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Was buying Motorola a costly mistake for Google, or a clever move?

13 Feb 14

News that Google is selling Motorola has sparked media commentary that this acquisition was a mistake – but is that really the case?

The initial price tag for Google to buy Motorola was US$12.4 billion but it has since recouped US$2.35 billion through the sale of the set top box business, and will receive a further $2.9 billion for the hand set business (provided this is approved by regulators).

With a whopping US$7.15 billion between the purchase price and assets Google acquired – a figure which doesn’t even take into account the hefty loses Motorola ran up while under Google’s ownership – the numbers certainly don’t seem to stack up.

However, the key is that Google is retaining the majority of the patents that came with Motorola. So why is it holding onto those rights, yet selling the hardware divisions of the Motorola business?

"I would say the answer is that those patents are seen internally at Google as a key strategic asset," says David Macaskill, an associate at James & Wells.

"There is bound to be a close connection between the inventions protected by these patents and the direction Google will take for its expanding mobile software business.

"In addition, there is the potential for the patents to be used in a retaliatory infringement dispute with competitors. That will help to protect Google and the cell phone makers using its software, while expanding a core aspect of its business.

Macaskill believes Google probably placed a higher premium on the Motorola patents than many analysts, as the company likely understood that to continue growing in the mobile technology space it needed a way to fend off restrictive patent infringement actions.

"Given the potential growth and revenue from that market there was an urgent need to play catch up and prepare for attacks," he adds.

"These factors all contribute to why Google was prepared to pay such a high price tag for Motorola.

"The tech giant’s rapid expansion shows that it knows what it is doing. I’d back Google as having made an informed decision on the correct price to pay for Motorola; only it knows the details of the Motorola patent portfolio and how that can be leveraged.

"The media focus is now on Lenovo’s expansion into the cell phone market, and it is being lauded as a company to watch. However, I wouldn’t under estimate Google. Those in the mobile technology industry should be wary - the cell phone wars are definitely going to heat up.

"Regardless of how the cell phone industry develops, this scenario highlights how a strategic patent portfolio can provide significant value."

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