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Comment by latch | Hacker News Reader

63% premium...insanity. This is all about patents, isn't it?

Instead of spending $4billion for patents, spend 3x as much, get a huge portfolio (I don't know how large, but it's supposedly quite large)..and a part of a company as well.

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Patents are probably part of it. Another motivation may be that Google wants to avoid the Android ecosystem to spiral out of control. Android phones vary widely in quality, both with respect to hardware and software (thanks to vendor 'extensions'). Maybe they are hoping to produce an Android phone under tight control, to set a benchmark for the rest.

Also, Apple has shown that piles of cash can be made on good, though slightly expensive margins.

I checked out Motorola's product line up on their website. It isn't very exciting. (I don't live in the US, so I don't know how much brand value there is).

I'd say this was probably plan b, for if their previous patent purchase didn't happen.

The problem with Google, or any software company buying a hardware company is that generally the street values hardware at a lower multiple so this has the chance to pull down google's market cap.

We'll see how the market reacts to this during today's trading.

Was it plan B? Major purchases like this don't usually happen quickly. The Nortel and Novell stuff all went down in the last six months, and neither (separately or together) would have cost Google enough to make them back off an in-progress attempt to buy Motorola.

This could have been part of a Google patent blitz from the start.

When you show up willing to pay a 63% premium, it doesn't take six months.

Well, it's a 63% premium over Friday's close, but it's a nice even $40/share. Which one seems to be by design?

Notably, MMI peaked at $36.34 in January. I could see MMI's board thinking it was worth close to $40, given the crappy/insane state of the market.

I wonder about this too. Google made those bizarre bids like $3.149b, almost like they weren't really into it. They could have just been feigning interest to drive up the price. They probably would have been happy to acquire the patents for a good price, but they clearly already had another (more important) acquisition in the pipeline.

The Motorola deal I think is a lot better because it's not just patents, it's a whole hardware company with hands in a lot of pies that Google is in, like cell phones and set-top boxes.

I think they'll get a much better return on their investment into Motorola than they would out of Nortel patents.

This is strange, since you basically agree with me, on the overall point, but I flatly do not understand people who think Google made "bizarre" bids. What is bizarre about a fundamentally engineering-focused company bidding pi? Why is it impossible to both take something seriously, and have a little fun?

It's like the "work shouldn't be fun" crowd -- why the heck not?

It wasn't the first time they did something like that. Their IPO was intended to raise e billion dollars. And why shouldn't it be?

Using fundamental mathematical constants may be unusual, but it's absolutely no more arbitrary than boring "round" numbers with a bunch of zeroes, and it's like a big geek flag waving in the wind.

True, but one month isn't unheard of. During the crash of 2008, bank deals were being made after 72 hours of "due diligence":)

A company like Google is always in talks with other companies, a deal like this can happen very quickly if you've been having informal talks all along.

> The problem with Google, or any software company buying a hardware company is that generally the street values hardware at a lower multiple so this has the chance to pull down google's market cap.

I don't think I understand what you're saying here. Could you elaborate a little?

Software companies often have higher multiples attached to their earnings than hardware companies do. This is due to the fact that hardware companies usually have lower margins that software companies do.

If the street perceives Google to now be a hybrid hardware/software company then the street could lower the multiple that they use to value them.

Basically the profit margin on hardware is lower than on software, or at least that's the view of Wall Street ("the street"). Thus Google has spent a big chunk of cash on a business with an inherently lower profit potential than the rest of its business, so their stock value (which has only a tenuous relationship with the hard value of a company's assets) may decline.

I doubt it's going to make that much difference, though. Google hasn't actually directed money away from "software", they've spent part of their $40 billion reserve that wasn't doing anything useful on a hardware company designed to strengthen Google's position is a market it's already sort-of in.

Although it removes some of the fears that Google were going to have patent problems (I would assume anyway, their must be some patent gold in the 24000 somewhere). So that may have been previously been factored into the stock price?

6 month ago Motorola Mobility traded around 36$/share. Now Google is paying 40$/share.

So they did overpay a bit. But there is a genuine synergy - a phone company being bought by a company that makes a phone OS.

This might hurt Android adoption a little, but I doubt Google really cares. All they really want are more browser phones, which will funnel more money into google (via adsense). Or maybe it will make Google more sensitive to what direction Android has to go.

I don't see how the "Googlerola" hardware can hurt Android adoption. If you are a smartphone maker with at least some ambition for market share you either use Android or get ready to fall short on sales.

Aside from Apple and MS-Nokia, until something disruptive happens in the phone OS scene Android is the way to go for phone makers.

Google wouldn't have done it just for patents. They want to enter the hardware game as well. Both to show others how Android phones should be made, but also to make many billions from selling devices, as well. I think this is just the beginning for Google as a hardware company, and in a way it was inevitable. They are a strong tech brand, and they could become very successful selling tech products.

Yes I agree, and moreoever a mobile device company with social/search/payment infrastructure built in.

The days of ad-subsidized, and democratized mobile devices are upon us!

Almost certainly. The only other thing I can think of would be that they want to get out of the OEM business and make phones internally, but they'd probably buy a better phone manufacturer in that case. Motorola is loss-making.

Patents are a big part sure, but it's more generically about strengthening Android's position overall -- partly in the legal system through patents, and partly in the market through Google having direct control of a major cell phone manufacturer with direct lines to the providers.

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