Google acquires Motorola Mobility: the full story

Last month Google announced that it was selling off Motorola Mobility to Lenovo, and the inevitable executive shakeup is coming to pass. According to The Wall Street Journal Dennis Woodside, who became Motorola Mobility's CEO when Mountain View bought the company, is headed to Dropbox as the company's first chief operating officer.

Woodside had actually been an executive at Google for years before taking the Motorola job, and made such an impression in Silicon Valley that Apple's Tim Cook actually tried to hire him away from the company at one point. However, despite overseeing phones like the Moto X, Woodside was unable to jumpstart Motorola's mobile business, which eventually lead to the Lenovo sale. According to the Journal's report, Woodside will be stepping in to provide oversight of Dropbox's growing business, which under current management has reportedly lacked the kind of high-level experience that someone of Woodside's caliber can provide.

Google is selling Motorola Mobility to Lenovo, giving the Chinese smartphone manufacturer a major presence in the US market. Lenovo will buy Motorola for $2.91 billion in a mixture of cash and stock. Google will retain ownership of the vast majority of Motorola's patents, while 2,000 patents and a license on the remaining patents will go to Lenovo. At the deal's closing, Lenovo will pay Google $660 million in cash and $750 million in stock, while the remaining $1.5 billion will be paid out over three years.

Lenovo CEO Yang Yuanqing said that although his company doesn't have "an effective plan yet," it has confidence that it can turn the currently unprofitable Motorola's fortunes around. Yang also stated that, within a year of the Motorola acquisition, Lenovo expected to sell 100 million smartphones worldwide. In 2013, Lenovo shipped an estimated 45 million smartphones, a 90 percent growth from the previous year.

Over the last eight months, losses at Google's Motorola Mobility have accelerated despite three rounds of layoffs that slashed around 6,000 workers. The division is now on pace to bleed $1 billion a year out of the search giant’s bank account. And yet Google's stock topped a record high $1,000 a share today as investors showed renewed confidence in the company's future. The questions raised back in April seem more pertinent than ever: why exactly did Google buy Motorola? We’ve got another quarter of data and a new device to look at, but the answer still isn’t pretty.

Does a money pit like Motorola have a major impact on Google’s bottom line? In a lot of ways, the answer right now is no. Despite the losses, Google is profitable overall, and its cash on hand has grown steadily. But if Motorola continues to slide, Google may eventually be forced to write down the cost of the $12.5 billion acquisition — and its investors could clamor for the company to scuttle what has so far been a painful experiment into the world of mobile hardware. "Looking at the purchase I’m still scratching my head about why they did it," says Avi Greengart, the research director for consumer devices at Current Analysis, "and how they see it playing out going forward."

"The wearables design team will lead the establishment of our brand in the massive competitive and growing space of wearable connected products," writes Motorola. The company's looking for an expert with over 15 years of experience who can "hit the ground running and architect a design plan for leadership in the area of wearable technologies."

The hopes of a reinvigorated Motorola are riding on a single much-rumored phone called the Moto X. CEO Dennis Woodside confirmed that the Moto X existed and provided the first official details on the phone at D11 in May, but the company has yet to fully reveal the device. Nevertheless, a series of leaks have filled in the picture quite a bit. We know that the Moto X will be a mid-range device set for a release this summer, and it's also expected that Motorola's working on a series of Droid-branded phones destined for Verizon Wireless. Considering the number of leaks surrounding these devices, we've compiled everything we know about them here to help clear things up.

The Moto X is the most intriguing of Motorola's upcoming phones. It's the first phone to be created and built entirely under Google's stewardship, and it carries the hopes of a reborn Motorola that can once again impress with its hardware. Motorola has already announced that the Moto X will be available sometime this summer, and the company has made a point to highlight that the phone will be assembled in the United States.

Why did Google spend $12.5 billion to purchase Motorola Mobility? It's been nearly two years since the deal was announced and close to a full year since it closed, and the questions keep piling up while the answers keep getting worse.

The biggest problem is that Motorola's patent portfolio doesn't appear to be worth anything close to what either company assumed: the judge in the Microsoft v. Motorola patent case ruled yesterday that Redmond owes a paltry $1.7 million in annual royalties for using Motorola's standards-related Wi-Fi and video-encoding patents in every Xbox 360 and Windows 7 PC sold, rather than the $4 billion Motorola had originally demanded.

