Google (NASDAQ:GOOG) is planning to sell Motorola Mobility’s home division, according to a Bloomberg report. Sources say that the company has hired Barclays to help it find a suitable buyer. If Google goes through with the transaction, it would be in step with its strategy of focusing on smartphones. However, we were somewhat surprised by the move, given that Motorola’s home division set-top boxes were a logical choice to be used in Google’s fiber network. In the end though, we are encouraged by the clear strategic direction that Google has in mind for Motorola – i.e. to be a maker of high-end smartphones.
Apple victory provides opportunity for Motorola
One of the reasons that Google bought out Motorola was to gain control of its numerous patents, allowing it to not only innovate but also protect itself from litigation. In light of Apple’s victory against Samsung (which might lead to the ban of Samsung phones in the U.S.), Motorola’s acquisition seems brilliant. With the high number of patents acquired with the purchase of Motorola, we think that Google will be able to create an innovative smartphone which won’t be subject to major litigation issues. If this smartphone gains traction in the U.S., it can help Google gain market share with its OS and can provide downside protection to the stock. Google gaining market share with its own Android phones has become more relevant recently as it will mitigate the impact of Android manufacturers such as Samsung releasing phones on a competing operating system.
Overall, we were initially surprised by rumors of Motorola’s business division sale because of the synergies that it could potentially have had with Google Fiber. But, since Mobile Ads are the company’s most valuable operating segment, we think it might be a sound move by Google to focus on smartphones for now.
We currently have a $661 price estimate for Google, which is approximately 5% below the current market price.