Friday, August 19, 2011

Google's Telecom Arms Race

Stock quotes in this article:


Google's (GOOG) purchase of Motorola Mobility (MMI) is all about arming itself for an increasingly heated patent war with the likes of Apple (AAPL), Microsoft (MSFT), Oracle(ORCL), Hewlett-Packard (HPQ) and Research In Motion (RIMM).

Google is effectively paying $9.5 billion (net of Moto's cash) for Motorola's patents. It gets 17,000 now and 7,500 in the queue that are still awaiting approval.

Suddenly, the Nortel patent haul for over $4 billion seems like chump change.

If I were Larry Page, I would have pulled the trigger on this deal for the patents alone at this price. But what he does with Motorola from here will tell the tale on whether this deal makes sense in the long run.

My view is that it will be an albatross if Google really tries to keep it as a separate unit and make a go of it as a hardware vendor. I just don't see how it can succeed at that. Google would anger its partners, and it would have to rely on mediocre Motorola management to make it a success. Or it will jump into something with both feet that it has no experience in (running a low-margin manufacturing business).

It's a recipe for stepping in it.

Google might plan to close this business down after it gets governmental approval for the deal. It might be keeping up appearances of continuing to run this business when it has no interest in doing this.

I have no position in Google, but I would suggest that any Google longs be concerned if they see evidence that Google does seriously want to continue as a hardware maker and out-Apple Apple.

At the time of publication, Jackson was long AAPL and MSFT.

From RealMoney

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