Three years ago, when Sanjay Jha, now Motorola Mobility's chairman & chief executive, left Qualcomm to head the ailing handset company, analysts were not impressed. After Google announced its intent to acquire Motorola Mobility for $12.5 billion despite its poor financial performance, the deal appears to be a win-win situation for both Google and Motorola, provided anti-trust moves don't delay or sour it.
After the completion of the deal, Google would own both hardware and software units, while simultaneously acquiring Motorola Mobility's 17,000 patents and an additional 7,500 patent applications-an arsenal that can help Google fight the Nokia-Apple-Microsoft trio, which recently outbid it in acquiring Nortel's patents. With Google paying 60 per cent premium on the stock price valuation for Motorola, “Google would now be able to provide better hardware integration for Android, which is rapidly penetrating the mobile world,” says Praveen Bhadada, director, Zinnov Management Consulting. ABI Research has pegged Android's share of second quarter global smartphone shipments at 46.4 per cent, while Canalys said Android's share for the same period was 48 per cent. More than 150 million Android devices have been activated worldwide through a network of 39 manufacturers and 231 carriers in 123 countries.
Globally, however, the deal has queered the pitch for the likes of Google's partners like Samsung and HTC, which owe much of their recent success to the rapid adoption of Google's Android operating system (OS). During his global press briefing, Google chief executive Larry Page acknowledged the role of its “many hardware partners” that contributed to Android's success, while assuring it would stay committed to the Open Handset Alliance, formed nearly four years ago. “Our plan is that Motorola would remain a licensee of Android,” said Page. A Samsung official spokesperson said, “Samsung welcomes Google's acquisition of Motorola Mobility, which we believe, would provide intellectual property protection for the Android ecosystem. We do not expect this to have any impact on our mobile business.”
Analysts, however, believe Google would eventually want to integrate the hardware and software businesses to provide seamless consumer experience, similar to Apple iPhones. The competition from Google Android phones may prompt players like Samsung and HTC to shift to a cautious approach and adopt the Windows mobile phone OS.
“This move brings Google significantly closer to Ovum's hypothesis of a 'managed device platform', in which a vendor controls all aspects of a platform, including hardware, software, content and online services. Google's rhetoric about “supercharging” the Android ecosystem points to Google plans to work closely with the Motorola team. This is a delicate balancing act for Google. Any hint of favoritism or signs that Motorola is getting an unfair advantage would not please other key Android vendors. We may see Samsung, HTC, LG and Sony Ericsson reinvest in alternative mobile platforms, most likely Microsoft's Windows Phone ecosystem, to keep Google honest,” says Ovum analyst Tim Renowden.
In India, the scenario may pan out differently. The global deal is not expected to rock the boats of Android partners like Samsung and HTC in India. The smartphone market in India stood at around nine million in 2010 and is expected to touch 13 million by end-2011, according to Anshul Gupta, principal research analyst, Gartner. While Nokia's Symbian OS was still the leader in the second quarter, with 48 per cent market share, Android accounted for a 33 per cent market share. “However, Android would lead the pack by end 2011,” predicts Gartner's Gupta. Samsung leads the Android space, followed by HTC. The other players include LG, Sony Ericcson and Micromax. Apple manages to sell only a 'few thousand units'. Motorola's volumes in the Indian market “are very small”. “Google needs partners like Samsung and HTC to increase the Android market in India,” says Gupta.
“By July, the total number of apps available on the Android market had crossed 250,000 and had seen 4.5 billion downloads. This is expected to rise, since global smartphone shipments are expected to grow worldwide in 2011 and 2012. In 2011, the proportion of smartphones shipped in India is expected to touch 12 million, out of the total 210 mobile handset shipments. Of this, the share of Android OS smartphones is estimated at 22 per cent, against only nine per cent in 2010,” says Naveen Mishra, lead analyst (telecoms practice), CyberMedia Research.
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“On the market front, I see no immediate impact. Samsung would probably be a bigger competition to Apple, compared to Motorola. And, the bigger market would be at the lower end, where Chinese vendors would have a bigger role, compared to Motorola, which would tend to play at the middle- and higher-ends,” says Alok Shende, principal analyst, Ascentius Consulting.
Meanwhile, both Google and Motorola have India development centres, “and there would be consolidation and perhaps, more working to India, due to the fact that they would do joint hardware software integration for tablets the way Apple does”, says Shende. Motorola has around seven research and development centres in India and employs around 4,000 software engineers. Motorola employees in India design nearly 40 per cent of the software used in Motorola phones worldwide. “As the integration happens, both Google's and Motorola's development centres in India could work together. Since the hardware business would continue to be a separate one, there is an equal chance that both the centres would continue working independently,” says Zinnov's Bhadada.
Nokia is reinforcing its ties with Microsoft (there have also been rumours about a takeover of the company by Microsoft). A Nokia spokesperson says, “This reinforces our belief that the opportunity to differentiate and grow the Nokia smartphone business would be the greatest with Windows Phone. The importance of a third ecosystem is now even more evident.”
Sanjay Jha has an edge
After Padmashree Warrior left Motorola to join Cisco as its chief technology officer, the fate of the company was much debated, especially since Warrior was credited to a very large extent with the success of its largest-selling and most popular handset series, the Razr. Motorola shareholders heaved a sigh of relief when Sanjay Jha left Qualcomm to become the chief of the unit that made handsets. India-born Jha's hiring boosted the Schaumburg-based Motorola’s market capitalisation by over $2 billion in a single day of trading—a sign he had the credentials. Jha holds a doctoral degree in electronic and electrical engineering from the University of Strathclyde, Scotland, and a bachelor's degree in engineering from the University of Liverpool, England. He was an engineer at Brooktree, San Diego, and GEC Hirst Research Labs in London, before joining Qualcomm in 1994 as a senior engineer. He became vice-president of engineering in 1997, overseeing the development of cellphone chips and software and began Qualcomm's investment arm in 2002. He also became executive vice-president of the company before being named Qualcomm's chief operating officer in 2006.