HTC retains brand but lets part of their smartphone business go.

Google has announced a $1.1 billion cooperation agreement under which certain HTC employees – many of whom are already working with Google to develop Pixel smartphones – will join Google.

Leading into today’s news, shares of HTC were halted on the Taiwan Stock Exchange pending this Wednesday night announcement.

Over the past month, we’ve heard from multiple sources familiar with the matter that Google was in the final stages of negotiating a deal with HTC and that it was “imminent.”

According to the announcement, HTC will receive $1.1 billion in cash from Google as part of the transaction, with about half of the 4,000 people in the company’s R&D team (“Powered by HTC” division) joining Google. At close to 2,000 folks, that comes out to roughly $500,000 per HTC staffer.

Separately, Google will receive a non-exclusive license for HTC intellectual property (IP).

HTC will continue to operate their VR business and keep their factories. Google will continue to have access to HTC’s IP to support the Pixel smartphone family. The transaction is expected to close by early 2018.

Google VR & HTC

Google and HTC already have a close working relationship, helping to push forward the tech giant’s commitment to virtual reality.

The two companies have already collaborated on the Google Pixel and Pixel XL smartphone since last year. The first Daydream ready phone, the Google Pixel powers Google’s Daydream View VR headset. You can slide the device into the front of the headset and use the phone’s display and computing hardware to immerse yourself in VR.

Then came the announcement at Google I/O in May, where Google revealed they would be launching an inside-out tracked standalone headset with HTC. Expected to drop late this year, the headset (rumored to be named the Vive Focus), operates on Google’s Daydream platform and utilizes Worldsense inside-out positional tracking.

Google already makes use of the HTC Vive to bring their own VR experiences to consumers, launching Google Earth, Tilt Brush, and Blocks on Vive. In May, Google acquired Owlchemy Labs for an undisclosed amount, the pioneering VR game studio that developed Job Simulator.

So what does this all mean for VR?

Considering the close relationship between the two companies, you can bet its not lost on how VR will play a larger role moving forward. For the most part, Google acquiring some of the smartphone business may be seen as a lifeline for HTC, but in a way, its also a no-brainer to further develop and expand Google’s hardware division.

The announced deal lets Google further challenge Apple’s device dominance with its own premium phone of their own. But more importantly when it comes to VR and AR, Google can better steer Android in a preferred direction, letting them ship Android devices with newer and more secure software, including VR platforms like Daydream and AR platforms like Google’s ARCore.

In 2012, the search giant paid $12.5 billion for Motorola Mobility, a leading Android handset manufacturer. In less than three years, Google sold it off to Lenovo Group Ltd. for under $3 billion. The Motorola deal at the time was not about manufacturing, but building moats for Android against competition. But this HTC deal is all about the manufacturing. From manufacturing capacity, supply chain expertise, and design talent, the deal helps bring the next generation of hardware from Google.

HTC is already the manufacturer of the upcoming Pixel 2, putting Google in a better position to absorb HTC’s manufacturing facilities into its own hardware unit very quickly. Google last year hired Motorola’s former president, Rick Osterloh, to run its hardware business.

HTC Vive has been facing stiffer competition, especially when it comes to pricing, where the Vive is still priced higher then others even with a price reduction last month to $599. HTC is still one of the only major players successful at actively targeting the commercial VR market, standing out among the Oculus Rift that just got a price cut of their own.

Image Credit: Jonathan Nafarrete for VRScout / HTC