Google has offered about $40 per share in cash, a premium of 63 percent over the closing price of Motorola Mobility shares on Friday.
Motorola Mobility exclusively ships phones and its Xoom tablet with Google’s Android operating system. The deal will mean that Google now has a hardware manufacturer to work with closely to develop Android, said Carolina Milanesi, research vice president at Gartner.
Google will also have control of Motorola’s impressive patent portfolio, Milanesi said. Motorola Mobility said earlier this year that it owns about 24,500 patents.
But the deal may also create tension with other mobile phone manufacturers such as HTC and Samsung, which also ship Android devices, she said. Since creating Android, Google has rotated manufacturers with which to release new Android code, releasing the code to others about six months later.
Google may risk alienating those other manufacturers, but Milanesi said “all these vendors have invested so much in the platform, they won’t quickly walk away from it.”
Google may also want to speed up the development of its Android operating system on tablet computers, where it has been slower to catch on than on mobile phones, Milanesi said. The next release for Android, code-named “Ice Cream Sandwich,” will be an operating system designed for tablets and mobile devices.
Google said the acquisition will “supercharge the Android ecosystem and enhance competition in mobile computing,” according to a news release. Google said the deal will not affect how Android is developed, and the operating system will remain open, Google said.
The company will run Motorola Mobility, which has about 20,000 employees, as a separate business, Google said. The transaction is expected to close at the end of this year or early next year.
Motorola Mobility, which was spun off from its parent company in early January, is composed of two groups: Mobile Devices, which makes phones, and Home, which makes set-top boxes and other IPTV equipment.
Steve Hilton, principal analyst for Analysis Mason of Boston, said this acquisition is a great deal for Motorola Mobility shareholders and even if it fails a rounding error for Google.
“The smartphone and tablet sectors are outrageously competitive and eking out a sizeable profit compared to Apple is going to be a challenge. Motorola Mobility was facing an uphill battle in a war that pitted it against one Goliath (Apple) and numerous Davids (HTC, LG, Nokia, Samsung),” he said.
Hilton added that Google with its uber-popular operating system Android didn’t need to own a handset manufacturer to be successful. It had already created pull-through demand by building a strong application market and end-user demand.
“Even if the Motorola Mobility unit of Google doesn’t end up being highly profitable, owning a credible manufacturer where you can begin to incubate, pre-test, and implement new mobile-centric solutions is a good thing for Google. Google will now own a hardware vendor where its OS and applications can – in theory — be leading-edge. Some consumer will be willing to pay for those types of solutions,” Hilton said.