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Google Buys HTC: Buying a Friend for US$1.1 billion

9/22/2017
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HTC, a pioneer in the development of the Android hardware, halted the trading of its shares and announced that Google has bought a part of HTC’s workforce that’s currently working on the Pixel phone.

HTC reported revenues of NT$16 billion (US$0.5 billion) in the last quarter but a -13.6% operating margin. The cash from Google provides HTC with some breathing space, as the company tries to move into AR/VR headsets with its Vive range. The global AR/VR headset market is projected to be worth US$3.6 billion in 2018.

Buy a friend

Google bought Motorola’s mobile business division in 2011 for US$12 billion. Motorola’s vast portfolio of patents in the mobile space was needed to shelter manufacturers using Android (and Google) against lawsuits from Apple and Microsoft and other companies. The success of Android (and Google’s revenues from advertising) hinges on getting the OS onto as many manufacturers and as many devices as possible and hence, Google sold Motorola to Lenovo a few years later.

The purchase of HTC is for a totally different reason altogether. Google’s Pixel phones are currently an OEM from HTC. Google is paying US$1.1 billion to take over the HTC team that is currently working on the Pixel phones. Having a dedicated team allows Google to launch its own smartphones that are well integrated with Google’s own suite of software and apps.

A friend and a foe

Samsung and Apple continue to dominate the smartphones market, with a combined market share of 34% in 2017. Huawei and Oppo are ranked third and fourth but their combined sales are still lower than Samsung in volume terms. Clearly, Samsung is critical to the success of Android (and Google). Not content to be just a hardware manufacturer, Samsung tried to launch its own OS, Tizen, but rather unsuccessfully. Google signed a cross-licensing agreement with Samsung, effective for ten years in 2014, that helps both companies defend against potential litigation and has brought the two companies closer.

Samsung could still be tempted to launch its own OS as the company tries to draw revenues from services rather than just hardware sales. Strengthening Google’s own mobile team and helping other smartphone manufacturers like LG and HTC that are struggling can help Google combat the might of Samsung, albeit to a small extent. Google needs other smartphone manufacturers to be successful so that there are more users of Android and Google makes money from advertising and other services from smartphone usage. While LG is also struggling in the smartphone space, LG has its hands on many other businesses. HTC is a lot more vulnerable and hence, the transfer of the pixel team.

 

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