Well, I did say we can expect fireworks and that there are too many competitors in the smarpthones space. Today Google bought Motorola Mobility for 12.5 Billion dollars. Part of why the timing, is no doubt the 'sale' that is going on at Wall Street right now, because of the big share price declines, major corporations are on discount if you ever wanted to buy a rival.
WHAT'S IN IT FOR GOOGLE
First, this is a big move obviously. I think this is a good move by Google but one that gives it a conundrum. Lets first see what they get. Motorola had a deep patent portfolio in the mobile space. As Google has said tis future is completely tied to mobile, and as the rivals like Apple and Microsoft have been suing Google and its Android partners about patents issues, the patent portfolio is one major asset and reason to do the acquisition.
Secondly, they get a major handset maker. Motorola is a top 10 smarpthone maker and a top 10 overall 'dumbphone' maker. Motorola's current production level is of the capacity of about 8-9 million handsets made per quarter (30-45 million per year) of which currently two thirds are smartphones. Motorola has very aggressively been shifting its total production from dumbphones to smartphones and Motorola was the first major brand to go solely Android (leaving Nokia's Symbian alliance and Microsoft's Windows based operating systems). But just recently Microsoft has spoken in public that they 'might' want to join Microsoft Phone 7. I think now its obvious to see, that was a bargaining ploy, to force Google to boost its price and make its move, before Motorola signed any deals with Microsoft.. So remember, this puts Google now in the 'big leagues' with such rivals as Nokia, Samsung, LG, HTC, RIM and SonyEricsson - and gives Google more control of its handset division than Apple (who outsource their handset production to Hon Hai ie Foxconn).
Thirdly, Google gains a major handset brand in the two biggest national markets for smartphones - USA and China (Motorola is third bestsellling handset brand in the USA, and third bestselling smartphone brand in China). But in most of the rest of the world, what Motorola once was (had 21% market share) is now mostly gone. Yet, if Motorola had the carrier relationships and manufacturing and shipping capablity to support some 500 of the 600 carriers of the world - far more than say Apple - with some Google money and organization and 'intelligence' they could quite possibly now recover. But a brand is very valuable and in these big markets, Google would be wise to keep the Motorola brand alive for a while (perhaps shifting to Google over time) and in the rest of the world, might well want to shift more rapidly to Google/Nexus branding and just use Motorola's sales organization or what remains of it to break into those markets.
WHAT MOTOROLA GAINS
Motorola has been making losses for years now. So Motorola has not been able to capitalize on whatever clever ideas they may have had, and have been far sub-optimimized because at all times they've been struggling to just try to recover profitability. Its not like smartphones cannot be hugely profitable - look at Apple, HTC, RIM etc - and also low-cost 'featurephones' or 'dumbphones' can be profitable look at Samsung, ZTE and (the recent past of) Nokia. So its not like Moto was in a bad industry, they were definitely a diamond in the rough, that was just VERY BADLY mis-managed, as I've chronicled here on this blog for example many times.
If Motorola gains first of all some injection of cash, to hire good staff, to provide long-overdue salary increases to critical staff, to keep best staff from exiting the company etc - and to help boost Motorola marketing and sales activities (stop the bleed from the rapid decline of Motorola's once overwhelmingly powerful sales organization) - there is no reason Motorola could not have a resurgence similar to what it did with the Razr in the middle of the last decade. Google has shown a great interest and ability in innovating in the handset space both via Android and via the various Nexus phones. What Google didn't have was the sales organization and carrier relationships - now suddenly Motorola becomes - SuperMoto! Able to leap over buildings and more powerful than a locomotive (like Superman). There are no doubt many pending ideas sitting in Motorola's R&D and also at Google's R&D, that could be superphones as soon as next summer/autumn.
So what of the other Android makers? Samsung, HTC, SonyEricsson, LG, ZTE, Huawei etc.. Many of them had been recently in a 'partenrship' with a handset maker who controlled the operating system - I am talking of Symbian and Nokia. And we could see how quickly they all abandoned Nokia and Symbian when Android came along. I think its pretty clear, that all of these makers would prefer that Google is not both the owner of Android, and making a handset. So we come to a conundrum.. What should Google do.
One obvious choice is that Google keeps full control of Motorola, and becomes a full rival to the others of the Android army. Android already has 45% of the total smartphone market, with a vibrant Android apps space etc. Google can spin this story to the Android partners that Google will use the Motorola patents to protect the partners so they don't need to pay Microsoft (Microsoft earned more from Android patent fees than from Windows Phone 7 sales in Q2) or Apple (who just blocked Samsung's Android based Galaxy tablet PC from being sold in Europe) etc. But this is a murky area for a company who says 'do no evil'.
