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Google acquiring Motorola Mobility

$12.5b deal may mean more smartphones

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By Hiawatha Bray
Globe Staff / August 16, 2011

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Google Inc. said yesterday that it will pay $12.5 billion for cellphone maker Motorola Mobility Holdings Inc., the biggest acquisition in the Internet search giant’s history and one designed to make it a more formidable competitor to Apple Inc. and its iPhone.

The result, said Google’s chief executive, Larry Page, will be more and better smartphones for consumers. Google, which produces the popular Android software for smartphones and tablet computers, will be able to make its own hardware once it owns Motorola, which manufactures Droid smartphones and the Xoom tablet computer.

“Together, we will create amazing user experiences,’’ Page wrote on the company blog.

The acquisition has a strategic goal, as well: to protect Google and its Android software for smartphones and tablets against a host of costly patent lawsuits filed by its rivals. Motorola holds thousands of patents, which now will be owned by Google, giving the search giant a stronger hand in court. Android products are “under threat from some companies who are looking to use patents to compete,’’ said David Drummond, Google’s chief legal officer.

Google expects the deal to be finalized by the end of 2011 or early 2012, after review by antitrust regulators in the United States, the European Union, and other countries.

Motorola Inc., founded in 1928 in Chicago, developed the world’s first commercial cellphone service in 1983. Motorola Mobility, its mobile phone operation, was spun off as a separate company in January.

Android began as the product of a Silicon Valley start-up company with a software development facility in Cambridge. The company was purchased by Google in 2005, and the software has become the world’s most popular platform for mobile devices like smartphones and tablets. Every major US carrier and 231 wireless providers around the world sell Android devices.

As a result, sales of Android devices far outstrip those for the iPhone and iPad, which run Apple’s iOS software.

Page said yesterday that more than 150 million Android-based phones and tablets have been activated, with 550,000 coming online every day.

The research firm Gartner Inc. estimates Android has 38.5 percent of the worldwide market for mobile device software, compared to 19.4 percent for Apple’s iOS, and by next year Android’s market share will reach nearly 50 percent.

For Google, the biggest advantage of the deal may be getting Motorola’s portfolio of technology patents. Google has been under intense attack by competitors who claim Android violates some of their key patents. Last week, a German court ordered Samsung Group of South Korea to stop selling Android-based Galaxy Tab tablet computers in most of the European Union, after Apple said the Google software infringed on some of its patents.

Other lawsuits against Android, including one filed last year by the giant database company Oracle Corp., are pending. One small Boston company, Skyhook Inc., has filed suit, saying that Android’s navigation technology infringes on several of its patents.

Motorola’s patents will give Google more power to fight back with countersuits claiming its own patents have been violated, as well. “The more patents, the better,’’ said Carl Howe, telecom analyst at Yankee Group in Boston. “You just have more ammunition to sue people with.’’

Google owns about 300 patents on mobile device technology, according to research from MDB Capital Group. But Motorola Mobility boasts a huge portfolio of 17,000 patents, with 7,500 applications pending.

Google and Motorola executives stressed the importance of the patent library, leaving no doubt it was Google’s chief reason for doing the deal. During a teleconference yesterday, Page said Motorola’s patents “will help protect Android from anticompetitive threats from Microsoft, Apple, and other companies.’’

Owning a smartphone maker could complicate Google’s relationships with other makers of Android phones. Motorola Mobility will operate independently from Google, and Android will be provided on free and equal terms to all phone and tablet makers, Google said.

David McQueen, principal analyst at Informa Telecoms & Media in London, said Google must provide such assurances to major makers of Android phones, including Samsung, LG Corp., and HTC Corp. “Otherwise, having Motorola in their stable would appear to be a conflict of interest,’’ McQueen said.

If Motorola engineers get early access to improvements in Android, he added, other phone makers will be at a serious disadvantage and might consider defecting from the Android platform.

But Yankee Group’s Howe said Google should do all it can to exploit its ownership of Motorola. Owning it could let Google make dramatically better Android phones, with the kind of seamless integration of hardware and software found in Apple’s iPhone.

If it holds Motorola at arm’s length, Google will waste much of the transaction’s value, he said. “If I were a Google shareholder, I’d be saying, ‘What do you think you’re doing, because you’re not taking advantage of the fact that you now own a phone company.’ ’’

Ronald Gruia, principal telecom analyst for Frost & Sullivan in Toronto, predicted that competing Android phone makers would start hedging their bets by offering more phones that use alternative software like Microsoft’s Windows Phone 7.“All in all, the deal is positive for the consumer,’’ he said. “They may end up seeing one vendor like HTC selling [both] Microsoft phones and Android phones.’’

For now, other major Android phone companies say they are happy with the deal. Google published statements from top executives of Samsung, HTC, LG, and Sony Ericsson Mobile Communications AB, all expressing support for the Motorola acquisition. Apple did not return calls for comment.

Shares of Motorola Mobility rose nearly 56 percent to $38.12. Google stock slipped about 1 percent, closing at $557.23.

Hiawatha Bray can be reached at bray@globe.com.