Is Google Planning a Major Hardware Launch?

by Trefis Team
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According to a recent Wall Street Journal report, [1] search giant Google (NASDAQ:GOOG) is mulling a major move into home entertainment and possibly launching a music streaming system that would be controlled by Android smartphones. While it strongly reeks of Apple’s (NASDAQ:AAPL) own foray into the living room, [2] it would be a major strategic shift for Google, which already has the task of integrating Motorola Mobility’s (NYSE:MMI) hardware business into its own.

See our full analysis for Google’s stock

Is Google Getting Too Responsive in its Strategies?

With a possible home entertainment system, Google’s strategies seem to be mirroring Apple’s. First it was Google Music in reply to Apple’s game changing iTunes, followed by Google TV, which has failed in comparison to Apple TV. Now, with Apple speculated to come up with a standalone TV, it seems too much of a coincidence that Google’s venture into home entertainment comes at the start of this year.

But Google Can’t Leverage its Search Here

While some may argue that even the Android OS was a response to Apple’s chart busting iPhone, the Android directly leverages Google’s core competency – search. With mobile search queries expected to surpass fixed (PC) queries by 2015-16, [3]  developing a mobile platform was essential for Google to sustain the same dominance in search advertising. However, the market for home-audio hardware stands at roughly $8 billion a year for now, a number that pales in comparison to the $38 billion revenues Google generated in 2011. To add to it, Google has little experience in hardware (which is why we weren’t impressed by its Motorola Mobility purchase) and also the Android growth is led by its OEM partners like Samsung and HTC.

Despite these concerns, Google may project its home-audio system as the next big thing, having already planned price reductions to rival incumbents like Sonos. However, there is a strong possibility that this venture turns out to be more of a lull than a storm, much like Google TV. We currently have a price estimate of near $627 for Google’s stock, which is roughly 3% above the current market price.

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Notes:
  1. Google Device Marks Shift to Apple Approach, Wall Street Journal, 10th Feb 2012 []
  2. Apple TV sets will be mighty pricey, analyst says, CNet, 1st Dec 2011 []
  3. Mobile Search to Outpace Desktop Search in 2016E, SurfMobee, 10th Feb 2012 []
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