Google (NASDAQ:GOOG) has long been one of the most profitable digital enterprises in the world, and now it is making a bold statement to be number one in the technology universe. This summer, Google is going on the offense with Apple (NASDAQ:AAPL) by claiming to be the only company in the world producing American-assembled smartphones.
By mid- to late August, Google will begin recruiting a workforce of over 2,000 to assemble mobile phones at a plant just outside Fort Worth in Texas. Just as Apple is beginning to run out of ideas, Google loads up on ammunition by designing and assembling a machine that can run its already-bestselling Android smartphone software. Clearly Google is prepared for war with Apple and is eager to prove it can become the new game-changer in the world of technology.
Back in 2011, when Google acquired Motorola, everyone assumed it was for the patents (i.e. the manufacturing business would be sold on the market once Google had obtained the patents required to protect Android from lawsuits). But 2 years later, the market realizes that Google's plan was much more ambitious: it wants to control the manufacturing too and bring it closer to home as well. Just like Apple, Google can now enjoy operational synergies by being able to control production of both the hardware and the software.
Even without the new label "made in Texas" on the back of Android phones, Google's robust search engine has given it a step ahead of all its competitors. And despite being launched after Apple's iOS phone software, Android has become somewhat of an international standard. According to Gartner, during the first quarter of 2013, 74.4% of all smartphones sold in the world run on the Android operating system. Apple's iOS operating system trails behind with 18.2% of the world's market share.
In addition, Google is expected to re-launch Motorola's comeback product later this year with the futuristic Moto X: a phone capable of predicting what its owner wants to do next. Imagine a phone that, given its position and motion sensor, will detect whether the handset is being held up or lying down, and change its behavior accordingly. So if you pull the camera out of your pocket and to the sky, the phone will automatically turn on the camera application.
On the other end of the ring, Apple is overhauling iOS, and the current rumor is that it will release updated versions for all its products (iPhones, iPads, iTunes) at a big-bang event in September.
Even though Google is preparing for battle with Apple in terms of product manufacturing, its longer term plan is to innovate and create a new battleground. This battleground is not the small screen in your pocket, but rather the wearable technology (i.e. Google Glasses and Apple SmartWatch). Both companies are reportedly developing these products and working to make them fashionable through advertisements and product placements at catwalk shows and Oscar parties.
Although printing "made in Texas" on the back will help Google sell phones in America, it will take more than that to convince adults, business professionals, and even teens to adopt the odd-looking glassware.
No article is complete without some financial analysis of a company. And this tech giant is definitely a company whose finances cannot be overlooked.
Revenues expected to increase 126.2% between 2009 and 2013
Net Income increases by 72.7% in the same period
Advertising Expenses increase by 753.8%
R&D Expenses increase by 152.9%
In my opinion, even though Google has not returned any visible dividends to investors, the money the company continues to expend in advertising and R&D will pay dividends in the future. And I continue to like Google for three reasons:
YouTube remains an underappreciated asset for Google despite being the best platform for migration of TV and other forms of advertisement.
Significant level of innovation at Google including its plans to create a new battlefield with the development of Google Glass and its plans to manufacturing an All-American smartphone.
Google's valuations are still quite attractive: despite being up roughly 21% YTD, Google has the sector's most attractive valuation on a growth-adjusted basis--trading at less than 1x P/E-to-Growth.
The future is bright for Google, and having the company compete fiercely against Apple is good for the technology sector and for everyone around the world.
Disclosure: I am long GOOG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.