What's Next for Googorola?

Googorola keeps inching closer and closer toward consummation. Then what?

Once Google (Nasdaq: GOOG  ) gets the regulatory green light on the remaining regulators throughout the world to swallow Motorola Mobility (NYSE: MMI  ) whole, what will the search giant do with its expensive new underperforming business?

That $12.5 billion price tag is quite a lot to pay for operating losses that are getting bigger before they get smaller. Obviously, the patents are the belle of Motorola's ball, so once Big G has those, what's to become of Moto's actual gadget biz?

These two tech icons don't look as if their bottom lines will play nicely with each other.

GOOG Net Income Chart

GOOG Net Income data by YCharts

That might not be the only source of indigestion, as gross margins also appear to have irreconcilable differences.

GOOG Gross Profit Margin Chart

GOOG Gross Profit Margin data by YCharts

There are a few scenarios that might play out.

Scenario 1: Google could keep the hardware segment, but to really come out with some game-changing devices, it would need to collaborate extensively with its shiny new subsidiary and take an integration page out of Apple's (Nasdaq: AAPL  ) playbook.

The problem there is that Google has already said it will build a "firewall" between the divisions to maintain Android's neutrality and trying to relieve its OEM partners' collective fears. The last thing it wants is to push OEMs directly into the welcoming arms of Microsoft (Nasdaq: MSFT  ) Windows Phone.

Catch-22 there.

Scenario 2: Once Google has the IP that it needs to play defense against Apple's legal assaults, it could simply just sell the underwhelming hardware businesses altogether, including Motorola's set-top box, or STB, and handset divisions. According to The Wall Street Journal, there are precisely rumors to this effect.

WSJ reports Google is already looking at potentially selling the STB business, and speculation that the company has already offered the handset business to Chinese OEM Huawei "at a high price." Both moves, if true, would be pretty bold: Buy an entire company, keep its patent portfolio, and then promptly hock the remaining pieces.

That's a daring trade, and I wonder how much of that $12.5 billion Google could recoup by pursuing that strategy.

There's no easy answer for the search giant. Google is like a big multicolored dog chasing a bleeding jalopy of a car because it has bacon in the trunk. What will it do when it catches it?

The entire Googorola deal is all about one thing: The Next Trillion-Dollar Revolution. Big G is one of the companies riding the waves to the mobile future, but check out this special free report for another one that literally has an inside track. It's free.

Fool contributor Evan Niu owns shares of Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Microsoft, Google, and Apple. Motley Fool newsletter services have recommended buying shares of Google, Microsoft, and Apple and creating bull call spread positions in Apple and Microsoft. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On April 13, 2012, at 12:25 AM, joshpritchard wrote:

    "That's a daring trade, and I wonder how much of that $12.5 billion Google could recoup by pursuing that strategy."

    You discuss the patents and operating businesses, but one needs to also account for MMI's cash and equivalents ($3.4B) and the value of its tax assets (from years of NOLs) -- they're estimated to be worth $1.7B to GOOG in 2012, then $700M annually through 2019. These assets alone will allow Google to "recoup" much of the headline acquisition price.

  • Report this Comment On April 14, 2012, at 12:27 PM, funspirit wrote:

    When GOOG bought Motorola they bought the cheapest at that time, market value wise, of the handset makers available.

    here is a column with added info about Google digesting Motorola.

    http://www.richmakesyourich.com/2012/04/challenge-of-digesti...

    Good column, personally i feel that they will use Motorola to build a cheap tablet to compete with the Fire and integrate new users into the Google ecosystem.

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