Huge announcement if true, and if this accounts for the entirety of the Motorola purchase that Google made.
That means that in less than two years, Google shredded 85% of the $13bn paid for Motorola. At the time, the high price paid was excused for the patents, because the business itself did not generate nearly enough earnings to justify the price. Now, if it is true that the patents are part of the deal (the article states they are), it's proof that these did not have nearly the value anticipated.
It's also a big statement on Google's ability to succeed in the hardware market, where they've never seemed to be able to gain real success despite their attempts with notebooks and phones.
Edit: the article states the deal would include more than 10,000 patents. Originally Motorola was estimated to have 17,000 patents at the time of its purchase by Google. So while this is still speculation, and we do not know full details, there's a good chance Google may have cherry-picked the patents they felt were important to retain.
Edit 3: The value destruction here isn't so bad as 85%. See Magicalist's comment below for a good summary - Google picked up a lot of cash, tax loss assets, and $2.2bn from the sale of one of Motorola's subsidiary businesses as part of that $13bn original purchase price. Still a loss but not as dramatic as the headline number.
They shredded closer to a sixth of the initial price less whatever IP benefit they received.
Motorola had ~$3B in cash when acquired. Google previously sold their set-top box unit for $2.35B and realized about $1.7B in tax benefits from previous losses. However since acquiring it has taken $1.038B in losses, which is $0.67B post-tax. There will be another write down for the lost goodwill less the value of the remaining IP that should be worth very approximately $1B. So including the $3B from Lenovo, they recouped approximately $10.4B of the initial $12.5B purchase price.
I want to know how long it took you to gather all the figures? and Where you collect them? I am currently working on a platform that help people become better investors. I found your analysis amazingly informative and concise! Thanks!
Quarterly and annual reports. The prospectus for the original sale. These are all public companies so the reports are on record.
Before you start coding or starting a project on this kind of thing please read up on how a company goes public and the reporting requirements and where these things are filed. Also talk to someone in the industry and pick their brain.
I'm in Canada and a requirement for even doing something like business reporting for media is a CSC certificate, which qualifies you for basic knowledge of the securities industry, how to read annual reports and ledgers. Please do the same type of research for the territories and/or countries that you are thinking of working in.
For example many of these types of documents are filed on sedar in Canada and on Edgar in the us. If these terms don't mean anything to you then you should read up on them.
You can find 10k and 10q statements through Edgar, in rendered form as well as XBRL documents which describe a hypercube. Warren Buffet also has a good book about how he reads P&L statements.
You have included cash which Motorola had when getting acquired but have conveniently ignored their short term debts (current liabilities) which they were liable to pay. A better number to look at is net working capital.
You're absolutely right that one needs to adjust for short-term liabilities since some of that cash would have gone to pay them (Longer-term liabilities would likely continue on to Lenovo). As big a question in this case is the amount of cash that will be in Motorola when Lenovo acquires it and was in their set-up box business when it was sold.
Unfortunately, the comment isn't editable so I'll add more detail here. The more accurate number is $3.32B in cash and equivalents less ($3.57B in current liabilities - $2.97 in current non-cash assets). This totals $2.72B.
However, I understated the tax benefit. Motorola had a $2.5B reserve against their tax assets since they weren't profitable, which is $0.8B less than my original estimate. So the total error from these two items is an understatement of Google's recoveries by $0.52B, which means they recovered about $10.9B of $12.5B.
Note that there are likely other errors still present in this new calculation due to both lack of information and less than thorough research.
WRT the patents, it depends on the details of the sale, and how/why Google valued them. Speculation was that one reason Google bought Motorola was to keep someone else from getting the patents and being able to use the patents against Google. If that was responsible for a large portion of the valuation, that might still be retained in a sale to Lenovo, depending on how precisely the sale is structured. It's fairly common in patent sales to include terms protecting the seller, so Lenovo would likely not be able to turn around and sue Google with the just-purchased patents. If so, Google would still retain the portion of the patents' value relating to them not being in the hands of someone who can sue Google using them.
Most of the patents have been pretty worthless so far. They are mostly standards essential patents that need to be licensed on FRAND terms and in the last 3 years they've had zero enforceable injunctions in their favor.
