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4/11/2012
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Eric Zeman
Eric Zeman
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Google Debates Fate Of Motorola Smartphone Business

Google is giving mixed signals about its plans for Motorola's hardware once acquisition is complete. The safest best: Stick with the patents and forget about making the phones.

After spending several weeks probing Google and Motorola for clues as to what the companies will do once Google finalizes its acquisition of Motorola, The Wall Street Journal's Dennis Berman concludes that the answer is, well, inconclusive. Neither company is really sure how things are going to work out, at least with respect to Motorola's smartphone business, once Google owns the ailing phone maker.

There are thorny and nettlesome issues at hand that can have a major impact on the Android ecosystem if things run unchecked.

Google announced its intent to acquire Motorola for $12.5 billion last August. The deal has won regulatory approval in the U.S. and in Europe, but has been dealt a delay by Chinese regulators. Even so, Google expects to close the deal during the first half of 2012.

[ For more analysis, see Google's Motorola Mobility Buy: Patent Power Shift. ]

From the outset, Google was open about why it wanted to buy Motorola: Google needs Motorola's 17,500 phone-related patents to protect itself from intellectual property-related lawsuits from competitors such as Apple and Microsoft.

Great, that makes sense, but it still leaves to question what Google will do with Motorola's world-spanning design and manufacturing facilities, not to mention its 20,000 employees. Does Google really want to be a company that makes actual, physical goods, or would it rather remain in the virtual realm?

The sticking point is that Google is the creator, distributor, and guardian of Android. Android is its wildly popular smartphone platform. Google gives away the base code of Android for free, and in return is allowed to install its goods and services on smartphones. Those smartphones, however, are manufactured by some 55 different companies, including Samsung, HTC, Sony Mobile, LG, Asus, and myriad others.

Can Google effectively keep its Android software business (which companies have staked their own fortunes on) and its former-Motorola handset businesses separate entities? Google's Andy Rubin has insisted that will be the case. Rubin said earlier this year that Google will institute a "firewall' between its Android and Motorola teams so there is no conflict of interest when it comes time for Google to provide code to other hardware makers.

Google can't afford to tick off its hardware partners. With 850,000 Android handsets being activated daily around the world, it risks a huge opportunity if the ecosystem collapses. Even if Google can make its own Android smartphones via Motorola, it could never make up for the losses that would occur if other OEMs gave up on Android.

According to Berman, reports in Asia suggest that Motorola might divest Motorola's handset business and simply hold onto the patents. Huawei is said to be one of the companies interested in Motorola's hardware, but a source close to Google told Berman it will never play out that way.

Berman's conclusion is disquieting. "There's only a cocky belief that Google really can be all things at once: a hardware company with software margins, and a neutral Android arms dealer that just happens to be building its own Motorola army on the side," he wrote.

I'd bet money that Google's hardware partners aren't so sure, and are waiting to see how it proceeds with the hardware business once the acquisition is complete.

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