Google's bold shift into hardware

Google Inc's US$12.5-billion deal to buy cellphone maker Moto-rola Mobility Holdings Inc is aimed at giving the Internet search leader more legal firepower as it battles Apple Inc and Microsoft Corp to gain the upper hand in the increasingly important mobile computing market.

The all-cash acquisition announced Monday is the boldest move in Google's 13-year history.

Besides being by far the largest deal that Google has ever proposed, buying Motorola would push the company into phone and computer tablet manufacturing for the first time, at the risk of alienating the other device makers that depend on Google's Android operating system.

The proposed deal also is likely to increase government scrutiny on Google at a time when antitrust regulators in the US and Europe already are parsing its business practices to determine whether it has been abusing its power to stifle competition.

The inquiries are focused primarily on the company's Internet search and advertising businesses, but regulators are also looking into whether Google is using Android to ensure its services receive preferential treatment on devices using that free software.

If federal regulators approve the deal, Google CEO Larry Page's ability to avoid a clash of cultures will be tested. With 19,000 workers, Motorola Mobility's work force is not that much smaller than Google's payroll of 28,800 employees.

But is this deal more about patents than people?

Google, which is based in Mountain View, California, is framing its Motorola acquisition as a way to protect the competitive landscape at a time when Android and the device makers using the software are facing a litany of lawsuits alleging that Google's operating system pilfered the patent-protected technology of other companies.

Motorola, which introduced its first cellphone nearly 30 years ago, has more than 17,000 patents with another 7,500 still awaiting approval. That trove presumably will give Google and its Android more patent protection against a list of legal antagonists that include three of the technology industry's most powerful companies - Apple, Microsoft and Oracle Corp.

Apple and Google were once so close that Google's former CEO, Eric Schmidt, sat on Apple's board. But the two companies have grown increasingly antagonistic as Android provided hardware makers with a way to counter the popularity of Apple's game-changing iPhone and iPad. The friction prompted Schmidt to resign from Apple's board two years ago.

Microsoft, one of Google's bitterest rivals for years, is despe-rately trying to make inroads in the mobile device market. Forrester analyst John McCarthy thinks Microsoft may now try to counter Google by pursuing a long-rumoured takeover of its partner, cellphone marker Nokia Corp.

Oracle is seeking billions of dollars from Google in a federal lawsuit alleging Android owes licensing fees for using the Java programming language that it acquired from Sun Microsystems.

Getting Motorola's patent port-folio will "help protect Google from anti-competitive threats from Microsoft, Apple and other companies", Page told analysts during a Monday conference call.

"With mobility increasingly taking centrestage in the computing revolution, the combination with Motorola is an extremely important step in Google's continuing evolution," said Page, who replaced Schmidt as CEO four and a half months ago.

Google pounced on Motorola less than two months after a group including Apple and Microsoft joined up to pay US$4.5 billion for 6,000 patents owned by Nortel, a bankrupt Canadian maker of telecommunications equipment. Leaving no doubt about the mounting antagonism among the companies, Google's top lawyer blasted Apple and Microsoft for their legal manoeuvring earlier this month in a blog post titled 'When patents attack Android'.

"We believe this acquisition was solely driven by the ongoing patent war," Sanford Bernstein analyst Pierre Ferragu wrote in a research note.

Buying the patent protection will be expensive, although Google can easily afford it with US$39 billion in cash. The price translates to US$40 per share - 63 per cent above Motorola's stock price before the deal was announced.

Motorola Mobility's shares soared US$13.65 to US$38.12 in Monday's afternoon trading while Google shares shed US$9.66 to US$554.11.

The deal is a coup for Motorola Mobility CEO Sanjay Jha and the company's largest shareholder, billionaire investor Carl Icahn, who had been pressuring Jha to cash in on the patent portfolio.

- AP