Here is a Crazy Thought: Google Should Buy HTC’s Crumbling Mobile Division

The time is right for Google to re-enter the hardware manufacturing market, this time all-in...

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Almost exactly six years ago Google did something quite unexpected: they announced they were purchasing Motorola Mobility. At the time Google was not really building its own hardware for its Android division, nor were they branding any Android hardware as their own. They had the Nexus lineup but Nexus was always about partial ownership between Google and the actual device manufacturer.

Some saw this takeover as early signs that Google would begin building their own hardware and were hopeful. However, it wouldn’t be a stretch to imagine that some of Google’s partners were worried that Google would begin showing favoritism to its own units instead of supporting the OEMs that were largely responsible for Android’s exploding growth. Google did much to assure partners that they would be keeping Motorola separate from its core businesses, and that it would be treated as any other partner — for the most part, they followed through. Little change came from this partnership as Motorola was quickly spun off less than two years after the acquisition was completed, and then Lenovo took over the brand. Why Google bought Motorola is no mystery, though. Motorola had a vast patent portfolio that Google can use to help defend its partners and thereby prevented the patents from falling into the hands of those who would purchase these patents and bring frivolous litigation against them. Why Google sold them is more of a mystery though. Motorola was shaping up, they had just launched their Moto Maker system which was an industry first and showed exceptional promise with the Moto X and Moto G sub-brands with their phones gaining traction after years of falling into forgottenness.

Samsung, still the largest Android vendor and more unmatched in 2014 than today, is nearly always mentioned when revisiting this situation, and evidence supports these rumors. First comes a patent agreement between the two mega-companies on January 27th of 2014 followed by rumors on the 29th that Google was strong arming Samsung into toning back its UI — which it has — and its offerings in terms of music and video services — which it also has done. However, in any negotiation there has to be give from both sides, and late in the day on the 29th Google announced its sale of Motorola to Lenovo, minus the patents. There is no conclusive evidence that these situations are linked, but they are suspiciously coincidental. Fast forward 2 years and Google unveils the Pixel line of smartphones, Google-branded but not Google-built products that lead the charge as the face of Android. So if Samsung was indeed the cause of the Motorola sale, why is Google allowed to push its own branding and should Google be looking to take it further?

That was years ago, and 2014 saw a vastly different market than what’s there today. Samsung held onto nearly 31% of the global market share of smartphones with the nearest single vendor being Huawei at a measly 4.7%. Lenovo and LG followed closely at 4.4% and 4.3% bringing the three company total to a messily 13.4%. Samsung dominated the Android market by a share of many times over and largely steered the public perception of the OS. Google could not risk this partnership, especially with Samsung gearing up development in its then intimidating Tizen operating system (though now we know what came of that). However, in 2017 Samsung finds itself in a more troubling situation. Note7 disaster aside (though it still placed a large dent in their Q4 16′ performance) Samsung has dropped to 23.3% market share but more troubling than that is that Huawei, Oppo, and Vivo combine to 23% of the market with Huawei shipping over 21% more phones this year than last while Samsung remained flat. Samsung is still a large motivating force for Android, but Samsung is no longer the force moving Android forward and in terms of sheer growth — they have not had nearly enough growth in comparison to their competitors within this time window. Google knows this information and is seeing that Samsung is no longer the dominate force they once were and this could have led to Google coming out with its Pixel branded smartphones despite them obviously making waves with partner relations — especially in the United States. But is Google going far enough? I think it time for Google to get its hardware groove back on, and HTC is the perfect company to purchase to make this happen.

This year, based on the leaks we know that Google will be sourcing its Pixel phones from two vendors, HTC and LG. While the similarity of the Pixel pair was once apparent, it is not quite the small and large pairing that Google, Samsung, and Apple have all been doing so far. What happened? No one really knows, but unlike in 2016 there is more than just a size difference between the two devices, which is likely not what Google envisioned for its Pixel phones originally. Why HTC is no longer building the larger Pixel XL is anyone’s guess, but the fact that HTC is one of the few vendors not looking to release a tall ratio smartphone in 2017 could have something to do with it. That does not change the fact that HTC can still make solid hardware just like they have done for years. What it does mean though is that due to HTC’s fall from grace as a top smartphone vendor it has very little clout in the parts market leaving HTC unable to develop devices that are competitive on multiple fronts. After HTC’s near historic downfall over the past number of years, they are left with only two valuable divisions — the handset division and Vive VR.

Rumors started to swirl late last week that HTC may looking at its options to part out its divisions . While HTC was quick to discount this with a “no comment” these rumors stemmed from Bloomberg — hardly a shady source of insider information. These rumors also make sense when you look at the bigger picture. HTC is essentially dying on the vine right now, with even the widely praised U11 failing to sustain an improvement over last year’s already dismal results , as they have been for the past few years. If HTC is indeed looking at selling, they would look into parting out the company into two halves, the handset division and Vive.

Google seemingly has no immediate need for the Vive VR division having its own Daydream VR system along with Google Glass, Tango, and the newly announced ARCore projects innovating in AR. However, Google buying HTC’s handset division could be highly profitable for the company. Despite having its own hardware manufacturing ties, though at a lesser scale, Google could leverage HTC’s factories, 20 years of experience, industry ties, and personnel to quickly get a strong and modern Pixel hardware division underway. Many probably wouldn’t be wrong to point out that HTC could not keep up with Pixel demand last year leading to out of stock issues persisting well into 2017. There could be many reasons this occurred but I doubt it was due to HTC’s inability to produce the phones in a timely fashion. It more likely could be that HTC had an inability to front the costs to stock large amounts of components and produce millions of devices before launch due to their current market value and standing financially, despite Google’s backing.

Samsung is no longer the force moving Android forward and in terms of sheer growth, leaving room for Google to enter the marketplace…

Google’s parent company Alphabet has been involved in these rumors of HTC parting out its divisions, and while on the surface it can be seen as a potential stake in the Vive division, I feel that it could have more to do with the handsets — it just makes more sense. Rumors of Google developing their own hardware have been around for a while now but we haven’t yet seen any concrete information pointing to them developing and manufacturing in-house. They do have their hardware division that does not appear to have the scale for a massive handset operation. Buying an already developed and mature system makes for an easier inroad and the Pixel branding has planted its seeds in the mainstream market. Still, there is the issue of the Android partners and how a firm and direct move like this could be seen. As I mentioned earlier though, the market is more diverse now than it was 3 years ago when Samsung had a much larger stake in how successful Android would go on to be. That doesn’t directly scale back Samsung’s grip on Android but their failure to produce anything marketable with Tizen and their decreasing market share puts Google into a far more favorable position.

Google’s purchase of Motorola was the right move for the wrong company and at the wrong time for a handset division, but they did benefit from its vast patent portfolio though. However, Motorola was a far more established namesake and part of the cost of acquisition was that legacy increasing both the cost and the public perception of the situation. Google no doubt has been learning from Microsoft’s mistakes would not want to have the same issues they had with the Nokia brand, so buying a company that has already fallen out of the limelight is preferential. Finally there is the cost. Google bought Motorola for over $12B in 2012 and sold the handset division for just under $3B. Right now HTC is only worth $1.9B, and likely far less if Vive gets parted out to another buyer.

I don’t think there is going to be a much better time for Google to make a decisive move into the hardware manufacturing marketplace and HTC may be the company to get them in there.