Should Google Selling Motorola Concern Microsoft?
If you follow Google , you've likely heard about the $2.9 billion sale of its Motorola unit to China-based Lenovo. What was interesting, though not surprising, was that Microsoft was almost instantly linked to the Google-Lenovo deal. With its pending foray into devices and services via the Nokia acquisition nearing completion, some pundits cite the Motorola deal as a warning for Microsoft.
According to some, the problem the Google-Motorola deal demonstrates is that Microsoft must choose between hardware and software. As Google learned the hard way, tech companies can't be both a hardware and a software provider, so say the pundits. While not completely without merit, the argument loses a bit of its luster when you consider the particulars of both the Google-Motorola and pending Microsoft-Nokia deals.
At first glance, it's easy to see several correlations between Google's mobile hardware efforts and Microsoft's decision to buy Nokia's devices and services unit. Both Microsoft and Google, prior to their respective phone manufacturing forays, were best known for operating systems and software. Android continues to dominate the world's smartphones, and even as the PC market bottoms out, Microsoft Windows remains the hands-down leader. Both giants are also heavy into cloud and related technologies, too.
Microsoft and Google also decided to test the mobile manufacturing waters by going big via acquisitions. The $7.4 billion, based on current exchange rates, that Microsoft is spending on Nokia's devices and services unit pales in comparison to the $12.4 billion price tag Google put on Motorola, but both certainly qualify as big-time investments.
... but different
A significant distinction between the two scenarios is that the Nokia deal only includes the use of some patents for Microsoft, but not the patents themselves. In the case of Google, many have speculated it was Motorola's portfolio of 20,000 patents, give or take, that was the primary driver of the deal to begin with. But that's not the only difference.
When Google agreed to buy Motorola in Aug. of 2012, outside its brand recognition, Motorola had become a non-entity in the mobile phone market. You may recall that 2012 was the year Samsung took over the top mobile phone sales spot from Nokia for the first time, selling 384.6 million units compared to Nokia's 333.9 million devices. During the same year, Motorola sales had dropped to a meager 33.9 million, from just over 40 million in 2011. When Google took the reins, Motorola wasn't just experiencing a downward trend, it was dying.
Granted, Nokia is hardly on a tear itself, as more and more users shift to smartphones in lieu of inexpensive feature phones, its bread and butter in emerging markets. But Nokia still commands the second spot in global mobile phones sales. In Q4 of 2013, Nokia shipped 63.4 million phones, a respectable if not outstanding tally.
It's also worth noting that, unlike Google, Microsoft is already enjoying a measure of success in hardware, as last quarter's Surface tablet sales demonstrated. Though still early on, it was comforting for Microsoft fans to see that Surface revenues more than doubled to nearly $900 million last quarter, up from fiscal 2014 Q1's $400 million.
Final Foolish thoughts
Microsoft would do well to learn what, if anything, it can from Google's Motorola odyssey: That's always a good idea. But to take Google's decision to get out of the hardware business as a precursor of things to come for Microsoft is too broad a brush stroke. It seems like there's a little iCompany down in Cupertino that's done alright from both the hardware and software side of the fence.
Microsoft needs to focus on growing its cloud business, using its Windows 8 and Phone OS to drive search traffic, thereby upping advertising revenues, and make the transition to phones as smooth as possible -- not worry about the decisions Google's making. If there was a warning shot for Microsoft recently, it wasn't Google, it was Nokia's 5% sequential drop in device sales last quarter, which included the crucial holiday shopping season, no less. Now that's something to be worried about.
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The article Should Google Selling Motorola Concern Microsoft? originally appeared on Fool.com.Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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