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Google is promoting synergy (like a boss).  (Source: NBC)
Surprisingly, Google says that cash and "goodwill" were also big drivers

Google Inc. (GOOGsurprised the tech world last year with its decision to scoop up struggling veteran devicemaker Motorola Mobility, Inc. -- one of the "big three" of the Android world.  Some figured that Motorola's "war chest" of over 17,000 patents amounted to nearly the entire $12.5B USD valuation Google made in its successful purchase bid.

Traditionally, Google did not look to patent its software innovation at the same pace as rivals Apple, Inc. (AAPL).  With a lawsuit from Oracle Corp. (ORCL) directly targeting Google and with Apple turning up the lawsuit pressure on OEMs, many felt Google needed to buy the patents to defend itself and its partners.

But in newly released regulatory filings Google says the patents represented less than half the valuation.

Google's breakdown of Motorola's worth is as follows:
  • Patents:     $5.5B USD 
  • Cash:         $2.9B USD
  • Goodwill:   $2.6B USD
  • Customers:   $730M USD
  • Other:           $670M USD
For those curious what exactly Google means by "goodwill", the company elaborates slightly that it is "primarily attributed to the synergies expected to arise after the acquisition."

However, Google has left just about everyone in the dark as to exactly what those "synergies" might be.  During its earnings call, it did not discuss its long-term strategy or plan for Motorola.

Google completed the acquisition in May, after Chinese regulators finally stopped dragging their heels on approval.   U.S. and European antitrust regulators approved the acquisition months before.

One thing is for sure; whatever Google's secret "synergies" may be, they have yet to take hold.  Motorola Mobility made $1.25B USD in revenue in the second calendar quarter, but lost $233M USD, once operating expenses were taken into account.  Google still managed to earn $2.79B USD, though, despite that hardship.

Source: WSJ



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Really?
By mcnabney on 7/25/2012 4:40:25 PM , Rating: 2
Goodwill is an economic term to define the value of a company that is intangible/exchangeable. Essentially the company's good name and the public's willingness to purchase their products. Mathematically, the difference between the value of all company assets and the market cap / purchase price.

In other words, Google paid the goodwill value for the Motorola name.




RE: Really?
By JasonMick (blog) on 7/25/2012 4:53:57 PM , Rating: 2
quote:
Goodwill is an economic term to define the value of a company that is intangible/exchangeable. Essentially the company's good name and the public's willingness to purchase their products. Mathematically, the difference between the value of all company assets and the market cap / purchase price.
Typically, yes. But in its filing Google explicitly cited an elevated "goodwill" valuation due to synergies, hence the article text.

My point was that it spoke to synergies (aka increased sales), but didn't explain where they might come from or how.


RE: Really?
By rubbahbandman on 7/25/2012 5:48:38 PM , Rating: 2
Here is Google's revised calculation for valuing Motorola.

Patents + Goodwill = Actual Patent Value


RE: Really?
By Jedi2155 on 7/26/2012 4:17:26 AM , Rating: 2
The increase synergies/goodwill value probably come from Google's own name.


RE: Really?
By BifurcatedBoat on 7/26/2012 4:58:23 PM , Rating: 2
I think the synergy is about the fact that as a consumer, you trust Motorola's capability to make quality phones. You trust Google's ability to make quality software. You might not trust either company to be able to do both well - at least initially - on their own.

With the acquisition however, I think the expectation is that their Nexus offerings will be able to be even better through tighter integration.


RE: Really?
By WalksTheWalk on 7/25/2012 5:01:09 PM , Rating: 2
In other words, Google paid a 2.6B premium over and above Motorola's value on paper.


RE: Really?
By Argon18 on 7/25/2012 5:14:37 PM , Rating: 3
Wrong. It's a retail store with previously-owned clothing and home furnishings for affordable prices.


RE: Really?
By zephyrprime on 7/26/2012 11:57:07 AM , Rating: 2
I really doubt that Google gives a rat's ass about the Motorola name and I don't think they are even going to keep the Motorola brand around. There's more to good will that just good name. The goodwill value of Motorola is their business capacity to design and manufacture phones and tablets. The assembly lines are just commodity machines and are only worth so much but the human capital and organizational value of a working company that can design and build whatever is what makes any company valuable.