We don't know what patents google is retaining, so it's unclear whether they're FRAND or truly valuable.
Also, I've followed Nilay's post on several of these patent issues; he's either wrong or he sensationalizes to fit his narrative. I don't think he's very credible, even with a J.D.
We know the quality of the patents from what they've attempted to assert in courts in jurisdictions all over the world. They've not been successful anywhere.
Unless you want to make the leap that they've been holding back all their valuable IP from their patent assertions for some unknown reason, I think it's a pretty safe conclusion.
Why wouldn't they have used their strongest applicable patents? They may have more similar ones and maybe one or two will hold up but do you really think if they had some powerful non-FRAND ones they wouldn't have used them on Apple or Mircrosoft by now?
I don't understand what the point of that would be. Patents only have a limited life and the stronger stronger and broader they are the more they strengthen you negotiating position. Of course there is uncertainty so you don't going in which will survive sufficiently but you don't deliberately pick anything but the best.
I just don't see the scenario were you can't do a licensing deal with your opponent but you agree to use you second rank patents in the lawsuit.
The income stream is tiny or nonexistent. Microsoft recently challenged Moto's demands and ended up paying a royalty for every XBox. The royalty is so small that Google will end up having lost money on the litigation. And reasonable reading of the patents involved show that the royalty was grossly inflated. One of the patents was literally a patent on a number.
The purpose of patents in the smartphone wars is to force your competitors to deliver second rate phones or collect billions in damages. That's what Microsoft and Apple are doing to Android manufacturers. If Google can't retaliate, the patents are worthless in this context.
FRAND patents will never block Microsoft and Apple from using common, obvious functionality on their phones. Therefore they're worthless.
Microsoft have ignored standards and instead patented obvious necessary functionality and user interface elements and mathematical operations. Since prior art and obviousness are a dead letter at the Patent Office and the courts, these are the patents that are useful and valuable.
Essential technology patents based on research and development are worthless. Bounce-to-refresh, search boxes that actually search, long filenames, and other trivial or long known elements that can be forced past exhausted patent examiners are worth everything.
I'd say you hit the nail right on the head, but I find myself imagining this statement more like a compressed air nail gun shooting the nail so far into the wood that it splits; resulting in the entire house falling down.
I'd be shocked if Google doesn't get full access to use all the patents covered in the deal( assuming the reports are right and the patents are going to Lenovo), but even with that in mind a big part of the value of holding lots of patents in some technology area is (unfortunately) that you can use them as a nuclear option against someone who is suing you for some other patent to allow for MAD-style defense. IANAL but I'm not sure how they could structure a deal that gives away the patents but keeps that defensive option available.
Yeah, I'm not sure how straightforward it all was, but according to this article:
> At $12.5B, Motorola is Google’s largest acquisition to date. Google paid $40 / share in cash, but received ~$11 / share in cash and $8 / share in deferred tax assets. Thus the value ascribed to operations + patents was about $21 / share, or $6.3B, reflecting a multiple of ~0.5x sales and 12x EBITDA. Now adjusting this further for the $2.35B total consideration Google is expected to receive for the Motorola Home business, we get a purchase price of just under $4B for Motorola's handset business and patent portfolio (17K patents and 7.5K patent applications).
> It's also a big statement on Google's ability to succeed in the hardware market, where they've never seemed to be able to gain real success despite their attempts with notebooks and phones.
And Google TV. Let's not forget that huge failure.
"By the summer of 2012, the majority of the televisions you see in stores will have Google TV embedded in it."
-Eric Schmidt
I'll explain my Chromecast experience simply: We are either using Chromecast in my house, or DirecTV.
When we want to watch Netflix, HBOGO, or something on Plex, we fire up a phone or tablet, open the app, and Cast it to the TV. The Chromecast automatically switches the input and begins playing what we asked it to.
@Loki540 - You might be referring to the still in development Chrome extension. We don't use that much but I hear it has to be on a very solid wireless connection. Chromecast-ready apps do not have that problem.
@yetfeo - It only costs 30 dollars, and any app can choose to be a 'Chromecast' app by adding in their API. Our iPads and Android devices all can use the Chromecast and the variety of things we can do with it is superior.