A judge presiding over a legal battle between Microsoft and Google-owned Motorola issued a ruling today that valued elements of Motorola's patent portfolio far below what the company felt they were worth — by a difference of over $3.9 billion a year.

The two companies have been locked in a legal battle over Microsoft's use of several Motorola patents that are part of the 802.11 Wi-Fi and H.264 video standards. As such, they're considered standards-essential patents, and must be licensed to other parties at a reasonable and non-discriminatory (RAND) rate. According to Redmond's attorneys, Motorola violated that pact by asking far too much to use the patents in question — its initial request was 2.25 percent of the price of each product using the patents (the Xbox 360 and any computer running Windows 7 were just two specific examples named). All told, the total in licensing costs could have run more than $4 billion per year.

Google's deal to sell off the Motorola Home cable box unit to the Arris Group has passed its final regulatory hurdle. The Department of Justice has given the acquisition its approval, and Arris expects the transaction will now close around April 17th. Last December, Google finally found a suitor for the cable box division that was included with its purchase of Motorola Mobility. The news came after months of rumors that the company was looking to sell off the set-top box unit and focus solely on the smartphone and cellphone business. The deal with Arris was for $2.05 billion in cash and $300 million in stock, and it includes a provision to let Arris license Motorola Mobility patents.

Images and video of an unidentified Motorola handset have appeared on Tinh tế, and it looks quite unlike any of the recent Kevlar-coated phones from the Google-owned manufacturer. While there have been rumors that a flagship "X Phone" will come sometime this year, it doesn't look like this device is it — as per Google's comments about upcoming Motorola devices, the 720p AMOLED display is unlikely to make anyone say "wow" like we'd hope from a true collaboration.

Still, if this is a real unit or prototype from Motorola, it does show that the company is working on new products that depart from its traditional hard-edged design. The phone has a smooth, non-removable back panel perforated with holes for a speaker, and it looks fairly sleek from the sides. The subtle "M" logo above the screen is a welcome change, too, and features an unusual broken-circle pattern that we haven't seen before. The phone also appears to be quite a bit more compact than bezel-heavy handsets like the Atrix HD and Droid RAZR line.

Following its acquisition by Google, Motorola Mobility announced sweeping layoffs last October with about 4,000 people — 20 percent of all employees — losing their jobs. It seems the restructuring didn't go far enough, however, as the Wall Street Journal reports that the unit will make a further cut of around 1,200 people, or over a tenth of the workforce, in the US, China, and India. A Motorola spokesperson said:

According to a company-wide email seen by the Journal, the company believes "our costs are too high, we're operating in markets where we're not competitive, and we're losing money." The email also notes that "while we're very optimistic about the new products in our pipeline, we still face challenges."

If you were hoping to see a revelatory smartphone from Motorola in the near future, you might want to tone down those expectations. Google's Chief Financial Officer and Senior Vice President Patrick Pichette today said that products in Motorola's pipeline are "not really to the standards that what Google would say is wow — innovative, transformative." The surprisingly honest admission came during Pichette's session at the Morgan Stanley Technology Conference.

When questioned on where things stand with Motorola at the moment, Pichette didn't mince words. "We've inherited 18 months of pipeline that we actually have to drain right now, while we're actually building the next wave of innovation and product lines," he said. Google executives have mentioned these prior commitments in the past, and Pitchette's comments suggest we've yet to reach the pipeline's end. "We have to go through this transition. These are not easy transitions."

Late last year, The Wall Street Journal reported that Google and Motorola were working on a new phone and tablet with the code names "X Phone" and "X Tablet." These devices were said to be the first true collaboration between the companies since Google purchased Motorola Mobility earlier in the year, and allegedly focused on superior cameras and incorporated bendable screens and ceramic materials. Today, a job posting for a Senior Director of Product Management for Motorola on LinkedIn more or less confirmed that the company is working on something called an 'X-Phone.' The listing, now removed, detailed the duties of the position, which would oversee the launch of a new device and deal with carrier relationships when bringing it to market.

An identical listing of the job can still be found on Motorola's own job board, though this listing removes any mention of the X-Phone. Unfortunately, aside from confirming that the X-Phone name is being used for a device that's in development, the job listings don't give us any more details as to what the device will be like, what technologies it will incorporate, and perhaps most importantly, when it will be coming to market.

Motorola has been both a promise and a problem for Google since the $12 billion acquisition in May 2012. For the last three quarters, Motorola has delivered a modest boost to revenue (at Google scale) and a large drag on profits. This quarter, Motorola is a particularly thorny problem for Google's accountants.

