Google to acquire Motorola Mobility, vows Android will remain open
Google (NASDAQ:GOOG) has agreed to acquire Motorola Mobility (NYSE:MMI) for roughly $12.5 billion, a move that promises to dramatically impact the ongoing evolution of Google's Android mobile operating system.
Google will purchase Motorola Mobility for $40.00 per share in cash, a premium of 63 percent to the closing price of Motorola shares on Aug. 12. Both boards of directors have unanimously approved the deal. The transaction is subject to customary closing conditions, including regulatory approvals in the U.S. and the European Union, and is expected to close by the end of 2011 or early next year.
Google will operate Motorola Mobility as a separate business--the device manufacturer will remain an Android licensee, and Google promises Android will remain open. "Our vision for Android is unchanged and Google remains firmly committed to Android as an open platform and a vibrant open source community," said Google Senior Vice President of Mobile Andy Rubin. "We will continue to work with all of our valued Android partners to develop and distribute innovative Android-powered devices."
A number of major Android licensees seemed relatively supportive of the deal.
"We welcome today's news, which demonstrates Google's deep commitment to defending Android, its partners, and the ecosystem," said J.K. Shin, president of Samsung's mobile division, in comments posted to Google's site. "I welcome Google's commitment to defending Android and its partners," said Bert Nordberg, CEO of Sony Ericsson.
Android dominates U.S. smartphone ownership, representing 39 percent of the market as of June 2011 according to the latest Nielsen data. More than 150 million Android devices are active worldwide, with Android products available from 39 manufacturers and 231 carriers across 123 countries. Last month, Google CEO Larry Page announced the company is activating 550,000 Android smartphones per day, up from 500,000 per day in late June.
Motorola Mobility went all in on Android in 2008, embracing the platform as its sole operating system. The company now ships 11 percent of Android smartphones, behind HTC at 14 percent and ahead of Samsung at 8 percent, Nielsen notes.
The Google/Motorola Mobility deal also seems likely to fuel concern that opposing mobile search services and other digital solutions will face rough sledding across Motorola-produced devices. Last week, The Wall Street Journal reported that Federal Trade Commission lawyers are investigating Google to determine whether the company is preventing its manufacturing partners from supporting competitors' services across Android-powered devices. FTC lawyers are also investigating how Android's increasing influence is boosting Google's dominance in web search services. Google is the default search engine across the majority of Android products.
The FTC probe follows in the wake of a lawsuit filed in September 2010 by location services firm Skyhook Wireless, which alleges Google "wielded its control over the Android operating system, as well as other Google mobile applications such as Google Maps, to force device manufacturers to use its technology rather than that of Skyhook, to terminate contractual obligations with Skyhook and to otherwise force device manufacturers to sacrifice superior end user experience with Skyhook by threatening directly or indirectly to deny timely and equal access to evolving versions of the Android operating system and other Google mobile applications."
Google has denied it is engaging in illegal or anti-competitive practices and suggests that federal inquiries into its business are the result of rival angst over its push into new market segments and technologies. "We understand that with success comes scrutiny," said a Google spokesperson. "We're happy to answer any questions they have about our business." An FTC spokesperson declined to comment.
In a blog entry posted Monday morning, Google CEO Page states the Motorola Mobility deal also bolsters the company's ongoing efforts to "protect Android from anti-competitive threats" by enhancing its patent portfolio. A scathing blog post published earlier this month by Google Senior Vice President and Chief Legal Officer David Drummond alleged rivals Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Oracle are attempting to "strangle" Android by leveraging "bogus patents" that could drive up costs for devices running the mobile operating system.
Drummond contended that Google's opponents have banded together to acquire patents held by firms like Nortel and Novell "to make sure Google didn't get them... Our competitors want to impose a 'tax' for these dubious patents that makes Android devices more expensive for consumers. They want to make it harder for manufacturers to sell Android devices. Instead of competing by building new features or devices, they are fighting through litigation."
Earlier this year, Google lost out in a patent auction to a coalition of six companies, including Apple, EMC Corp., Ericsson (NASDAQ:ERIC), Microsoft (NASDAQ:MSFT), Research In Motion (NASDAQ:RIMM) and Sony, for Nortel's patent portfolio. The consortium paid $4.5 billion, and Apple contributed $2.6 billion, though antitrust officials at the Justice Department are reportedly investigating the sale. Google has subsequently been rumored to be interested in purchasing InterDigital for that company's patent position.
In a conference call with analysts Monday, Drummond declined to comment on how the deal might affect Google's legal strategy. "We think combining with Motorola and having that kind of a patent portfolio to protect the ecosystem is a good thing," he said. Motorola CEO Sanjay Jha pointed out that the company has more than 17,000 patents, many of them relating to wireless standards and non-essential wireless patents, as well as 7,500 patent applications in progress.
In other legal issues relating to Google and Android: An Oracle suit filed last year seeks billions in damages against Google, alleging "approximately one-third of Android's Application Programmer Interface (API) packages" are "derivative of Oracle's copyrighted Java API packages" and related documents. (Oracle acquired Sun Microsystems and its Java programming language in April 2009.) According to court filings submitted in late June, Oracle wants Google to pay $0.9 billion to $1.4 billion upfront for infringing on its patents. Oracle also wants 15 percent of mobile advertising revenues generated across the Android platform. Late last year, Google said its mobile ad business operates at a run rate of $1 billion annually.
At the same time, Microsoft has sued a number of firms building Android-based devices, among them Motorola and bookseller Barnes & Noble, which produces the Nook e-reader. Microsoft has also induced companies like HTC to pay Android patent licensing fees to avoid legal action. Microsoft additionally joined Apple and others in a consortium of companies that successfully outbid Google to assume ownership of Nortel's portfolio, ponying up $4.5 billion for roughly 6,000 patents and patent applications spanning wireless, data networking, optical, voice, web and semiconductor technologies.
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