The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
The deal was a surprise to me as well. It was well known that Google was looking to add patents to fend off challenges from Apple (AAPL) and Microsoft (MSFT) (among others), but for Google to outright purchase one of its OEMs for the Android operating system was a surprise.
It puts Google into the low-margin, cutthroat hardware business (way outside of the company's core competencies), and also into direct competition with Android phone giants like Samsung and HTC.The deal has a direct effect on two recent Magic Formula stocks, and potential repurcussions for two others: InterDigital (IDCC) Effect: Negative Since wireless patent firm InterDigital put itself up for sale in mid-July, Google has consistently been the primary name linked to an acquisition of wireless patent firm InterDigital. Investors had bid the stock up from $41 to over $75 -- a 83% increase -- in anticipation of a buyout. Most surmised that a price for InterDigital could reach more than $5 billion (around $110 a share), considering that bankrupt Nortel's less substantial patent portfolio sold for $4.5 billion at auction just one month earlier. Apple and Samsung have also been mentioned, but Google was by far the front-runner. One of the key strategic drivers behind the Motorola Mobility purchase was to build out Google's patent war chest. Motorola gives Google access to 17,000-plus patents, with thousands more filed. After this kind of cash outlay, it is unlikely that Google is willing to drop billions more in the near term. While there are still plenty of big tech firms looking for patents, none are in as weak a position as Google was, which makes Monday's selloff in InterDigital understandable. Microsoft (MSFT) Effect: Positive Microsoft has struggled to get its critically acclaimed Windows Phone 7 (WP7) mobile operating system accepted. The company actually earns more from patent royalties on Android than on Windows Phone 7 licensing! Current market share is a paltry 5.8%. Even CEO Steve Ballmer has admitted that WP7 sales are "very small".
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