Google Acquires Motorola Mobility, Makes a Run for the Smartphone Market

Eve Padula
Aug 16, 2011

On Monday, August 15, Google announced a definitive agreement to acquire Motorola Mobility for about $12.5 billion ($40 per share). This all-cash deal represents a 63% premium over the closing price of Motorola Mobility shares on Friday, August 12. This transaction is Google’s biggest acquisition to date and is expected to close by early 2012.

A key aspect of this acquisition is that it will really build up Google’s patent portfolio. Motorola has over 17,000 issued patents worldwide as well as 7,500 patent applications awaiting approval. In a blog post about the acquisition, Google CEO Larry Page noted, “Our acquisition of Motorola will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple, and other companies.”

A History: The First Flip Phone

Motorola was a pioneer in the mobile phone market, having introduced the very first clamshell/flip handset (the StarTAC) in early 1996. Motorola remained a powerhouse over the next several years, and it captured the number two mobile phone slot in 2005 with its wildly popular RAZR line.

By early 2007, however, Motorola began to see its mobile phone sales slipping. At the 2007 MacWorld trade show, Apple introduced its first iPhone. Like so many other handset vendors, Motorola was left to play catch-up as Apple’s incredibly intuitive iPhone offered a combination of user-friendliness and functionality that few had seen before.

In March 2008, Motorola’s Board of Directors commenced a process to create two independent, publicly-traded companies. The process was finally completed in January 2011, and Motorola was split into Motorola Mobility (mobile devices, tablets, digital set-top boxes, end-to-end video solutions) and Motorola Solutions (voice/data communication solutions, wireless broadband networks, digital and Internet Protocol video solutions, broadband network infrastructure).

Supercharging the Future?

Google Android is the sole operating system across all of Motorola’s smartphones. This is one of the reasons, according to Larry Page, that “there is a natural fit between our two companies.”

Google hopes to “supercharge” its Android mobile operating system with the Motorola acquisition. Google insists that Android will remain an open platform, but some believe that the Motorola deal creates a major channel conflict. Google has only been able to gain a foothold in the mobile market because partner hardware makers like HTC, Samsung, and LG have adopted Google’s software platform. Now that Google is acquiring Motorola, some wonder if other former Android partners might migrate to Microsoft’s Windows Phone 7 operating system for fear that Google will not remain channel-agnostic. Others believe that these fears are unfounded, and that the Motorola deal will not affect Google’s ability to maintain an open platform.

Unsurprisingly, Motorola Mobility’s shares jumped after Google’s acquisition announcement, rising 56.9% over Friday to reach $38.37 yesterday. Meanwhile, Google’s shares dipped to $557.02 (a 1.1% decrease). Google and Motorola were not the only players affected by this news–Nokia and RIM also saw their shares increase, largely because many investors are expecting further consolidation in the mobile space.

Back in February, Nokia adopted the Microsoft Windows phone as its principal smartphone strategy. Perhaps Nokia’s agreement with Microsoft, like the Motorola/Google partnership, will spark another acquisition in the near future.

Although it will be some time before the dust settles, a few things are clear. By acquiring Motorola, Google should also be better able to integrate its Android platform with the hardware running the devices. Consumers will likely win too, because the closer collaboration between the two companies could bring better-than-ever handsets to the market.

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