Feel it!
By Belard on 7/25/2012 4:15:52 PM , Rating: 2
Anyone else feel the Synergy?




RE: Feel it!
By Lorfa on 7/25/2012 4:17:31 PM , Rating: 2
Like a baws I do


RE: Feel it!
By xti on 7/25/2012 4:22:17 PM , Rating: 2
I read that as "Like Bawls I do".

weird.


RE: Feel it!
By MZperX on 7/26/2012 12:00:17 PM , Rating: 2
<clears throat>: xti I've got some bad news for you...


isn't it straight forward?
By zephyrprime on 7/25/2012 5:13:51 PM , Rating: 2
Motorola mobility only does two thing: make handsets and tablets. So isn't the obvious answer that Goog is going to make their own Handsets and tablets? They were already going in this direction with the Nexus devices. I think that google, and now even microsoft, agree with Apple that tight integration of software and hardware is the only way to make really refined products.




RE: isn't it straight forward?
By cditty on 7/25/2012 5:19:43 PM , Rating: 2
I agree. They are all going to be making their own devices. Control the quality, control the updates.

Apple got that part right (actually, they got more than that right). I would LOVE to get a Nexus from Motorola. I hope I get to see some synergy soon.

It is an exciting tech time, with Microsoft deploying Win 8 and making devices, to Google/Motorola, and Apple trying to stay at the top.


RE: isn't it straight forward?
By Paj on 7/26/2012 7:33:47 AM , Rating: 2
I'd say so. It's a good move - am getting sick of manufacturer skins on Android, and the Nexus 7 (even though its made by Asus) has rock solid user experience from what I've read.


RE: isn't it straight forward?
By Tylerist on 7/30/2012 9:45:42 AM , Rating: 2
You should do your homework, they don't just make phones and tablets. Motorola Mobility includes the cable television business, formerly General Instrument Corp. which invented digital cable telvision and still dominates that market. The cell phone business dragged down their earnings, but there's a Motorola settop box in 10s of millions of American homes (and internationally too). Google is too smart to ignore that especially when they're rolling out GoogleTV (2nd try) and this time they have the engineering team who rolled out digital cable to most of America the first time. Granted, they might still sell that business off to someone else, but it remains a moneymaker even if it reverts back to General Instrument.. owned by no one.


But first...
By melgross on 7/26/2012 5:08:50 PM , Rating: 2
When Google first consummated this deal, they said that it was for the patents, and the hardware aspect wasn't in consideration. I always doubted that. But now, they must modify what they had said because we can see that the value they're getting from the patents has been very little. I believe, from what I know about Motorola, that most of those patents don't pertain to Google's business, and that many that do have little life left in them.

I believe that they were snookered by Motorola's CEO at the time, into buying Motorola for far more than it was actually worth. The day they announced the purchase, Motorola's value was $6.5 billion. Normally, in buying a successful, but not market leading company, there is a premium paid. That's usually about 30%. Rarely is it more unless the company has intrinsic value that the stock price isn't showing. But Google wanted those patents so badly that they paid almost double for it. They were afraid that if they bid a much more reasonable $9 billion, they might be outbid by someone, though who that could have been, I can't imagine.

I bet that they will be writing off that goodwil at some point. Much of the rest of the value they have now assigned seems to be too much. It's almost as though they are trying to find excuses for the excessive price. If they assigned a more reasonable goodwill of $5 billion, and devalued the other areas, it would be much more in line with what Motorola's value would be. Remember that the $6.5 billion Motorola was going for was well over book already. Much of that could have been assigned to goodwill. But by doing what they have, in a financial juggling, they won't have to write down so much in the future, as Microsoft needed to do recently.

Considering all the words that have come out about Android ODM's grumbling about this deal, they may have gained very little overall. If they can't use the ability of Motorola to design and build credible devices that are better than the competition, what would be the purpose of all this? They might even have to sell the hardware division for a possible loss when compared to the value they are now assigning it.