In December, Google sold the Motorola Home division, makers of cable boxes, routers, and other non-mobile hardware, to Arris for $2.35 billion in cash and stock, laying off several thousand employees. This means Google had to issue two sets of revenue and profit numbers, one including Motorola Home, and one without.

The Wall Street Journal is reporting that Google is taking its smartphone fate into its own hands, working with Motorola to build its own device known internally as the "X Phone." Due sometime next year, the new device is said to not replace the work Google-owned Motorola is pursuing with its line of Droid devices, but to serve as another product altogether — and that after the X Phone is complete, a so-called "X Tablet" will be coming up next.

The individual reportedly in charge of the project is a former Google product manager, Lior Ron. Ron is said to have previously specialized in mapping — obviously a huge area of focus given Apple's recent stumbles. The project is said to be particularly concerned with providing users with a high-quality camera and great photo software, something the Nexus line has never really been known for.

Google announced on Wednesday that it has sold the Motorola Home business it acquired earlier this year to the Arris Group for a sum of $2.35 billion in cash and stock. Motorola Home produces set top boxes that are sold to cable providers who then lease them out to end users. Google has been shopping around the Home side of Motorola for quite some time, with Arris and Pace Plc both considered to be front-runners for the purchase. As per the terms of the agreement, Google will receive about $2.05 billion in cash and $300 million in Arris common shares, giving Google an approximate ownership of 15.7 percent in the company. In addition to obtaining ownership of Motorola Home, Arris will also gain access to license Motorola Mobility patents. Earlier estimates had pegged Google's earnings from a sale of Motorola Home to be between $1.5 billion and $2.5 billion.

Arris will likely use this acquisition of Motorola Home to expand its current services of providing back-end telephony and networking equipment to cable providers. "The industry faces its biggest technology transformation, and together ARRIS and Motorola will be able to accelerate related innovations such as the introduction of the IP Connected Home environments that service providers need and that their consumers crave," noted Dennis Woodside, current CEO of Motorola Mobility.

Google has been trying to offload its Motorola Home set-top cable box business, which it acquired with its $12.5 billion purchase of Motorola Mobility earlier this year, for some time now, but it seems that selling an aging set-top business these days is easier said that done. According to the latest from Bloomberg's sources, the best offers that Google has had for Motorola Home have come from existing set-top manufacturers, and even then, Google may have to help finance the purchase in order to make the deal close.

Bloomberg says that Arris Group and Pace Plc have shown the most interest in Motorola Home and currently have the leading bids in for the company. Arris provides back-end services like telephony and networking equipment to cable providers, while Pace has a set-top box business of its own already. Earlier reports from The Wall Street Journal claimed that Google stood to make between $1.5b and $2.5b from the sale of Motorola Home, but now the company may be having to provide financing options to prospective buyers just to offload the thing. The WSJ also noted that Pace and Arris were front-runners for the purchase when Google was entertaining offers last week.

Google's auction of Motorola's set-top box division is set to come to a close today, with bids from multiple suitors expected to reach a selling price between $1.5b and $2.5b, according to The Wall Street Journal. Citing numerous sources familiar with Google's dealings, the Journal notes that the deadline for bids may be pushed into next week, but the likeliest scenario is that one of the prime bidders will seal the deal by the end of business today. Arris, Pace, and Technicolor are the three companies named as having greatest interest in acquiring the cable box business, which Google has clearly decided isn't going to play part in its future home entertainment ventures.

According to the report, Google may opt to retain some part of the intellectual property portfolio held by Moto's cable business and just sell off the hardware distribution unit. In any case, with the lowest estimate for the transaction reaching into the billions, Google looks like it'll be making a decent return on at least one part of its investment in Motorola.

On Google's Q3 2012 earnings call today, CFO Patrick Pichette talked briefly about Motorola Mobility's performance about half a year into its acquisition:

In other words, Pichette is warning that we can expect hardware from Motorola without design pressure from Mountain View for at least another half a year to a full year from now — and it could even be construed as a swipe at the desirability (and, in turn, the profitability) of the pre-Google products currently in Motorola's pipeline. In the short term, this would appear to be Verizon's vision for Motorola more than Google's.

One of the biggest questions surrounding the "New Motorola" after the Google acquisition is a simple one: if it's owned by Google, why isn't it shipping stock Android software on its new RAZR M and RAZR HD phones? We presumed the answer was a simple one: Verizon's demands, and Motorola has essentially confirmed that assessment.