Just curious - what do you usually use Chromecast for? I got it specifically to stream Youtube on my TV, and found that there was usually a > 1 second lag between the image on the TV and the sound on the TV. This has given me a pretty negative view of Chromecast - basically that it's just good for streaming visual-only things like slideshows etc. Have you found this not to be the case?
I think you're missing the Chromecast button on the YouTube page. You shouldn't have to mirror the tab to fling YouTube to the TV.
Mostly I use it for Netflix, Google Play Movies & TV, and Plex.
Also if you have an Android or iPhone the native application on either device will have the Chromecast icon to fling the video. It's the same icon in Chrome (and maybe other browsers? I'm not sure) to fling from your computer.
Definitely not. Since Chromecast is sending audio and video over the same connection (HDMI), this is likely a problem with your TV or the like. Do you have a complicated Home Theater setup?
I disagree. As someone who owns a Chromecast, I think you're doing a _huge_ disservice to the AppleTV. The Chromecast isn't a standalone device. Period. Full stop. It's basically a mildly improved AirPlay device that still lacks many features (even in the way of AirPlay). Off the top of my head:
1. The streaming isn't system wide. Developers need to incorporate the streaming ability into their apps whereas Apple has it builtin to the device.
2. My parents are unable to understand the concept of "flinging" content; they want it to be a DVR-like device. The AppleTV allows them to rent, purchase, or view previously obtained iTunes content.
3. Music sounds terrible through it. It lacks an optical audio out port so it just uses the TVs speakers which are obviously not great.
4. This is probably a personal issue, but Chrome tab streaming constantly drops out after a short period of time. I've yet to get it working fully.
5. AppleTV can support games being flung to the TV while using the iDevice as a controller. This isn't a selling point, but I'd like my N5 to do the same.
6. My TV (while being a 40" 1080p flat screen) is lacking a USB port so I do have to plug it in.
7. Am I missing where I can stream my Android device's OS on the screen? I know iOS allows you to stream the entire device's OS so you can give presentations and the like.
There are many, many things the Chromecast can't do. It's saving grace is its price point which lessens peoples' expectations but I wouldn't start saying the AppleTV should aspire to be it.
I look at that as a feature. I already have applications I'm comfortable with for browsing and selecting media. I just want a new rectangle to play that media on.
The fact that anyone on my Wifi can access it with their phone, instantly, with nothing to install is a magical experience.
> 3. Music sounds terrible through it. It lacks an optical audio out port so it just uses the TVs speakers which are obviously not great.
HDMI Audio Return addresses that. If your TV and receiver support that (I think most do?), then audio will flow from the Chromecast into your TV and back up the TV's HDMI cable into the receiver.
My Chromecast plays audio through the speakers hooked up to my receiver just fine.
> Am I missing where I can stream my Android device's OS on the screen?
Maybe Chrome for Android supports that? I don't think there's OS level support for Chromecast.
> There are many, many things the Chromecast can't do.
Sure, a boat can't do many of the things an airplane can, and vice versa. They're different devices with very different user experiences.
> 3. Music sounds terrible through it. It lacks an optical audio out port so it just uses the TVs speakers which are obviously not great.
I have my TV's optical audio out running to my receiver. That way all my HDMI devices (laptops, Raspberry Pi, Chromecast) are hooked directly to my TV and the audio is automatically sent to my stereo system.
> 4. This is probably a personal issue, but Chrome tab streaming constantly drops out after a short period of time. I've yet to get it working fully
I've never experienced this problem.
For point 6, I prefer to plug in the Chromecast to a real 5V DC power source because the USB port on my TV is only powered when the TV is on, and I like that Chromecast can turn on the TV and switch the input itself.
One other point I'd add is that I hate using my phone (or tablet) as a remote for my TV.
I have an Apple TV, and being able to stream content via Air Play for my local TV network, YouTube, and VLC Streamer was nice at first. And then over the months I slowly stopped bothering with my phone and kept grabbing the Apple TV remote.
Interacting with a TV through a phone or tablet interface, no matter how simple, is just not as nice as looking directly at the screen and interacting.
I watch less shows now because of it — because there are more options only available on my phone. I just can't be bothered to use them.
