Rumors have been circulating in recent days that Google has been lining up a bid for HTC — either the entire company, or just its mobile devices unit. Today, Google officially showed its hand: certain HTC employees, including many who are working on Pixel smartphones, will join the Alphabet company.
In return, HTC will receive $1.1 billion in cash from Google. That sum also gives Google a non-exclusive license for HTC intellectual property. The transaction is expected to close by early 2018.
HTC claims the deal does three things for the Taiwanese company: supports its continued branded smartphone strategy, enables a more streamlined product portfolio, and gives it greater operational efficiency and financial flexibility. We’re not quite sure how the first one is justified, but the last two make sense. HTC’s phone business has been bleeding money for years, and this finally gives it an out, although not quite. HTC still plans to release at least one more flagship phone, in addition to its investments in VR with its VIVE business, IoT, AR, and AI.
Google meanwhile gets a phone engineering team it is already familiar with, access to HTC’s IP to support the Pixel smartphone family, and a notable presence in Taiwan. All this, for a fraction of the cost of the last such deal.
Google is no stranger to buying out mobile hardware companies. Way back in 2011, the internet giant snapped up Motorola’s mobile devices arm, Motorola Mobility, in a $12.5 billion deal, before offloading it less than three years later to Lenovo for just $2.91 billion. One of the reasons for this financial shortfall was that Google didn’t sell exactly the same entity it had procured — it kept a vast arsenal of patents which represented one of the key reasons it had bought Motorola Mobility in the first place. But for one reason or another, Motorola just didn’t work out for Google as a partnership, which is why it cut its losses.
That Google has elected to give a second go of bringing (part of) a devices manufacturer under its wing shouldn’t be all that surprising. The company knows that hardware and software must be tightly intertwined for the best experience, an advantage its rival Apple has long held over it.
HTC is an obvious choice for Google for a number of reasons. The duo have been technology partners for years, and it was HTC that Google selected to manufacturer its first Nexus-branded device back in 2010, while the Taiwanese company was also brought on board for its new Pixel lineup last year — a partnership that’s expected to continue with the new Pixel phones later this year.
But it’s not just about existing relationships. HTC’s shares were sitting at around NT$65 Taiwanese dollars this week, significantly lower than their NT$1,300 peak in 2011, a point in time that kickstarted a six-year decline. The company’s revenues have been in freefall too, with HTC reporting income of NT$3 billion last month, down more than 50 percent year-on-year.
And it’s against that backdrop that Google has come a-callin’. This likely isn’t another “Motorola mark II,” it’s not about patents — it’s very much a strategic purchase, but one that’s about becoming a bigger hardware player. What better candidate than a long-term partner that is down on its luck, and which builds well-regarded Android smartphones?