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Buy High, Sell Low: Google's Losing Bet on Motorola

Turns out those patents and synergies didn't pay off after all.

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The combination of Google and Motorola will not only supercharge Android, but will also enhance competition and offer consumers accelerating innovation, greater choice, and wonderful user experiences. I am confident that these great experiences will create huge value for shareholders.

Larry Page, August 15, 2011

Less than two years after spending $12.5 billion to acquire Motorola, Google is selling it off for $2.91 billion. And while Google recouped some of that purchase price earlier by selling Motorola’s cable box unit to the Arris Group for $2.3 billion, the whole affair is arguably one of the worst investments in Google’s history.

The Motorola patents that Google said would “increase competition by strengthening Google’s patent portfolio [and] enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies” haven’t really done anything of the sort. Instead, they’ve brought the company regulatory scrutiny and some embarrassing courtroom losses, with a jury in at least one landmark cases finding it in breach of its industry obligation to license some of the patents on FRAND (fair, reasonable and nondiscriminatory) terms.

In one of the few cases in which Motorola did emerge victorious, the presiding judge ruled that Microsoft owed it a piddling $1.7 million in annual royalties for using Motorola patents, rather than the $4 billion the company had originally demanded.

Meanwhile, Motorola’s handset business has been a poor performer under Google’s stewardship. Though the company fielded a few noteworthy Android handsets, none of them met with the success it would have liked. In its most recent quarter, Motorola reported a loss of $248 million, far wider than the year-earlier period. Google acquired a bundle of cash with Motorola — $2.9 billion — but it used a significant chunk of that to vastly shrink Motorola and deal with its quarterly losses.

So it’s hard to view today’s $2.91 billion deal as coming anywhere close to the lofty goal touted by Google CEO Larry Page in the quote that serves as preface to this post.

That said, Google is garnering some benefits even in defeat. The company appeases Samsung and other hardware makers that were never happy about Google being in the handset business (public plaudits notwithstanding). It also can show regulators, such as the European authorities it is trying to settle with, that it is playing nice.

And perhaps a stronger Lenovo, already the No. 2 Android handset player in China, can do more with Motorola’s brand and assets than Google did. Heck, Lenovo did a pretty good job with IBM’s ThinkPad business.

And Google is retaining most of Motorola’s patents, though it’s unclear just how valuable they are. In a 2012 regulatory filing, the company said it believed $5.5 billion of the acquisition price tag was attributable to “patents and developed technology.” But given recent court decisions like those cited above, that hardly seems an accurate assessment today.

And none of this necessarily answers the original question people have been asking since 2011: Just why did Google buy Motorola in the first place? Some speculated that all it really wanted was the patents and that it would turn around and sell the handset business.

That is, of course, what eventually happened, but if that was the plan all along, it was certainly a costly way of going about it.

Ina Fried contributed to this report.

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