Meanwhile, Motorola's phones aren't doing terribly well. Neither are their tablets. This is really hurting Google's bottom line, and going to severely cut into their reputation as a high margin growth company. In the long run, this will hurt their stock, and require a dividend well before they intended to give one.




RE: But first...
By dtguest2 on 7/29/2012 4:37:49 PM , Rating: 2
That sounds believable,barring new information. The Motorola CEO made a good sales pitch for the value of the patents at the time:

We own one of the strongest and most respected patent portfolios in the industry. We have over 17000 patents granted and 7000 patent applications pending, with particular strength in 2G and 3G essentials, non-essential patents important to the delivery of the competitive products in the marketplace, video, particularly compression/de-compression and security technologies, and, finally, a leading position in 4G LTE essentials. With new entrants in the mobile space, resulting from the convergence of mobility, media, computing and the internet, our patent portfolio is increasingly important. We regularly review the company’s strategies, opportunities and assets, including the IP, with the goal of creating and enhancing value.

when I first came here (to Motorola), one of the reasons that I liked this opportunity, was because I had a view that brand and IP portfolio was very strong. As I arrived here and had had a chance to understand our IP portfolio, I actually think it’s stronger then I anticipated. There are really a few areas where our patent portfolio is extremely strong. First, 2G/3G essentials, I think that is very well understood by the (Wall)street and the industry, and we have monetized that asset over the last few years very well. Probably a little less well known is our strength in patent portfolio in non-essential patents, which are capabilities that are important to have in delivering competitive products in the marketplace. Third, I think is in our video coding/de-coding and security, and fourth, probably least understood and most underestimated , is our strength in our 4G LTE patent portfolio. As I look at these patent portfolios, I feel very good that we will be able to go forward and find ways to create enhanced shareholder value.

… that (IP royalty) number has come down over the years as a result of licenses that have expired over that period of time, and they are largely related to our 2G and 3G patent portfolios. As we go forward, I think that the introduction of number of players with large revenues, which have come into the marketplace as a result of the convergence of the mobility, computing, internet and other segments, I think that that creates an opportunity for us to monetize and maximize the shareholder value in a number of different ways and we evaluate all of them all the time.

http://www.unwiredview.com/2011/08/01/did-motorola...


RE: But first...
By dtguest2 on 7/29/2012 4:41:04 PM , Rating: 2
Goodwill
By ilt24 on 7/25/2012 4:48:11 PM , Rating: 3
quote:
For those curious what exactly Google means by "goodwill", the company elaborates slightly that it is "primarily attributed to the synergies expected to arise after the acquisition."


Or from financial-dictionary.thefreedictionary.com/goodwill

"Goodwill: The amount above the fair net book value (adjusted for assumed debt) paid for an acquisition.




RE: Goodwill
By MZperX on 7/26/2012 12:05:17 PM , Rating: 2
Which of course would only be a "big driver" to acquire the company if it was actually negative, that is if Google paid less than fair net book value for Motorola. Why would paying more than the company is worth be ever considered an incentive?


Nonsense
By GatoRat on 7/25/12, Rating: 0
RE: Nonsense
By ET on 7/26/2012 4:11:37 AM , Rating: 2
Of course you know how a company such as Google does it: by buying the company that has the experienced developers to carry it off. :)


RE: Nonsense
By GatoRat on 7/26/2012 5:24:47 PM , Rating: 2
I've worked in this industry for years, especially with Motorola products. You don't need that much experience to pull it off since most the engineering is farmed out. Moreover, given what Google paid, they could have just raided the employees for far less.

This was all about the patents.


Just curious.
By NellyFromMA on 7/26/2012 9:39:53 AM , Rating: 2
What did Google have to concede in order to get Chinese approval on the aquisition? I heard they were looking for them to substantially tone down their vocal stance on China's human rights abuse and hacking.

If that was the price to pay, no one surely reported on it. Just curious




RE: Just curious.
By notathome on 7/26/2012 11:04:28 AM , Rating: 2
I was thinking the same thing.


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