection-282123/
        IPhone and apple in general is not king of anything, anyone can be kicked off a thrown so do not get so apple happy yet!!
        bsmi021@...
    • Tizen

      That's right. Have Samsung be king of the hill with Tizen phones instead of Android phones, and then strike a search pact with Microsoft, receiving royalties for Bing becoming the search of choice on Tizen. Would hit Google in the gut for sure. Tizen has a long way to go in order to make it far, though, and any reports of iOS' or Android's death are greatly exaggerated.
      WebSiteManager
    • Google's Motorola purchase: Was it worth it?

      Been using Samsung phones for years with no complaints. Same goes for the Galaxy SIII I bought a few months ago. Last Motorola I had was an early Razr and I swapped for a different phone after a week because I couldn't hear well with it. For me, Samsung is King.
      neverhome
    • HW of iPhone is so bad nowadays!

      In terms of HW, iPhone is inferior to many high-end smartphones based on WP8 and Android! Therefore, Google does not need X Phone to compete with Apple. In terms of SW, iOS is inferior to WP8 (1st time in technology that mobile/desktop OSs are merged, and the innovative UI natively support event updates) and superior to Android (this is an interpreter, and the lack of Sensor API makes the user experience so much worse). In terms of material science, Sony, Nokia, and arguably Motorola provide better (coloring, sturdiness of case) or equally good cosmetics as those from Apple. I urge you and other consumers simply keep your mind and eyes open. Throughout the history of Apple, it rarely offers 'value of money' to those with able mind and reasonable intelligence. Apple's corporate philosophy, since day one, has always been to charge the takers for a premium because of better look. When iPhone3 first came out in CY2007, it offers better innovation on UI and overall integration than everyone else. This was no longer true in CY2012 because the refusal to adopt microUSB as charger connector means that Apple refuses to reduce redundant charger waste from the earth, Apple refuses to support uSD so that the takers have to forge over 4 times the cost to buy a 16GB card from retails or online store and rid consumers of a fail-safe no-brainer to transfer media file between devices, Apple refused to incorporate NFC denies the world an early opportunity to the grand scheme of unified media/finance transfers, Apple refuses to offer better resolution (rectina display is so outdated when compared to all the high-end W8/Android phones with 1280x720 or 1920x1080 resolution). The notion of more than 0.5M apps is pointless because many of them are duplicated, and most key apps are readily available under WP8/Android. Consumers, especially those in US, either choose to be or prefer to be blind-sighted and deceived by the better innovation of Apple of the past. But then, most humans seem to prefer to live in the past and don't want to move forward with the times. Despite all the competitors of Apple have made a lot of advancement, they are still perceived to be "no good". This situation doesn't look good for Americans because they are stuck in the history lane!
      WW_Thinker
  • Google's Motorola purchase: Was it worth it?

    Nope it wasn't just like everyone stated when the purchase was first made. Google loves to waste money, just look at their facilities.
    Loverock-Davidson
    • How do you know?

      Wait for their X-phone and X-tablet before saying anything. Unless they did not waste money to buy Window RT tablets.
      oldman60
      • Because I'm smart

        That's how I know.
        Loverock-Davidson