If Google holds 100% ownership of Motorola handsets and sells either Moto or Google branded smartphones, then I think several of the current Android army would seek alternate platforms. Samsung has its own in bada, and I think regardless, this move reinforces Samsung's HQ that the decision to invest in bada was the right move and they'll just migrate ever more of their smartphones from Android to bada. Expect bada to 'grow' into more mid-price and even premium phones soon. And remember, Samsung is the biggest of the Android makers.
HTC is the other big Android maker who just a few months ago complained about how badly they were doing in Microsoft based phones and that they'd shift ever more production to Android. They now feel certainly a bit like being stabbed in the back. So I'd expect HTC to shift some attention now back to Windows Phone 7. SonyEricsson might well also add some new focus to WP7.
Then it gets interesting with the rest. LG, ZTE and Huawei have all committed to MeeGo (the newest OS developed by Intel together with Nokia which was supposed to be Nokia's new OS). Because MeeGo is Linux based like Android, it will be a far easier change from Android to MeeGo. I would expect solid commitments to MeeGo by some of these players and possibly some pick-ups by MeeGo from other handset makers who suddenly dont' feel so happy about Google and Android. LG also is in the WP7 camp but I think because of their loss-making, the far cheaper option is to shift now to MeeGo rather than WP7.
IF GOOGLE DOESN'T KEEP MOTO HANDSETS
But I think there is a further twist that is possible. Google knows its handset manufacturers do not want Google in the race, that is what Google heard when they launched Nexus One. The carriers also are dubious about Google and fear it might be getting too powerful. Google might be best served to help Motorola onto its feet, and then float Motorola as an independent phone maker soon. And to communciate this very loudly and clearly to its Android family.
This is how I'd do it if I was Google. First, do a lot of cross-pollination of Google and Motorola talent. Give Moto a big long-term low-cost loan (like how Microsoft gave a loan to Apple to keep Apple alive) and then take a group of senior Google engineers and staff who have a particular love or interest in handsets - and send them onto 'sabbatical' for a year or two, to provide short-term brainpower to Motorola. A luxury billionaire-version of an 'apprenticeship' where the staff would remain Google employees, but would get to go do a year or two of 'real work' designing the next generation of superphones for Google - with of course shared patents coming out of that for both Google's and Motorola's shared intellectual property - and these staff would be guaranteed a return job at Google if they wanted to come back in a year or two. Meanwhile Google would also actively headhunt some of Motorola's best talent to pick to join Google..
Then prepare Motorola Version 2 to re-launch as an independent stand-alone handset maker (minus its patent portfolio and some selected elements and some premium talent). Use Google resources to produce a set of superphones for late 2012 time frame that should be able to propel the recovery of Motorola. And once that is done, when Motorola's handsets are back in making profits and back to growing market share, with a hit phone - then sell Motorola and launch it to the stock market back as an independent company - but of course one where Google would retain a small share like 20%.
This way Google would get the best of all worlds. One, they get their patents. Two, they get to 'fix' Motorola which for no conceivable reason is struggling in a market with a strong brand, good sales organization but producing losses year after year. Three, they gain a strong participant in the Android army, but as Google is open about the intent to launch Moto soon to be independent, they would not anger the Android army. And four, to the degree premium smartphones are a VERY lucrative hardware play (witness Apple) by helping Motorola position itself against Apple (powered by Google), Google could gain (20%) out of that opportunity.
Thats what I'd do. Else there is the danger that Android will go the way of Symbian haha.. And the shuffle behind the scenes today is very intensely Intel with MeeGo, Microsoft with Windows Phone 7 and even HP with Palm/WebOS recruiting handset makers to shift away from Android - and these three are all big giants who can afford to put some dollars on the table too - money that a loss-making LG or SonyEricsson for example could be very happy to get..
WHO IS NEXT
So, Motorola Mobility, which has annual sales of 13 Billion dollars was now sold for 12.5 Billion dollars, where its patent portfolio was a very major part of what made the deal so attractive to Google. Who is next? Nokia is the obvious target, their market cap is down to 20 Billion dollars, their annual sales are at 56 Billion dollars (last year) more than 4 times as big as Motorola's and Nokia has the deepest patent portfolio of any tech giant in the mobile space. They also have several highly valued assets that could be sold independently to make the purchase price of Nokia cheaper - ie Navteq the mapping, navigation and advertising unit; NokiaSiemens Networks the networking unit; dumbphones, smartphones, the Nokia brand etc. And on the inside track is Microsoft, no doubt Steve Ballmer's investment bankers have had a plan in place to buy Nokia from the start, just in case the Stephen Elop-led Nokia partnership turned sour at any point. Like Motorola, Nokia too is now making losses so its a very obvious take-over target and as to a Wall Street discount, Nokia is down 58% from its recent peak of early February, thanks to the mismanagement of new CEO Stephen Elop.