Speaking to a group of reporters last night, Motorola Senior Vice President, Product Rick Osterloh pointed out the company's main focuses going forward, and one of them was obviously Android. Specifically, he addressed the question of shipping unaltered, stock Android software on phones.

Motorola on Friday confirmed that it has abandoned development of Webtop — software that enabled smartphones to power laptops via the Lapdock accessory. The company explained the decision in a statement provided to CNET, bluntly attributing the move to a lack of consumer adoption.

Motorola first unveiled the concept at CES 2011, alongside the Atrix 4G for AT&T. The idea was rather straightforward — plug your handset into the Lapdock and use Webtop to enjoy the "full PC experience" on your laptop. At the time, Motorola touted Webtop as the bridge between mobile and PC environments, though the Lapdock's steep price tag and limited functionality have since resulted in underwhelming sales.

Motorola has confirmed that the Atrix 4G won't be receiving an upgrade to Android 4.0 after all. The manufacturer broke the news with a recent update to its Android upgrade schedule, noting that the Atrix 4G, Electrify, and Photon 4G will all remain on Android 2.3 Gingerbread, rather than making the jump to Ice Cream Sandwich.

The Atrix 4G was among the handful of handsets pegged for a Q3 2012 upgrade earlier this year, when Motorola released its device roadmap. Of the three devices relegated to Gingerbread, the Atrix 4G is the oldest, having been released in early 2011. The Photon 4G hit the market in July 2011, followed by its US Cellular variant, the Electrify, a few months later. This would suggest, then, that owners of these devices would be eligible to receive the $100 credit that Motorola promised earlier this month.

New Motorola VP of product Punit Soni has pledged on Google+ to improve the company's poor track record of supporting its devices with software updates. Specifically, he calls out Droid Bionic owners as having gotten a "raw deal" and says that a plan is still in place to update the phone to Android 4.0 — it was supposed to happen in Q3 this year, but with only a few days left on the calendar it looks like that deadline will be missed. Motorola has updated its device roadmap to state that the Bionic will now be getting Ice Cream Sandwich in Q4 along with the Droid Xyboard 8.2 and Xoom Family Edition.

Soni came over to Motorola from the Google+ team and, while he admits that "large ships can't change course overnight" (possibly due to a Verizon-shaped iceberg), his comments could be a positive sign for the company following Google's acquisition. If nothing else, his willingness to listen to and engage with his customers' concerns marks a departure from the past.

At the outset of Motorola's "On Display" event last week, new CEO Dennis Woodside declared the arrival of a "new Motorola." That's not exactly true yet, though. It's only been three short months since Google officially completed its acquisition of Motorola, and the Droid RAZR HD, RAZR Maxx HD, and RAZR M were certainly in the works long before that. But beyond the devices, Google's vision of a future "new Motorola" failed to address the most important part of Motorola's recent past: Verizon.

Motorola has been overly dependent on Verizon's business ever since the launch of the original Droid. At the time, both Verizon and Google were hoping to stop the onslaught of the iPhone on AT&T, without much success: Verizon originally bet on RIM's BlackBerry Storm to predictably disappointing results, and Google had yet to catch fire with Android in any real way. The original Droid, developed by Motorola in deep collaboration with Google, changed the fortunes of all three companies, and turned Android into a market force to be reckoned with. But the real collaboration was between Google and Verizon: in return for Verizon agreeing to push Android as the main competitor to the iPhone, Google radically softened its stance on net neutrality.

We first heard rumors that Google was interested in selling off Motorola Mobility's set-top box business back in March, and the company may now be moving forward with those plans. Bloomberg reports that Google has hired banking and financial firm Barclays to help it shop the unit, which would include not just set-top boxes but all hardware the company currently sells to cable providers. Though things are in the very early stages, Google is reportedly hoping it can get as much as $2 billion with the sale. The move comes just weeks after Motorola Mobility laid off 20 percent of its workforce in a restructuring effort aimed at helping it achieve "sustainable profitability."

When Google first announced it was buying Motorola Mobility for $12.5 billion, it seemed that the acquisition would give Mountain View a new way to aggressively push its Google TV platform (though Motorola Mobility's $5.5 billion patent portfolio may have been the stronger draw). Either way, if a STB strategy was part of the initial calculus, it's quite clear that's not something Mountain View will be pursuing moving forward.