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Google/Lenovo roundup: Margins, Nest, Project Ara, Samsung

After taking in Google's (GOOG) Q4 numbers, FBR estimates handing off Motorola Mobility to Lenovo (LNVGY) could boost the Web giant's op. margin by as much as 500 bps. Whereas Google proper has an op. margin of 34%, Motorola's losses dragged down the company's total op. margin to 29%.

TechCrunch reports that with Motorola gone, newly-acquired Nest will serve as Google's primary hardware team. Nest, founded by iPod "godfather" Tony Fadell, will reportedly develop gadgets very different from the smart thermostats/smoke alarms it's known for.

Many observers think the Lenovo sale is at least partly tied to Google's recent deals with Samsung (SSNLF). The reasoning: Samsung's reported willingness to embrace a vision of Android closer to Google's (toning down support for custom apps/UIs, and promoting Google apps/services) is linked to Google's decision to sell its mobile hardware unit.

It's possible Google also gave Samsung favorable terms in their recent cross-licensing deal. In terms of patent portfolio/breadth, Google held the upper hand.

In addition to keeping most of Motorola's patents, Google is holding onto the company's Advanced Technology unit, which is responsible for the Project Ara modular phone initiative.

Lenovo says it will keep the Motorola brand in the U.S., and that it aims to eventually pass Apple and Samsung to be the world's largest smartphone vendor.

Previous: Google earnings coverage

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Comments (17)
  • Jack Baker
    , contributor
    Comments (1117) | Send Message
    Google missed earnings, lost billions on the MM sale and proved it can't make money in the hardware game. And for this the stock goes up 40 points? Apple beats by 41 cents, prints 13 billion in a quarter and sells at a 70% discount to GOOG and the stock goes down 10%. What gives?
    31 Jan 2014, 11:41 PM Reply Like
  • abdullah999
    , contributor
    Comments (705) | Send Message
    I agree that Apple is dirt cheap. But Google has little competition, while Apple has tons. So I think the market is rewarding a dollar earned by a company with a wide moat more than one without one. The day another search engine captures any meaningful amount of market share, Google's multiple will also contract...
    1 Feb 2014, 12:40 AM Reply Like
  • Transcripts&10-K's
    , contributor
    Comments (1154) | Send Message
    "The day another search engine captures any meaningful amount of market share, Google's multiple will also contract..."


    You mean like Bing's near 20% market share in the US? What are the comparable numbers for Microsoft Office's primary competitor again?


    If you valued Microsoft on the earnings from the (former) business division alone, it trades at a much lower multiple that GOOG does currently; that's before considering the fact that Windows still generates right around $10B a year...


    While I think you're partially correct, there's also a big belief that Google can do now wrong - with pretty much every media outlet explaining away a ~$6B price tag (after all considerations, including nearly $2B in operating losses while a part of GOOG) for some of Motorola's patents when all is said and done. Google didn't gain another hardware partner, as many claim - they simply gave up trying to do so on their own (it may amaze people to know this, but Motorola wasn't selling any Windows phones when it was a part of Google lol); there's a good chance that's a smart decision from a capital allocation perspective - but it doesn't change the reality that they failed.
    1 Feb 2014, 03:56 AM Reply Like
  • june1234
    , contributor
    Comments (3534) | Send Message
    Google is to the internet what MS used to be to software. Google hasn't burned bridges with consumers the way MS did , quite the opposite.MS will stick with the enterprise and cloud which is why they named the head of their enterprise div their new CEO.
    1 Feb 2014, 05:11 AM Reply Like
  • Jiaberg-Sydney-OZ
    , contributor
    Comments (156) | Send Message
    1) The Wall Street and most in the IT media use the success of PC/Windows vs Mac as guide to the war of Android vs iOS. They forget that in the 1980's, half of the world manufacturing power was closed off- CHINA. China did not enter the pc making at all in the early days. The number of pc OEM's were limited to some brand names from US, Japan, Korea and Taiwan. With Android, suddenly the OEM participants jump by several folds most of which none of us have heard- even those large ones with China itself.


