Google will acquire Motorola Mobility Holdings, the company announced Monday, in a surprise move that for the first time puts the company squarely in the smartphone hardware – rather than solely software – business.

"The combination of Google and Motorola will not only supercharge Android, but will also enhance competition and offer consumers accelerating innovation, greater choice, and wonderful user experiences," Google CEO Larry Page wrote in a post on the company's official blog.

Google will acquire Motorola for approximately $40 per share in cash, or around $12.5 billion dollars, "a premium of 63% to the closing price of Motorola Mobility shares on Friday, August 12, 2011," according to Google's press release.

"This transaction offers significant value for Motorola Mobility’s stockholders and provides compelling new opportunities for our employees, customers, and partners around the world," Motorola Mobility CEO Sanjay Jha said in a statement.

Over the past three years, the smartphone arms race between a handful of companies has been cutthroat. Research in Motion, once the dominant player in the handset space, has been bleeding share since the introduction of Apple's iPhone and the Android operating system. A dwindling Palm was acquired by Hewlett-Packard in 2010, hoping the backing of a massive company will help its handsets and operating system gain share in the competitive space. And of course since Google and Apple entered the ring in 2007 and '08, respectively, nothing has been the same since.

But this is a landmark moment for Google, a company which has not had a part in owning any of the hardware on which its operating system runs thus far. Apple, RIM and HP, by contrast, all own both the software and hardware aspects of their respective product offerings.

Google and Motorola have a history of working together since Android debuted in 2008. While HTC was the first manufacturer to produce an actual device for Google's mobile platform, Motorola's 2009 Droid release was the first true Android handset to stack up against competitors in the smartphone wars. Over a quarter of a million Droid handsets sold in the first week of the phone's release, according to analyst estimates.

More than that, the Droid handset launched the Verizon-backed Droid campaign, the carrier's effort to pair handsets from multiple manufacturers with its wireless service. The Droid branding worked well, signing millions of new customers to Verizon's network while simultaneously making the Android operating system a household name.

Motorola produced some of the most innovative mobile hardware in the industry this year. In January, the company turned heads with two major device announcements – the innovative Motorola Atrix, and the Xoom tablet. Unlike any other handset that came before it, the Atrix can turn into a smartphone-laptop hybrid after plugging the phone up to its laptop dock accessory. Similarly, Motorola's "web top" interface provided users with a desktop-like environment when hooking up the Atrix – and a number of its 2011 smartphone releases to follow – to a PC docking station. And of course, the Xoom was the flagship tablet product to launch Android's tablet-optimized software version, Android 3.0 (Honeycomb).

Google claims its Android operating system will remain open to all manufacturers, despite the plans for the acquisition.

"Our vision for Android is unchanged and Google remains firmly committed to Android as an open platform and a vibrant open source community," Android head honcho Andy Rubin said in a statement. "We will continue to work with all of our valued Android partners to develop and distribute innovative Android-powered devices.”

“We welcome the news of today‘s acquisition, which demonstrates that Google is deeply committed to defending Android, its partners, and the entire ecosystem," HTC CEO Peter Chou said in a statement. HTC, a fast-growing Taiwanese handset manufacturer, is a major rival to Motorola.

Part of the impetus behind the deal seems to be the history of ongoing patent lawsuits and headaches Google has faced with its Android platform. Recently, Apple, Microsoft and a consortium of other companies banded together to purchase the now defunct Nortel's patent portfolio for a record $4.5 billion U.S., a move seen as potentially damaging to Google in terms of future potential litigation.

"Our acquisition of Motorola will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies," Page wrote.

"We've seen some very aggressive licensing demands in the ecosystem," Google chief legal officer David C. Drummond said on a conference call on Monday. "Having the portfolio will keep Android an open and vibrant platform, one that lots of companies can take advantage of."

Motorola CEO Sanjay Jha claims his company owns over 17,000 patents worldwide.

Google's Android operating system is currently the most widely used mobile operating system in the United States, and nears the top spot for the highest mobile os in the world. There have been over 150 million Android activations to date, with over 550,000 new device activations occurring every day, according to Page's blog post. Those numbers occur across "39 manufacturers and 231 carriers in 123 countries," Page says.

Shares of Motorola Mobility Holdings (MMI) rose 56 percent on this morning's news.

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