Google Keeps Bleeding Through Motorola

There is no bandage large enough to stop Google (NASDAQ: GOOGL  ) from bleeding through its Motorola subsidiary. The controversial acquisition hasn't exactly yielded the benefits that Google was seeking when it bought the struggling handset maker for its intellectual-property portfolio, and Moto continues to generate substantial operating losses.

The search giant reported earnings on Thursday, and Motorola's performance is getting worse before it gets better. The smartphone vendor generated $998 million in revenue during the second quarter, which was up from the $843 million in sales from a year prior (excluding the home segment that has since been sold off).

That all translated into an operating loss of $342 million for the hardware operations, or a negative-34% operating margin. Google closed the acquisition in Q2 2012, and Motorola's cumulative operating losses since then now stand at $1.73 billion.

Source: SEC filings.

Earlier this month, there were reports that Google was potentially committing another $500 million in marketing for Motorola's upcoming products. In light of Motorola's continued operating losses, investors now get an idea of how immense that budget would be. The Moto X is set to launch soon, and the company has begun rolling out an aggressive ad campaign focusing on its being made in the United States.

On the conference call, CEO Larry Page declined to address that rumor specifically, but reiterated that Google continues to operate Motorola independently as to not alienate other Android OEMs, and that Google runs Motorola like it would run any business.

At this rate, Motorola is on track to keep losing over $1 billion annually. That's a little better than Microsoft, which just ate $900 million last quarter alone over Surface inventory charges (more than half of Google's cumulative Motorola losses), but that's still quite a sum for the questionable acquisition.

Can the Moto X turn things around? Not unless Google can cut Moto's operating expenses significantly first.

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  • Report this Comment On July 20, 2013, at 4:45 PM, aza400 wrote:

    Who cares its been a year, turn around doesnt happen over night. The question isnt where will Google be next month (even though the stock will break 1000) its where will Google be in 5 years. Im an investor not a trader and I thought The Motley Fool was about investing. Decide what kind of site this is. Is it for investors or traders? Google will be a 5000 dollar stock in 5 years.

  • Report this Comment On July 21, 2013, at 10:26 AM, ScottAtlanta wrote:

    wow Aza....that's some prediction....300B (current market cap) x 5.+ >= 1.5 trillion, that's a lot, in 5 years -- given that it's not the only company that will be growing. It would have to massively subsume whole industries -- where everyone is driving in a google car for example -- all in 5 years...unlikely since others are also working on self-driving cars and adoption rates aren't goign to be 100% from the git go.

    No doubt Google will be bigger in 5 years....but if you want that type of growth, perhaps look to a smaller "big cap" say a company with a market cap of 1 -4 Billion that may be 10 to 20 times bigger in 5 years.

  • Report this Comment On July 21, 2013, at 12:39 PM, SRNoyes wrote:

    Google will divest MMI in the next 2-3 years, keep its IP and do a multi-billion dollar write off. Given how Google is very open with what it is working on (driverless cars, fiber, google Glass, ...), there is no product on the horizon (3-5 years) with any profit potential (Glass will make the Surface RT look like a massive hit). With a near 0% operational income growth and no dividend, GOOG should be trading with a P/E of 10-15.

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