Motorola’s Patent Loss In Germany Hinder Android’s Growth In Europe
Google’s (NASDAQ:GOOG) Motorola division suffered another setback last week as a German court ordered a recall of all Motorola smartphones and tablets using the “overscroll techonology” patented by Apple (NASDAQ:AAPL). [1] Since Motorola is not a leading player in the German smartphone market, this ban will have almost no immediate impact on the company’s stock price. However, we think that this ruling could stunt overall Android growth in Germany over the long term, causing it to miss out some on a large and lucrative European market.
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Google to Miss Out on German Smartphone Growth
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According to Bitkon, 11.8 million smartphones were sold in Germany in 2011, an increase of 21% over 2010. We think that this, combined with relatively low market penetration of 37%, shows that the German smartphone market is poised for growth in the near future. Since Nokia (NYSE:NOK), the leader in the German market, has so far been unable to deliver stellar sales with its Windows phones, Motorola had an opportunity to take advantage of the overall growth in the country. Gaining market share among new smartphone buyers is key to generate a sticky user base, but Motorola’s slow push into Europe could push new smartphone buyers to buy Nokia (a brand they are familiar with) and help Windows Phone 8 gain market share at the expense of Android.
If Nokia is able to use its market leading position in Germany to capitalize on this ban and increase its Windows Phone sales, Google would see a decrease in market share in the German mobile ad market, slated to be the fourth biggest in the world by 2016, according to eMarketer. [2]
Google to Challenge Patent Validity at EU level
Google is challenging the validity of the “overscroll” patent at the European level. Patent laws are quite muddled in Europe as patents are granted at the European level but their infringement is ruled upon by the member countries. If the patent is held as valid at the European level, we could see other local courts follow Europe’s leading economy and also ban the Motorola phones. This would be a big blow to Google’s vision with Android and would give Nokia and Microsoft a chance to drive revenue growth in the European market.
Emerging markets will be key drivers
While a setback in the European market will hurt Google, it will not be debilitating for the Android ecosystem as lower smartphone penetration and higher populations in countries such as China and India provide the company with a huge base to drive sales. Emerging markets are potentially more lucrative in terms of hardware sales, and are expected to increase mobile ad spending at a faster rate than developed economies (China is expected to spend $763 million in 2016 vs. $109 million in 2011).
We currently have a $661 price estimate for Google, which is approximately 10% below the current market price
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Google received more bad news in regards to its mobile phones and tablet, as a German court ordered a recall of all Motorola tablets using the “overscroll techonology” patented by Apple. This ban will have almost no immediate impact on the company’s stock price since Motorola is not a leading player in the German smartphone market, but we think that over the long term this ruling could stunt Android growth in Germany, causing it to fail in a potentially lucrative market.
See our full analysis of Google here
Google to Miss Out on German Smartphone Growth
According to Bitkon, 11.8 million smartphones were sold in Germany in 2011, an increase of 21% over 2010. This combined with relatively low market penetration of 37%, smartphones growth still has ways to go in the country. Coupled with the fact that Nokia, the leader in the German market, has so far been unable to deliver stellar sales with its Windows phones, would have given Motorola an opportunity to gain market share in the country. The absence of a Motorola phone at present, could push new smartphone buyers to move to Nokia (a brand they are familiar with) and help Windows gain market share at the expense of Android.
We’ve repeatedly stated that a maintenance of Android’s market share is key to Google maintaining its mobile search market share. If Nokia is able to use its market leading position in Germany to capitalize on this ban and increase its Windows Phone sales, Google would see a decrease in market share in the German mobile ad market, slated to be the fourth biggest in the world by 2016, according to eMarketer. [3]
Other countries could follow suit
Google might not challenge this ruling directly, but will challenge the validity of the patent overall at the European level. Patent laws are quite muddled in Europe, as patents are granted at the European level but their infringement is ruled upon by the member countries. If the patent is held as valid at the European level, we could see other local courts follow suit and ban the Motorola phones. This would be a big blow to Google’s vision with Android, and would give Nokia and Microsoft a chance to drive revenues through the European market.
Emerging markets will be key drivers
While a setback in the European market hurts in the short run, it will not be debilitating for the Android ecosystem as lower market penetration and higher populations in countries such as China and India provide the company with a huge base to drive sales. The company will have to focus on this region with greater intensity if it wants to maintain growth with its mobile platform.
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- Apple Gets Google/Motorola Products Banned in Germany, Forbes [↩]
- US to Top Japan as World’s Biggest Mobile Ad Market, eMarketer [↩]
- US to Top Japan as World’s Biggest Mobile Ad Market, eMarketer [↩]