    2) PC OEM's in the 80's to the mid 2010's, more or less enjoying good profit level due to the initial limited number of OEM's when China was not open. Their names and brands built and hence could cope with the entrance of the Chinese non-brand OEM's in the last 10~15 years.


    3) With Google's Android, the situation is totally different. Huge wolf pack of Android OEM's from China plus the brand names of western-Japanese-Korea... make the sharing of the killing much less rewarding. In Nazi U-boat wolf packs, very few sub got to sink anything. But most got hunted down instead.


    It seems to me, Google Android dominance in this OEM wolf-pack is translating into continuing carnage for the OEM's as the Nazi subs did suffer in WW Two.


    4) Google itself directing this wolf pack attack has of course been targeted. Motorola Mobile was/is only part of the wolf pack. It has some kills but it also gets hunted down by the destroyers-sea planes escorting in the convoys. Its pans are bombed to simmering. No wonder Google is abandoning Motorola hardware.


    5) Worse, the Android wolf pack, dominant males and pups, are turning to advertising revenues to compensate for the low and often negative profitability. Google the Nazi u-boat high command is now losing its grip on its prize of lootings gradually and, within a short year or two, significantly. And this is just from advertising revenues in Android.


    6) Apple's own iOS devices still account for over 50% of all advertising revenues for Google from all mobile devices. Apple is clearly trying to get its hand on this with various projects and initiatives. Surely, once Apple's own presence reaches some critical mass, the advertisers will switch away from Google en-mass. This is the type of phenomena experienced commonly in the tv-radio media.


    7) So how has Google got from Android's market share? The Wall Street, the IT media and many commentators seem not looking beyond the bloody obvious. Yes it is bloody by just looking at the cash carnage of all Android OEM's (Motorola included) have suffered since Android introduction's in 2008.


    As in the Chinese saying, the glory path of a general is strewn with the dry bones of thousands.....


    8) However would the glorious general in Google-Android getting the lion share of the mobile devices be sustained?






    Android MALWARE.......


    9) Windows have had the history of malware creating a separate anti-virus sub-industry for the IT world. The corporate had to make sure that these anti-malware measures as their top priority in their IT strategy and day to day management. The concerns are bloody obvious.


    10) And yet, Google-Android ignore the need for this. It's never offered any sense of preventing malware as though it is a mere after thought while the DOS-Windows virus saga has been around for as long as Eric Schmidt has been in the IT industry.


    11) No wonder, more than 5 years after Android's introduction, Android hardly makes a dent in the corporate world. Apple iOS, with just one year lead, on the other hand has built some inroad in the corporate segment for the first time in Apple's history. GE has over 20,000 iOS devices and tens of apps for iOS for internal uses alone. Look at Apple website for such corporate presences and uses of iOS devices.


    12) The 2008 Android birth might have been like a 2013 late delivery. This has allowed MSFT Windows for mobile devices time to sort out their problems. By sticking with original Windows platform, MSFT have also brought with it all the anti-malware apps for its mobile devices. Plus the existing corporate internal security for Windows pc, Windows mobile devices have a secured home even with Apple iOS presence.


    Android on the other hand is still knocking on the door- more than 5 years after its first introduction. Poor bugger as Aussies would say.


    13) If the PC-Mac history has any guide, it is this MALWARE and security matter that should be the loud lesson. Once the malware problem is under control, internally and off-the-shell, corporate remain happy with PC and no amount of glamour that Apple has, it could not bring Mac to the corporate world in a significant manner.


    14) That is, Google did not learn the lesson of PC-Mac that it is the security matter and the corporate sector that will decide the fate of any IT devices that could be used by the consumer and business segments. Android's 2008 birth is more like 2013 if not later.


    15) I am now more and more confident that, once Windows mobile devices reach some critical mass sale volume both for the consumer and corporate segments, Android' days are numbered.


    At best, Android will remain consumer offering as only one of the 3 platforms. The OEM's then still will fight for the small share each in bloody pitch battles.