Well it has different viewing options ("more open" for whatever that's worth). Based on Google's own promotions for Chromecast you gain Google Play and Pandora, and lose iTunes. There's a bunch of other tradeoffs I'm sure (I assume, for example, there's a PBS app for Chromecast just as there is for AppleTV. AppleTV supports Amazon video via AirPlay -- which is good but not great; but Amazon video simply won't play on Chromecast.)
Chromecast is more intelligently architected than AppleTV (you hand off to Chromecast rather than remote-controlling it) but I suspect AppleTV will address this shortly. OTOH AppleTV works with any remote, and you can use any iOS device as a remote, and AirPlay is wonderful.
It still needs power though so it needs to be plugged into something - whether USB or wall socket. What are the open viewing options? It seems to only provide youtube and google movies in countries that don't have netflix. Does it support streaming a local video from a phone or PC?
HDMI (v1.4) alone is capable of providing power to the Chromecast, pin 18 is specced for +5V/50ma.
Not every TV/monitor supports this since there aren't that many devices out in the field that utilize HDMI power, but if your TV does provide power over the HDMI port then the Chromecast can get everything it needs just from the HDMI port.
Using your Chromecast this way puts you at a disadvantage with many TVs. My TV only provides HDMI power when the input is selected (this may be per the spec) but that eliminates Chromecast's 'switch the input automatically' feature.
In the (European) country that I live in, you can actually buy an Apple TV. Whereas Chromecast simply does not exist.
One can argue all day about how awesome Chromecast is, but if you can't buy it, well, it isn't really competitive. And this has happened with a lot of other Google products which where announced with great fanfare in the past.
Off-topic, I tried to buy a 1-dollar song the other day. This may come as a surprise, but not only Google, but also Amazon were not willing to take my money. Of course iTunes happily accommodated me, as it has always been doing for many years.
To some extent. Google has to whitelist the apps that use the API. Right now that means you have access to Google's media offerings (including Youtube and G+) of course, but also Netflix and Hulu. Not Amazon yet or (obviously) iTunes.
It will play your local music content, but only recently whitelisted a few apps capable of playing your own video files (even then the codecs and containers supported by Chromecast are a short list, so be prepared to do a bunch of transcoding).
It's not open for sure. But it's not bad either; at $35 I'm willing to forgive the lack of hackability (I have a linux box on the same TV for that, this thing is just a convenience).
And the UI is basically perfect: pull the phone out of your pocket, play the video using exactly the same apps you're used to, and just click the chromecast button to send it to the TV. No more hunting for remotes; on my TV it will even turn it on and switch to the right input source automatically.
At this point, mainly cost and size (just plug it into the back of the tv and it is out of the way). Potentially, apps, but that is a sore point at the moment, as there are not many to speak of.
It's cheap. I bought one for my bedroom tv which I only use when falling asleep. I already have a Roku for the living room. Until the SDK comes out their features cannot be compared.
In mine and my wife's parents cases, Netflix. They didn't even know such a service existed before though, or they might've had a different solution in place already.
My sisters, Netflix and for my younger sister mainly YouTube and Google Music (which she rarely used before she got the Chromecast, as she has an iPhone and the app just came out for iOS).
Agreed. We think this approach is brilliant and suggests Google sees the TV as merely another screen. Chromecast combines the web dev model with the processing power of PCs (and mobile devices), making it a more flexible and powerful way to reshape the TV as another computing endpoint. Most importantly, Google innovation no longer is constrained by TV manufacturers and their divergent interests. Here's a Google game console: screen (TV) + processing (PC) + controllers (mobile device).
Instead, by the Summer of 2016, the majority of living rooms will be using Chromecast or something similar running Android. Android will acquire a monopoly share in smart TV, exactly like it did in smart phones and tablets. In fact, the game is already over, the competition just doesn't realize it yet.
If they intend that, it is foolish. When you use a computer, you sit close to it to read. When you use a tablet, you sit close to it.
When you use a TV, it is far away. Yet TV manufacturers seem to think that you want to read on it. It is far away. Seems daft to me.
Considering they never actually exchanged money a single Q (the people who pre-ordered them wound up getting them free, as did I/O 2012 attendees), it doesn't seem to be so much of a failure as it was just market research on how to do it the next time.
Notwithstanding the built-in amp, the Chromecast is a pretty narrow superset of the Q at least in terms of features.
