Google Acquires Motorola Mobility

Group -01
Motorola Mobility’s role in the transaction?
Motivation to acquire Motorola Mobility seems to be
unclear, It can be either of these:

 Extensive patent portfolio

 To position Google as a phone maker and distributor of
customized Android powered phones
 Consumers are no longer reliant on one dominant device,
it is a multidevice, multiconnection world
 The set-top business to bolster its lagging Google TV
offering
Sources of Synergy

 Potential for creating a vertically integrated mobile phone

company and control the major supply chain
 A strong IPR position across more than just smartphones and
enables the company to craft experiences that provide
continuity across multiple screens.
 Google may also provide needed financing to Motorola.
 Owning a phone maker may give Google more clout with the
telecommunications carriers such as AT&T and Chip
equipment manufacturing is capital intensive.
 Strengthening the position of Android as a mobile platform.
Android helps mobile users get online and online advertising is
Google's core business
Reasons for difficulty in Realization of
Synergy

 Different geographic location and corporate culture

 Different supply chain arrangements
 Google is a software company while Motorola is a
physical product company and thrives on customer
service
 Google is a new entrant in the smartphone industry
Motives for acquisition w.r.t to Chapter1
 Protect Google and its partners against potentially ruinous patent
infringement lawsuits
 Assumption that Google can operate a manufacturing operation which is
opposite to its expertise
 Android at that point in time was the most popular open-source option for
mobile computing. Faster innovation and strong patent protection are good
for the whole Android ecosystem
 Google was trading at 13 times 2012 earnings which is lower than its five-
year average earnings multiple of 19 times. In contrast, Apple trades at 12
times earnings. It is in a position similar to that of Google. The market is
discounting slower growth in the coming years. Other peers like , trade at
36 times earnings.Yahoo trades at 17 times earnings
 Total handset shipments for motorola declined from 9.3 million units to 8.9
million units. The silver lining is that smartphone shipments increased to 5.1
million from last year's 4.1 million units. Clearly, Google sees continued high
potential in the smartphone market
Share Prices
Motorola share price did not rise to the premium
 Confusion on whether the transaction was completed
 Information asymmetry with the market participants

Fall in Google’s share price

 Confusion in the market with some questioning whether Google's
deal is simply for patents or to control the end-to-end experience
of consumers and others expecting the margins to decline for the
sake of future growth of Google.
 A common trend is observed where the acquirer experiences a loss
in the share price following such an announcement and the company
which is acquired gains because of the market sentiment where
there is substantial risk that is expected in each merger
 Confusion whether an internet search company will be able to
successfully run a handset manufacturing company
Jump in the share price of other’s
 It was believed that Google's announcement could shift
some Android manufacturers over to Microsoft's
Windows phone platform. Microsoft's stock rose by 1%
following the news,
 Nokia’s stock price rose by 11% – reflecting stock market
opinion and speculation of Microsoft wanting to take over
Nokia after the announcement.
 Apple's shares also increased in the week following the
announcement because there was a common belief in the
market that Apple will remain unaffected by the deal and
will still be a major player in the market.
Affect on Innovation
 Money that is being spent to buy patents for technologies
developed by other firms results in less money being
spent on research and development
 Reduction in the rate of innovation due to the correlation
between R&D spending and new patents
 Reducing risk for the players involved, who may then be
able to reap acceptable returns
 IP plays an important role in facilitating the process of
taking innovative technology to the market place. At the
same time, IP plays a major role in enhancing
competitiveness of technology-based enterprises