    At worse, Android may be assigned to history altogether leaving Windows mobile devices dominating over Apple iOS while Apple continues its way of being the maverick that most of its users love.


    16) So what has Google for out of Android? AGAIN. What has it got out of it?


    The advertising revenues from Android have never been as high as Apple iOS- Google has reported this quarter after quarter.
    Google is now losing own share in the Android advertising revenue.
    By all indications, Android advertising revenues will be lost in significant manner to Google in the next year or two.


    I will not be surprised, even vs iPod, the total revenue from Android made by Google itself is not as high as Apple has got from its MP3 players.


    How about vs Wii, Nintendo, Sony PS, and even Xbox?


    Let us not even worry about Mac and Windows pc's as it would be unkind to Google.


    17) Google should have a) NOT have licensed Android to any OEM's but built Android devices in-house with Motorola or otherwise when iPhone was still new to the market in 2008; and b) should have chosen the close platform as Apple has for iOS so that the corporate could accept Android with the same ease that iOS has.


    a) would have built pile of cash for Google while MSFT fumbling in its Windows mobile efforts till well into 2013 and perhaps 2014. Cash is cash and look at how Apple has been using its $150bn and how it will be using it. (watch this space.....)


    b) would have put Android in the corporate embrace allowing Android a more secured long term future even against Windows mobile devices from 2013 on.


    18) To me, Google-Android episode is one of the worst corporate strategic mistakes in the business history worthy of MBA case studies, economic history dissertations and Pulitzer Prize winning writing for at least 2 decades to come. The IT insiders will talk about it till they are grey and rickety. Even the Wall Streeters will look back with their heads shaking- not just at Google's mistakes but their own mis-judgements.


    19) The lesson for Microsoft-Windows in mobile devices? Simple...


    a) Do not create a huge wolf pack the manner Android packs are killing one another since its first day.


    b) Licensing Windows mobile devices to existing brand name Windows OEM's and a small handful of rising Chinese-Indian OEM's. This will maintain good profitability for all the OEM's.


    c) If MSFT wants to continue its hardware efforts, perhaps it should go for the VERY-TOP-end sub-segment which would then show its own hardware prowess over time against Apple's offerings. This then will also leave the OEM's happy.


    Business is about win win for all parties. The wolf pack mentality has not been wise....
    1 Feb 2014, 06:17 PM Reply Like
  • DanoX
    , contributor
    Comments (3075) | Send Message
    Google's competition for Ad money Facebook (starting to bite Google's ass), Twitter, Yahoo, Bing, Yandex, Baidu, Apple, Newspapers, TV etc.. In short anyone selling Ads. Selling Ads isn't exclusive or hard to do.
    1 Feb 2014, 11:59 PM Reply Like
  • DanoX
    , contributor
    Comments (3075) | Send Message
    In mobile Microsoft is in trouble, every mobile device is running something else, iWorks, works well without the ribbons.
    2 Feb 2014, 12:02 AM Reply Like
  • june1234
    , contributor
    Comments (3534) | Send Message
    Lenovo will keep Moto brand in the US but highly unlikely they will do the same with 2000 + people outside Dallas that made those phones leaving local, state and fed officials there crunching numbers to see how they will make up for that lost tax base
    1 Feb 2014, 05:00 AM Reply Like
  • samuel_liu
    , contributor
    Comments (2798) | Send Message
    Lenovo Buys Motorola, But Plans To Continue Making Moto X Smartphone In Fort Worth
    KERA News ‎- 2 days ago
    Lenovo officials tell KERA that "there are now no plans to change Motorola's approach to manufacturing." A spokesman for the city of Fort Worth ...
    1 Feb 2014, 05:17 AM Reply Like
  • june1234
    , contributor
    Comments (3534) | Send Message