It makes me wonder how this will affect Google management's willingness to make additional attempts in hardware. For example, will they still push Google Glass? As you suggest, Google TV? Further out, they seem to be pursuing things like autonomous vehicles -- perhaps this could motivate them to limit their ambitions to the software/AI aspects of it.
I still think Smart TV concept and architecture is pretty failed from the market. From SetTopBox to Apple TV to Google TV, whenever I saw there is a box attached to the TV which can receive the TV program from the internet, it looks so weird to me. Maybe that's why it's not popular.
Eventually we need to get the TV be real smart and be controlled by the PC instead of smart phone which requires the Android to be embedded into the TV box in order to render the graphics.
I meant it as a comparison to how the Xbox was a failure for a pretty long time until it took off.
TVs with the ability to show a calendar, play Angry Birds and browse Youtube make sense to me, it seems like a natural progression of the good old set top box. If these new TVs run Google's OS, the company will win sooner or later...
I got your point now. So set top box, internet TV died. Now it's the time for smart TV which is controlled by the smart phone. I'm pretty tired about smart phone, too.
If TV is controlled by PC, I can play internet game on it and watch movies with high quality, like in home theater without the high cost.
Perhaps you can look at it from a different angle: Samsung made it very clear that they would continue to fork Android, unless Google stopped making smartphones and dropped Motorola.
In a way Samsung has much more leverage over Android than Google.
Google should be picking another OEM (Lenovo?) and doing everything it can to push its sales, to create competition for Samsung. The whole point of Android was that by making the OS free software, it would neuter the OEMs, not give them the power to fork the OS.
I agree. Think reason Rubin left Android team in Google was because google realized samsung had too much control and google wasn't happy with Rubin too much...
Google may not be able to keep all the tax losses. It was originally reported that google would save $700M a year through 2019.* I'm not sure that they those losses are severable from the rest of the company.
There are two types of tax losses. There are those related to previous losses that Google captured on acquisition. The $700MM a year estimate relates to the anticipated future losses of Motorola. While Google is losing that benefit, it is by definition less than the amount lost! So it's not actually a benefit.
> Now, if it is true that the patents are part of the deal (the article states they are)
The patents aren't being sold as part of the deal -- it's officially announced, and Google keeps the patents (or, at least, "the vast majority of" them) but Lenovo gets a license to them. [1]
[1] http://motorola-blog.blogspot.com/2014/01/motorola-to-join-l...: "Google will maintain ownership of the vast majority of the Motorola Mobility patent portfolio, including current patent applications and invention disclosures. As part of its ongoing relationship with Google, Lenovo will receive a license to this rich portfolio of patents and other intellectual property. Additionally Lenovo will receive over 2,000 patent assets, as well as the Motorola Mobility brand and trademark portfolio."
Wasn't there some story about how Motorola represented billions of dollars tax savings from deferred tax credits? Is it potentially possible to sell the rest of the business while keeping those?
> Seems surprising that they have to sell the whole Motorola division for less than they bought this little company Nest for.
At the time of the Motorola acquisition, it was widely portrayed that they were buying the patent portfolio and that the rest of Motorola was largely dead weight that came along with the patent portfolio. Since they are keeping the patents (but giving Lenovo a license to them), it doesn't seem like that bad of a deal.
As for why Google specifically acquired them? Possibly because a general partner at KPCB (Nest's biggest investor and one of Google's early investors) also holds a seat on Google's board. Nest was one of Google Ventures largest investments and Google Ventures holds a seat on Nest's board. There's nothing like having the seller also be the one involved in the buying decision.
Nest makes great products and has an awesome team. I think they're worth more than what Google paid.
.. considering 1. Motorola had cash on hand and tax credits worth $3B. 2. Google sold Motorola's STB business for $2.4B to Arris. 3. It valued the acquired Motorola patents at $5.5B.
Considering #3 is overvalued by 100%, it still comes to a loss of about $2b. But the gains would not be just monetary as Google now has a patent portfolio to be a stronger player in the smartphones business, and has had a say in the organization of the smartphones hardware segment which it can leverage.
It says in paragraph 3: "Under this deal the search giant will keep the majority of Motorola's mobile patents, considered its prize assets."