RIM is another obvious target, a former smartphone giant who has recently turned into losing sales. But RIM is still making profits. And compared to Motorola and Nokia, RIM is no patents powerhouse.
Its also possible that SonyEricsson might go, but then I think the obvious buyer would be Sony, who might want to stop the partnering with the Swedes, and take full control of SE. As SE is making losses again, Ericsson might be willing to throw in the towel, if Sony made the offer sweet enough.
HTC is a long-shot, they are growing and making profits. Their patents portfolio is not big so here is a rather expensive rival who would not have very much beyond simply the smartphones maker itself.
Who might be in the game? I think we can easily look at the top 10 top 12 biggest tech companies and find many of them, maybe most of them, eager to consider a purchase. In order of size the top 10 is: Samsung, HP, Hitachi, Siemens, Panasonic, IBM, Sony, Toshiba, Apple, Microsoft. Then we have plenty more in the mid-field like Intel, Amazon, Cisco, Fujitsu, NEC, Philips etc. If Siemens or Philips are experiencing some sellers remorse about getting rid of the mobile handset business (and looking at Apple in an envious way) this could be a fast way to get back. If a bit-player in mobile who once was big, like say Panasonic or NEC would want to get into it at full steam, this would be the fast way. Or some of the tech companies who may have had regrets for 'missing out' on the smartphones opportunity like say Cisco or IBM, this could be the fast track into that game. And obviously for those big players who seem to have mismanaged their opportunity in the past, like say HP and Microsoft - now they could buy a really big smartphone player and get back into the game for real.
Also don't forget the billionaires.. What if Carlos Slim the richest person on the planet - who already knows how important phones are to his business - he made his billions in the mobile telecoms operator/carrier business. Would he want to have America Movil branded handsets to his specs? Or say Hong Kong's richest man, Lee Ka-Shing who owns an empire from harbor installations to yes, mobile phone operator/carrier businesses of the Hutchison Group and Three branded operators in a dozen countries. He even actually owns a small handset maker in Europe called INQ Mobile. If he felt like buying one of these players - like say Nokia (and selling parts of it) - suddenly his early play into handsets would be amplified massively.. Keep a couple of the big Nokia handset factories like in China, India, Brazil etc- and sell parts of the piece he wouldn't find worth keeping etc..
I do think Nokia is the next on the chopping block. Nokia is a juggernaut, a profit engine that is being ruined by moronic management right now (remember, in the first 5 months of Stephen Elop, before he announced his crazy Microsoft strategy, Nokia was growing sales, growing revenues, growing average sales prices, and grew profits by a Nokia record; and Nokia had a hit new smarpthone OS version of Symbian called S^3 which was so successful in the first quarter it sold 5 million units worldwide - ever since Microsoft's Phone 7 has launched, it hasn't sold 5 million total up to now! and now we have seen, they even have a second even more desirable OS in MeeGo that only a lunatic CEO would refuse to sell when Nokia sits on the hottest pair of superphones, the N9 and N950 that would return Nokia to profits instantly. All that it takes is to remove Elop from the CEO chair and put any recent MBA graduate to run Nokia and it generates profits again)
And I do think we'll see a visible public rush for it, not this sudden secret sale like Google's purchase of Motorola Mobility. Microsoft will have to bid, their whole mobile future is sitting on that one card they have left to play, Nokia. And equally, if there is a public contest, I think Intel would be foolish not to get into it - the perfect solution for Intel is to buy Nokia and abandon the Microsoft strategy, and for Intel to get its MeeGo OS based Nokia handsets as they wanted - such as the magnificent N9 and N950 that Nokia now is not giving most of the world. We could easily see four or five big tech giants bidding for Nokia.. In almost any case, whoever buys Nokia will sell off NokiaSiemens Networks - and Stephen Elop's career hangs in the balance of whether Microsoft gets him - any other buyer will fire Elop on Day 1 of owning Nokia.
Then I think the biggest loser of the Nokia Sweepstakes would probably almost instantly go use their money to buy RIM haha.. And we might see HTC also sold in the aftermath.
This kind of environment might also see some other 'friendly' mergers, as suddenly some of the players get very big. We might see other big mergers in this environment in the tech space, where one player feels they are losing out on the mobile space. What of Dell for example? Or HP's rather weak showing in mobile after they bought Palm. What of Cisco who has often played around mobile but still play only on the infra side and in a limited way in mobile.
Ok. Thats my thinking right off the news. Exciting times in the Bloodbath Year 2: Electric Boogaloo. I am pretty sure this is not the last merger/acquistion in this mobile space and we may well see a very public race for the carcass of Nokia. Stay tunes, same Bat-Channel, same Bat-Time..