    in an interview with Fortune following the signing, the Lenovo CEO:
    Will you continue making Motorola phones in the U.S., or will manufacturing shift to China? We haven't made a final decision. In my understanding, Motorola does customization of phones [in the U.S.]. If that is what the market needs, we will definitely keep that. It is a good model, so we may replicate that in other markets.
    Lot cheaper making them in China. Hard to find people in the US who'll make I Phones for $2 hr.
    1 Feb 2014, 06:20 AM Reply Like
  • PJS
    , contributor
    Comments (119) | Send Message
    Lenovo's decision to leave or stay in Fort Worth is a long way off. Lenovo continues to successfully manufacture many of its computer products in NC, so they have a working model for MotoX in Texas. Motorola's engineering, manufacturing and marketing potential was retarded by limp Google management. My bet is Lenovo's investment will look good 18 months from now.
    1 Feb 2014, 08:30 AM Reply Like
  • samuel_liu
    , contributor
    Comments (2798) | Send Message
    " Just 3.5% of Android devices in China use Google's Play Store. Although Android dominates the Chinese smartphone scene, Google is a marginal presence there. "


    BACK IN May -July 2012,
    G-Play was being blocked then so I count figure out whether it was HTC's Sense OS, Samsung Windows OS PC or Android at fault for my lack of experience.
    1 Feb 2014, 09:38 AM Reply Like
  • samuel_liu
    , contributor
    Comments (2798) | Send Message
    The Motorola sale involves giving Google a roughly 5% ownership in Lenovo.


    The last time IBM had ownership in Lenovo it got rid of those shares ASAP!
    1 Feb 2014, 09:40 AM Reply Like
  • PJS
    , contributor
    Comments (119) | Send Message
    "The last time IBM had ownership in Lenovo it got rid of those shares ASAP!"


    That was a mistake.


    Over the past decade LNVGF has pushed 2 times higher than IBM.
    2 Feb 2014, 09:24 AM Reply Like
  • techy46
    , contributor
    Comments (9492) | Send Message
    Lenovo buying Motorola has huge potential for Windows Phone. Look for Microsoft to use their position with Lenovo to foster Windows Phone and Intel to do the same once Atom 14nm is ready. Huge challenge for all mobile hardware in US is falling ASP and GM.
    1 Feb 2014, 10:35 AM Reply Like
  • Transcripts&10-K's
    , contributor
    Comments (1154) | Send Message
    "Lenovo buying Motorola has huge potential for Windows Phone. Look for Microsoft to use their position with Lenovo to foster Windows Phone and Intel to do the same once Atom 14nm is ready."


    Agreed. We know one thing for sure - Motorola would NEVER make a Windows Phone as part of Google; I love lines like this from the Wall Street Journal:


    "By buying Motorola and agreeing to license Android patents from Google, Lenovo has made it clear it’s betting its mobile future on Android."


    Apparently they don't believe Lenovo, which said the following: "There is no change in Lenovo’s partnership with Microsoft." The author believes that buying Motorola locks Lenovo into Android - without any justification for that conclusion.


    The article even said the following in an attempt to save face (maybe they realized just how ludicrous their argument was): "Of course, Motorola was unlikely to make Windows Phone devices while it was under the same roof as Google."


    Unlikely?! Wow, you think? That's what you call some great reporting WSJ...
    1 Feb 2014, 10:54 AM Reply Like
  • omnimoeish
    , contributor
    Comments (491) | Send Message
    Eric Schmidt said it only costs about an extra $8 to make the moto x in Texas than China when you figure the high costs of shipping these days. It is also the mechanism that allows the extensive customization while still getting people their phone within a decent amount of time. The problem is that motorolas capital investment and r and d are painfully underfunded compared to samsung and lg and htc. I don't think they had any way to make a 1080p screen. I think it's going to be pretty hard to differentiate phones on hardware features pretty soon though anyway. I'm pretty sure all sapphire screens is going to be quite a distinguishing feature. Waterproof will be standard. Faster processors sure but just like the PC sector, people are starting to realize good enough gets the job done short the bleeding edge PC gamers.
    2 Feb 2014, 02:55 AM Reply Like
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