This is the silliest HN thread I have ever seen. All the time it was considered proof that Google is evil that they compete with other makers of Android handsets. People who like Google said from the beginning that Google was forced to buy Google because of the patent wars getting out of hand. Now that claim has been validated.
I am really, really surprised by this HN thread. I've been on HN for 6 years and have never seen anything like it.
Even if Google had to give Motorola away, the deal was good for them. The acquisition spurred a huge quality jump in the Android ecosystem and today Android outsells iOS by a 5-1 margin.
I'm not sure if someone has said this but I think it was stupid for Google to get into the smartphone hardware business because it put them in direct competition with their partners. I bet you that all over the world management at HTC, LG, Samsung, Sony, Huawei, you name it, will be breathing a collective sigh of relief.
If this story is true, Google keeps accrued losses (you can't sell losses with a division). Add cash on hand, the sales of the STB business, and it's pretty far from $13 billion. By some accounting Google would still come out ahead.
But I have trouble believing this story. Given recent initiatives at Motorola, the light seemed to be appearing at the end of the tunnel.
As one aside, Lenova purportedly wanted to bid on Blackberry, but was blocked by the Canadian government for national security reasons.
This graph[1] tells some of the story, but the bigger story was they failed to capitalize on the patents, and even got fined by a jury for trying to abuse FRAND patents on WiFi and H.264.
Edit: The timing is very interesting too. Google reports its quarterly earnings tomorrow, and was known to have spent about $500M on advertizing the Moto X which hasn't been selling well and which must have dragged Google's earnings down. Releasing this news now will help calm investors tomorrow.
Also, can't imagine that Lenovo will continue subsidizing the Moto X/Moto G, so I expect prices to go up once the acquisition completes.
Increasing the price of a phone that "hasn't been selling well"? Doesn't seem like a good tactic to me (if they currently sell them at a loss, it would be an improvement, but it would be more cutting your losses than being a success)
Luckily, by the time the acquisition completes, those phones will be obsoleted by newer models ('completes' will take months, if not years)
I would wager that it means a ton of these patents arent useful anymore.. the stuff coming out of google X will pretty much make these old patents kinda uselesss.
Even the very nature of the cell phone is rapidly changing and Google Glass is a useless halfstep with contacts coming right around the corner which will be the real hardware killer.
...a lot of Motorola's patents are related to underlying voice and networking technologies. Unless Google X is proposing to come out with a replacement for GSM (...and it's not) that stuff isn't changing.
GSM is over by 2017/2018 for carriers stateside. Where will the patents for these topologies and compression schemes be then? That is proverbially around the corner corporately.
Your condescension is unwarranted. This originally pointed to an earlier Reuters article on the deal prior to the later story. The later story contains information from the official Google statement.
Prior to the official company statement, sources stated that up to 10,000 patents were being transferred to Lenovo in the deal, which is the majority of the 17,000 believed to be owned by Motorola Mobility. My comment you responded to reflects what was known at the time prior to official announcement of the deal.
I understand it's often easiest to assume that those around you are stupid, especially on the Internet, but I would respectfully request that you at least consider alternatives to what may appear to you as stupidity, and temper your comments to reflect that possibility.
That means that in less than two years, Google shredded 85% of the $13bn paid for Motorola. At the time, the high price paid was excused for the patents, because the business itself did not generate nearly enough earnings to justify the price. Now, if it is true that the patents are part of the deal (the article states they are), it's proof that these did not have nearly the value anticipated.
It's also a big statement on Google's ability to succeed in the hardware market, where they've never seemed to be able to gain real success despite their attempts with notebooks and phones.
Edit: the article states the deal would include more than 10,000 patents. Originally Motorola was estimated to have 17,000 patents at the time of its purchase by Google. So while this is still speculation, and we do not know full details, there's a good chance Google may have cherry-picked the patents they felt were important to retain.
Follow-up edit: the 10,000 patent number comes from this article: http://usa.chinadaily.com.cn/2014-01/30/content_17265533.htm
Edit 3: The value destruction here isn't so bad as 85%. See Magicalist's comment below for a good summary - Google picked up a lot of cash, tax loss assets, and $2.2bn from the sale of one of Motorola's subsidiary businesses as part of that $13bn original purchase price. Still a loss but not as dramatic as the headline number.