Google Announces $1.1 Billion Deal with HTC

Investment Aims to Bolster Google's Smartphone Business


Yesterday, Google announced a $1.1 billion agreement with HTC to acquire employees and technology licences. Under the terms of the deal, Google will gain non-exclusive licences for HTC's intellectual property and some 2,000 HTC staff will transfer to Google's Pixel operations.

The announcement is light on details, but HTC will continue with its smartphone and Vive virtual reality businesses. The deal is expected to close in early 2018.

At first glance, HTC appears to be the bigger winner. The cash injection comes at a crucial time as the company seeks to rebalance its smartphone business to become a profitable platform for investments in new categories, particularly virtual reality. HTC recently separated its Vive business operationally and sees it as a major source of growth.

For Google, the deal secures the short-term future of a prominent Android partner with valuable assets and a role as a contract manufacturer of its Pixel smartphones. Although its investment isn't as extensive as rumoured, it still suggests that Google acknowledges a need to sharpen its hardware strategy and capability. However, the move will be met with a lot of scepticism given Google's failure to successfully integrate Motorola following its $12.5 billion acquisition in May 2012 and sale to Lenovo just two years later.

Many of the assumptions underpinning the HTC move are as relevant today as they were in 2012 when Google bought Motorola. Among them is the need to take control of Android's destiny at the high end of the smartphone market. In the US in particular, Apple is dominant, with Google entirely reliant on Samsung to compete with premium designs.

Although the Pixel models have enjoyed a positive response, distribution is limited. Google now has much better control over the engineering and manufacturing assets it was relying on to deliver its Pixel phones. The first devices suffered from acute shortages when initially launched, which doubtless limited Google's reach. If HTC lacked the resources to safeguard the capacity and staffing it needed for the next phase of Pixel expansion, Google had almost no alternative but to take control.

Another important factor is the growing diversity of hardware as Google puts its search and artificial intelligence capability into a wider range of devices including TVs, set-top boxes, media streamers, smart speakers, cameras, wearables, routers and cars. As computing, artificial intelligence and search becomes pervasive, Google needs to ensure that it can deliver its services as seamlessly and broadly as possible. From this perspective, investment in hardware is entirely logical.

We'd also argue that Google may be adopting a similar strategy to Microsoft, which has used its Surface products to demonstrate "the art of the possible". With its Pixel phones, Google can offer flagship products that showcase new features and designs as well as extremely deep integration of hardware, software and services — something that arch-rival Apple excels at.

The deal with HTC raises the question why Google shed Motorola and why it would make another investment just a few years later. Hardware is an increasingly important channel for its services, but the smartphone segment in particular is fraught with risk. Motorola was a bold and expensive $12.5 billion bet that became a growing weight on the balance sheet. Although it sold Motorola Mobility to Lenovo for just $2.9 billion, it kept most of Motorola's patent portfolio, it had previously sold the Motorola Home business for $2.4 billion, and Motorola had $3 billion in cash assets when Google bought it.

Google is paying a fraction of the Motorola purchase price in this deal with HTC. Given the greater importance of hardware, Google is gambling that this is a bet worth making a second time. The question is whether this move goes far enough.

This entry was posted on September 21st, 2017 and is filed under Services. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Posted By Geoff Blaber On September 21st, 2017


Comments
(There are no comments yet)
Leave a Comment

Hot News

Team Tweets

CCS Insight
RT @MarinaKoytcheva: Honoured and happy to be part of the Women in Tech feature of Intercity Tech Magazine: https://t.co/hBEiZ57LAf Such…
Follow CCS Insight
Shaun Collins
RT @geoffblaber: There's some superb insights in our Tech Enthusiast survey across Wearables, VR & Smart Home. Average respondent owned 1.5…
Follow Shaun
Ben Wood
Adidas out of wearables as it disbands it’s Digitals Sports biz. Interesting to see what happens to @Runtastic… https://t.co/8ZA4mdzKIj
Follow Ben
Martin Garner
RT @MarinaKoytcheva: Honoured and happy to be part of the Women in Tech feature of Intercity Tech Magazine: https://t.co/hBEiZ57LAf Such…
Follow Martin
Geoff Blaber
I've heard this before.. "consumer opinion will limit the impact of the #NetNeutralty reversal". I don't buy it. It… https://t.co/fXrLjShY96
Follow Geoff
Marina Koytcheva
RT @CCSInsight: Our survey of 2,100 tech enthusiasts shows many have plenty more smart gadgets on their shopping lists https://t.co/DaaVoF8…
Follow Marina
Nicholas McQuire
Goodbye San Jose. A big thanks to @CitrixAR for hosting a superb event with such great content. Look forward to nex… https://t.co/E9o6ZISYuO
Follow Nicholas
Paolo Pescatore
Unavailable for next couple of hours #StarWars #TheLastJedi. Looking forward to this, birthday treat… https://t.co/C8c5oYcD25
Follow Paolo
Kester Mann
Disappointed @O2 didn't stick this out for longer. Was always going to take time to articulate benefits and initial… https://t.co/I2vfrqUnUr
Follow Kester
George Jijiashvili
RT @MarinaKoytcheva: Honoured and happy to be part of the Women in Tech feature of Intercity Tech Magazine: https://t.co/hBEiZ57LAf Such…
Follow George
Laura Simeonova
RT @CCSInsight: Optimization for artificial intelligence defines competitiveness in mobile chipsets in 2019 and beyond #ccspredicts https:/…
Follow Laura
Katie Taylor
RT @guardianscience: Scientists make first ever attempt at gene editing inside the body https://t.co/e8u0BT9a09
Follow Katie

Recent Blog Posts

Blog Post
Will Car Ownership Soon Be a Thing of the Past? Singapore Launches an Electric Car-Sharing Scheme On Tues... Read more
Blog Post
Survey Signals Appetite for More Devices CCS Insight Research Reveals Huge Demand for Smart Gadgets a... Read more
Blog Post
Brute Force Verizon and NFL Ink Five-Year, $2 Billion Streaming Deal On... Read more
More blog

Latest Company News

Blog Post
CCS Insight Predicts 1 Billion Users of 5G by 2023, with More Than Half in China 5G to take off faster than any previous mobile technology ... Read more
More news