HTC is on the back foot. (Duncan Alfreds, Fin24)
San Francisco - Google agreed to buy part of
HTC’s engineering and design teams for $1.1bn, taking on a
cadre of veterans that worked on the Pixel phone and could bolster its
nascent hardware business.
Alphabet’s Google is taking on some 2 000 employees with experience
working on its signature
Pixel devices, intended to showcase the best features of the Android
software that now power the vast majority of the world’s smartphones.
The deal also comes with a non-exclusive licensing agreement for HTC
Google now gains tighter control over the design and production of
the Pixel and other devices, potentially helping sales. Those gadgets
are becoming the pillars of a strategic push to distribute critical
software products like its voice-enabled assistant and better compete
The search giant is preparing to unveil a second generation
of devices in October, building on a portfolio that runs the gamut from
Google Home speakers to Daydream virtual reality headsets.
“The end game here is more flexibility on hardware innovation, which
can spur incremental revenue through services enabled by those
Jitendra Waral, a senior analyst with Bloomberg Intelligence. “Google
essentially gets more control over its hardware design, it can help them
accelerate innovation with its own products and use that as the
benchmark for the Android ecosystem to follow.”
Alphabet investors may be concerned about history repeating itself.
In 2012, Google paid $12.5bn for
Motorola Mobility, then a leading Android handset manufacturer.
than three years, Google sold it to
Lenovo for less than $3bn, while keeping Motorola’s
valuable patent portfolio. Owning Motorola had eroded the search giant’s
profit margins and upset other phone makers that relied on Android,
Google software that it supplies to handset manufacturers to promote its
The HTC transaction however costs a lot less and comes at a very
different time - when Google and its biggest rivals are more focused
than ever on consumer devices built around new artificial-intelligence
and augmented-reality services.
AR demands powerful, expensive cameras and sensors working in sync
with software to process and superimpose 3-D images on real world
scenes. Having different Android partners making their own phones with
disparate components makes this task more difficult for Google -
especially when Apple can pick one set of AR hardware to marry to its
“For Google, HTC is a completely different deal than Motorola,” said
Jason Low, a Canalys analyst based in Shanghai. “It needs better control
over manufacturing if it expects the Pixel series to compete with
Google has also launched its own phones since Motorola, so Android
phone makers have gotten used to their partner as a rival. And some of
the biggest emergent manufacturers, such as China’s
Huawei and Xiaomi, are now less reliant on Google
The production resources of HTC - which assembled the first Pixel
device and was key to the Nexus line - may support its existing phone
operation. Greater control of hardware production would also give Google
more influence over the distribution of new services such as its
voice-based digital assistant.
Google didn’t say exactly how it would
retain employees after the acquisition, only that it is working on the
details. The company - like many of Silicon Valley’s frontrunners -
has a reputation for comfy perks and compensation.
A more Apple-like approach would also let Google steer the Android
operating system in its preferred direction. The tech giant has
struggled to get handset makers and carriers to ship Android devices
with the latest secure software.
The Pixel was designed, in part, to
prompt phone makers push out these updates faster. Yet some Android
partners are moving ahead with competing software efforts - Huawei
linked up with Amazon’s assistant, and
Samsung has its own.
“It’s still early days for Google’s hardware business. We’re focused
on building our core capabilities,”
Rick Osterloh, senior vice president of hardware, said in a blog post.
“A team of HTC talent will join Google as part of the hardware
organization. These future fellow Googlers are amazing folks we’ve
already been working with closely on the Pixel smartphone line, and
we’re excited to see what we can do together as one team.”
Google’s Pixel is far from a top-selling phone. External estimates
pegged sales at 552 000 units during its first quarter. Yet selling
Pixels has auxiliary benefits for Google, chief among them the boost to
its primary sales.
With each Pixel phone it moves, Google doles out less
in traffic acquisition costs: it pays money to partners like Apple and
carriers to install Google’s search service. That cost has risen
steadily, pulling down its sales totals last quarter in particular.
A bigger hardware unit would offset such expenses,
Eric Sheridan, an analyst at UBS, wrote in a recent research note. But
it also comes with more spending, in maintenance and marketing. An HTC
acquisition and larger Google hardware unit could hurt the company’s
profit margins, Sheridan warned.
It’s unclear what the departure of key engineering talent spells for
the future of HTC, which once ranked among the world’s top smartphone
makers but lost share to Apple, Samsung and Chinese manufacturers like
Huawei. It’s since waded into virtual reality with the Vive headset. HTC
had been working with an adviser to explore selling its handset or
virtual reality businesses, and Google had been talking with the
reported last month.
HTC Chairwoman Cher Wang told reporters the company is remaining in
the smartphone business even after the Google deal. She said it still
plans to release a new flagship smartphone for 2018, without
Shares of the Taoyuan City, Taiwan-based company were suspended from
trading. They have fallen more than 12 percent this year. Evercore
worked with HTC as financial advisor, while Lazard advised Google.
“The bright side is that HTC can focus on its VR business. They have
very high hopes for VR and are trying very hard to improve user
experience and enrich content,” Canalys’ Low said.
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