While many were speculating about a full-blown takeover of the HTC smartphone operation, including manufacturing division, Google has announced a $1.1 billion deal with HTC which took many by surprise. The fact that Google already has its own hardware business is the reason why the company is paying $1.1 billion to transfer 2000 HTC engineers to its hardware division. These are engineers the company has been working with to create the Google branded Pixel smartphone which is expected to raise $4 billion in additional revenue this year.
Buying brains
In effect Google has taken over the business end of HTC’s smartphone development operation, i.e. its 2000 strong team of engineers. These engineers are at the cutting edge of smartphone technology and will be incorporated into the Google hardware division as soon as the deal is rubberstamped (expected by 2018).
Many investors are already connecting the HTC deal with the disastrous purchase of Motorola Mobility 2012 for a staggering $12.5 billion. Eventually this business was sold on at less than $3 billion giving the company significant tax losses going forward but a disaster in the eyes of investors. The main difference between the two deals is the fact that Google is not manufacturing smartphones in the future instead it will work with current partner HTC for now.
This opens up the possibility of using Google’s technology with other smartphone companies and thereby expanding the use of its android operating system. The deal has received a “lukewarm” reception to say the least but this is perhaps because of the disastrous Motorola deal back in 2012.
Artificial intelligence
While Google recently jettisoned a number of artificial intelligence subsidiaries there is still a strong artificial intelligence operation within the company. Smartphones are obviously a huge market and artificial intelligence will be a more common feature in years to come. We already have a variety of Google led artificial intelligence apps which have been subtly added to an array of mobile phones over the years. Many experts believe that closer ties between smart phones and artificial intelligence will create the next sales cycle for the mobile phone industry.
It was also interesting to learn that while HTC will manufacture Google smartphones for the foreseeable future there was also a non-exclusive deal agreed giving Google access to future HTC intellectual property rights. This means that not only will Google have 2000 ex-HTC employees working directly for the company but it will also have access to future developments by its long term partner.
Changing landscape
It was obvious that in the end the searching engines giants would look towards smartphones and other communication devices as a means of growing their business and expanding their audience. Google seems to have learned from the disastrous Motorola acquisition which cost the company approaching $10 billion. In effect the search engine giant has bought the brains of a 2000 strong army of engineers at the cutting edge of smartphone technology.
Whether or not this deal is strong enough to prompt others in the smartphone and the Internet industry to retaliate with their own deals remains to be seen. It has received a lukewarm welcome from investors but, after being severely burnt with the Motorola acquisition, perhaps a lukewarm welcome is not the worst thing Google could have hoped for?