This is an enigma, wrapped in a mystery, shrouded in an inscrutable mobile strategy. Image source: Motorola Mobility
Earlier this week I posted my thoughts on Google's (GOOG +1.71%) mobile plans now that the Nexus line of Google-branded devices might be coming to an end. My first takeaway?
Google has never given a Nexus assignment to Motorola Mobility, which now is a division of Google itself. It's high time to take ownership of Android hardware, in a way that the Nexus program never really allowed.
Brilliant idea, right? I thought so.
And then Google sold Motorola Mobility -- or at least the handset design piece of it -- to Chinese hardware giant Lenovo. My thoughts on Motorola playing an important part as Google marches into a serious Android hardware future just became null and void.
Reporting the fourth
Before diving into Google's new direction, let's consider what the move means for the company's fourth-quarter report tonight.
Motorola is likely to be bundled up under "discontinued operations" this time. Big G should provide non-GAAP numbers excluding this division's impact, both for the freshly completed quarter and for the year-ago period. Investors need some way to compare apples to apples, and this is the way to do it.
Motorola Mobility has tended to deliver between $1 billion and $1.5 billion in quarterly revenues, with holiday quarters leaning toward the upper end of that range. The division also loses money like clockwork, so operating income will get something like a $250 million boost from this exclusion. That works out to a bottom-line boost of about $0.70 per share.
If analysts don't manage to raise their estimates accordingly before the report drops, you'll see Google blowing their Motorola-bound estimates out of the water. Don't pay too much attention if that happens, given the unique circumstances around this particular report.
So, what's next?
Google-branded devices like this Nexus 5 phone will have to keep coming in from third-party partners now. Image source: Google Play Store
OK. Looking beyond tonight's earnings event, what does the Motorola deal mean to Google's mobile ambitions?
Well, we're back where we started before Google bought Motorola in the first place. Google clearly has no intention to copy the Apple (AAPL 0.85%) business model of tightly integrated hardware and software, no matter what I said on Monday. Instead, Google returns to a relatively hands-off Android approach, letting a plethora of hardware partners do the heavy lifting.
Google reportedly charges handset makers for the right to use features like the Android app store and other core apps. Apart from that, any Android sale is about as valuable to Google as a freshly bought iPhone. And yes, iPhones do help Google as long as the Apple user keeps tapping into Google's massive ecosystem of online search and marketing assets. Every online session -- particularly in Web browsers like Chrome or Safari and their mobile versions -- is a potential for Google to sell ad space.
The two biggest reasons for Google to keep pushing the Android platform are pretty simple. First, growing the number of Internet users is good for Google's revenues, so why not give consumers another alternative to Apple? Second, Apple might jump ship and start using competing services by deafult at some point, so it makes sense to make an in-house platform that won't point its users outside of Googleville too often.
Selling Motorola's handset operations puts Google back in this gatekeeper role, with a much smaller stake in direct hardware sales but also a smaller risk of scaring away longtime friends like Samsung. So, it's back to Android 101.
Did this sale make any sense in the end?
As a Google shareholder, I think it's better this way. Motorola was an albatross to Google, haunting the company with high costs and unfulfilled promises. The division was always a bit outside of Google's core competence. It's time to let go of a frustrating experiment that just didn't work.
Now watch Google turn this argument on its head tonight by reporting massive sales of the new Moto X and Moto G phones. Unlikely, but anything is possible. If so, I'll have to figure out why Google would sell Motorola just as it turned the corner.
This job is never boring.
