This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

The Big Question About Google's Motorola Acquisition

Stocks in this article: GOOG AAPL RIMM DELL HPQ

NEW YORK ( TheStreet) -- We are only days away from Google's (GOOG) first earnings release since it closed its largest acquisition ever: Motorola Mobility.

Unlike Google's previous quarterly reports, this one won't be an all-sweetness-light-and-jingles affair. Instead, it is likely to be more like a congressional oversight hearing chaired by Darrell Issa (R., Calif.).

In other words, Google's management had better have a great story to tell about what it will do with the new Motorola businesses, or there will be some angry shareholders.

When Google reported results earlier in 2012 -- January and April -- the stock tanked in response. Does Google know what it takes to prevent that from happening a third time in a row?

In it last quarter (March), Motorola did $3.1 billion in sales and lost $86 million. Breaking it down, the mobile device business had $2.2 billion in sales and an operating loss of $121 million, compared to the Home division's $884 million in sales and a $68 million operating profit. Considering Google's own $10.6 billion in revenue and $3.4 billion in operating profit, this acquired Motorola business could have a material impact on results.

If Motorola's bottom-line results improve significantly and it turns a profit, this acquisition could at least help Google's EPS. Likewise, if Motorola deteriorates further, it will drag the mother ship with it down.

In order to understand Google's options better, we need to break down Motorola's businesses into four major categories:

1. The dominant reason Google acquired Motorola.

2. The "obvious" business that fits with Google's possible long-term strategy.

3. The parts of Motorola that are at least plausible in a Google strategy.

4. The other parts of Motorola that Google would presumably have no interest in.

Let's take these one by one:

1. It is presumed that Google's panic-purchase of Motorola had everything to do with Motorola's patents relevant to Google's Android strategy. Google's licensees -- most notably HTC -- were at the time taking it on the chin from Apple (AAPL) in the patent wars, and Google's acquisition of Motorola was perceived as the bold but necessary step to stand up for its ecosystem.

In other words, the patents aren't going anywhere, no matter what.

2. It follows to some degree that Google might integrate Motorola's smartphone and tablet businesses in order to compete directly with Apple and Research In Motion (RIMM). After all, they are both vertically integrated -- hardware and software. In addition, Apple is constantly held out as the example everyone must now follow because the integrated formula has been so successful.

1 of 3

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs