6 Miconceptions Around the Google, Motorola Mobility Merger

By Sean Udall I feel there are rampant misconceptions swirling around since the announced merger of Google (GOOG) and Motorola Mobility (MMI). I will address these, and share my views and predictions. Even though a number of others are looking at many supposed obvious "issues," the development and speed of technological change is seldom obvious. It wasn't obvious when I asserted nearly two years ago now, that Android's 5% share would surpass iOS share -- though it didn't take long for others to jump on the bandwagon once shares exploded from 15% to 30%. Most of the early stories were that the Android phones didn't even compare to the then Apple (AAPL) iPhone 3G. Most universally panned the early Android tablets as well, yet they are now seeing 20% share and this number is set to accelerate rapidly. The Chrome browser was thought to be a waste of money and time, but it will likely become the No. 1 browser or close to it within a year and a half, if not sooner. Some time back, I also stated that mobile search would surpass desktop search, and this trend is running ahead at full steam as well.

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The common thread to all the “obvious” opinions of doubt was that they missed the speed of innovation and how fast consumers would adopt open software product platforms that iterate and improve very rapidly. I believe this same rapid speed of software improvement will garner a substantial win on GOOG's game-changing deal. Misconceptions: 1. This deal will alienate the other Android OEMs.

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This one is the most glaringly wrong. The single biggest threat for the Android OEMs is the surging litigation. At worst, it's a threat to sales of new products that are blocked from whole markets. We have seen this of late, and Samsung seems to be feeling the brunt of these attacks with blocks on the Tab 10.1 -- a product that will likely sell quite strongly. It raises the cost of manufacture from litigation defense, and at a minimum, it's a huge annoyance for the like of HTC, Samsung and others. GOOG targeted MMI for the mammoth patent portfolio, and this portfolio will be used to help the whole Android ecosystem. Now the Android OEMs have an arsenal of a collective 25,000 MMI patents along with others recently purchased from IBM (IBM). How does this not entice the Android army to keep making new innovative designs? What does the Microsoft (MSFT) mobile OS have to counter this? Where is Softie's app ecosystem? Where is MSFT's speed of platform innovation? And who's to say that future MSFT mobile phones won't encounter a wave of litigation from AAPL? If I'm HTC, Samsung and the rest, I'm very much liking the future access and protection that MMI's 17,000 existing patents, 7,500 pending patents and the 1,000 IBM patents has to offer.

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2. Google overpaid for Motorola Mobility. I've addressed this somewhat before. The price was 1 times sales, or .75 times sales net of MMI's net cash. It was only 3 times the NT portfolio price for 4-5 times the number of patents. Back out MMI's cash and these numbers again look even better. Let's say the patents are only worth what the NT portfolio sold for (this would be an extreme undervalue) and add MMI's cash. That would total $7.5B versus the $12.5B GOOG will pay. That would mean that GOOG is only paying $5B for MMI's $12.7B in sales with a double-digit growth rate. Bottom line, on a number of different angles, this does not look like an overpay. 3. Merger integration. Here again I think people are vastly missing the point. GOOG doesn't intend to integrate, save the patent treasure chest. As stated by GOOG leadership, Moto will run its business as a stand-alone entity. Moreover, though I don't think this will occur, I would not be surprised if the MMI manufacturing divisions are spun out, sold or merged with others.

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