Over the last eight months, losses at Google’s Motorola Mobility have accelerated despite three rounds of layoffs that slashed around 6,000 workers. The division is now on pace to bleed $1 billion a year out of the search giant’s bank account. And yet Google’s stock topped a record high $1,000 a share today as investors showed renewed confidence in the company’s future. The questions raised back in April seem more pertinent than ever: why exactly did Google buy Motorola? We’ve got another quarter of data and a new device to look at, but the answer still isn’t pretty.
Does a money pit like Motorola have a major impact on Google’s bottom line? In a lot of ways, the answer right now is no. Despite the losses, Google is profitable overall, and its cash on hand has grown steadily. But if Motorola continues to slide, Google may eventually be forced to write down the cost of the $12.5 billion acquisition — and its investors could clamor for the company to scuttle what has so far been a painful experiment into the world of mobile hardware. “Looking at the purchase I’m still scratching my head about why they did it,” says Avi Greengart, the research director for consumer devices at Current Analysis, “and how they see it playing out going forward.”
During this past quarter, Google introduced the Moto X, the first clean-slate phone created under Google’s influence (Verizon’s customized Droids notwithstanding). The phone was well received by critics. “The Moto X is a great device,” says Greengart. “It really shows what you you can do with Android if you chose to extend it rather than cover it up.” But the device hasn’t sold well enough to stem the division’s growing losses — this despite reports that Google only needed to sell around 6 million units to break even. That’s a drop in the bucket compared to the tens of millions of iPhones and Galaxys that Apple and Samsung sell quarter after quarter.
One of the major obstacles working against a Google-owned Motorola was a lack of marketing and distribution. The Moto X was only available in a few countries, while new Droid models were only available in America on one carrier. “Motorola achieved a few things with the Moto X. It showed how it could position versus other Android handset vendors by embracing Google’s technologies and how it could differentiate via a dedicated coprocessor and clever use of sensors,” says Ross Rubin, principal analyst at Reticle Research. But in order to succeed long term, “Motorola needs to build tighter relationships with other carriers after a long tie-up with Verizon on the Droid line. And it needs to build its brand back while being a conduit for advanced Google technologies.”
Patents were another big part of the rationale behind the Motorola purchase, with Google telling investors it would help to protect the Android ecosystem from competitors’ lawsuits. But so far that intellectual property hasn’t added up to much. In a licensing dispute with Microsoft, the patents were ruled to be worth just $1.7 million a year, a far cry from the $4 billion Motorola demanded of Microsoft in 2010. Motorola’s patents also failed to win a decision with the ITC that would have blocked the import of the iPhone. “Some of these patents may still be good for protecting against lawsuits and developing new devices, but if Google’s rationale was that they were buying a licensing business, as they said, then they got burned,” says Greengart.
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