Print 26 comment(s) - last by Tylerist.. on Jul 30 at 9:45 AM

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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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.

RE: But first...
By dtguest2 on 7/29/2012 4:41:04 PM , Rating: 2
"People Don't Respect Confidentiality in This Industry" -- Sony Computer Entertainment of America President and CEO Jack Tretton

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