Google Keeps Bleeding Through Motorola


There is no bandage large enough to stop Google from bleeding through its Motorola subsidiary. The controversial acquisition hasn't exactly yielded the benefits that Google was seeking when it bought the struggling handset maker for its intellectual-property portfolio, and Moto continues to generate substantial operating losses.

The search giant reported earnings on Thursday, and Motorola's performance is getting worse before it gets better. The smartphone vendor generated $998 million in revenue during the second quarter, which was up from the $843 million in sales from a year prior (excluding the home segment that has since been sold off).

That all translated into an operating loss of $342 million for the hardware operations, or a negative-34% operating margin. Google closed the acquisition in Q2 2012, and Motorola's cumulative operating losses since then now stand at $1.73 billion.

Source: SEC filings.

Earlier this month, there were reports that Google was potentially committing another $500 million in marketing for Motorola's upcoming products. In light of Motorola's continued operating losses, investors now get an idea of how immense that budget would be. The Moto X is set to launch soon, and the company has begun rolling out an aggressive ad campaign focusing on its being made in the United States.

On the conference call, CEO Larry Page declined to address that rumor specifically, but reiterated that Google continues to operate Motorola independently as to not alienate other Android OEMs, and that Google runs Motorola like it would run any business.

At this rate, Motorola is on track to keep losing over $1 billion annually. That's a little better than Microsoft, which just ate $900 million last quarter alone over Surface inventory charges (more than half of Google's cumulative Motorola losses), but that's still quite a sum for the questionable acquisition.

Can the Moto X turn things around? Not unless Google can cut Moto's operating expenses significantly first.

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Fool contributor Evan Niu, CFA, has no position in any stocks mentioned. The Motley Fool recommends Google and owns shares of Google and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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