Weekly Mobile Updates: Google, Motorola Mobility, Apple and Microsoft

by Trefis Team
Alphabet Inc.
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The past week saw quite a few developments in the mobile sector. Foremost among them were the approvals that Google (NASDAQ:GOOG) got for its proposed Motorola Mobility (NYSE:MMI) acquisition from regulatory bodies in the Europe and the U.S. Apple’s (NASDAQ:AAPL) shares scaled new peaks this week as the post-earnings euphoria as well as rumors of a possible iPad launch in March took it to an all-time high of $525 before profit taking brought its shares lower. The stock is still above the psychologically important $500 mark though. A preliminary version of the next Mac OS upgrade, dubbed Mountain Lion, was also released for outside developers and will be rolled out fully by late summer.

Motorola Mobility

Google received approvals for its proposed Motorola Mobility acquisition from both the European Commission as well as the U.S. Justice Department on Monday. However, regulatory approvals in China and Israel are still pending. The acquisition plans were made public in August last year when the two companies announced that they have come to an agreement under which Google would buy out Motorola Mobility for $12.5 billion in cash. Google has maintained that the acquisition was made with Motorola’s strong patent portfolio in mind as it would help it better defend its Android mobile platform from lawsuits filed by Apple and Microsoft.

However, we believe that Google has bigger plans in mind. While the addition of more than 17,000 Motorola patents will no doubt strengthen Google’s patent  portfolio, we believe that the 63% premium that Google has paid for Motorola’s rather under-performing mobile business needs a bigger justification in the form of a grander mobile hardware play. (see Are Cheap Google-Motorola Smartphones on the Way?)

Whether the Motorola hardware play works out for Google or not, Google’s margins are going to take a hit upon acquiring Motorola’s business in the near-term at least. We estimate that Motorola Mobility will generate $12.6 billion in revenues and only 69 million in operating profits in 2012. This will significantly dent Google’s overall operating margins to about 21% from 27% pre-acquisition. (see Google’s Motorola Mobility Deal Gets Green Light from U.S. and Europe)


In the three weeks that have passed since Apple released its FY 2012 first quarter bumper earnings, the stock has seen tremendous buying interest, rallying more than 20% and crossing the psychologically important $500 mark. Rumors about the impending launch of the iPad 3 have also gained ground, further fueling the buying frenzy. However, a couple of risks also emerged that pulled the stock down briefly from an all-time high of $525 to less than $490 before it rallied back up above  $500 by Thursday close.

Ironically, both the risks surfaced in China, a market which CEO Tim Cook has identified as a huge untapped opportunity for Apple on numerous occasions. Taiwanese firm Foxconn Technology, one of Apple’s biggest suppliers, is facing allegations of inhuman working conditions at its Shenzhen and Chengdu plants in China. As a response to the growing criticism, Apple has asked an independent group, the Fair Labor Association (FLA), to conduct audits of several of its factories in China, including Foxconn’s. The initial reviews have been positive but there is no saying what the final outcome may be. (see As Apple’s Stock Climbs, Working Conditions at Suppliers in Question)

Further, a Chinese firm, Proview International, that claims to be the exclusive owner of the ‘iPad’ trademark name is aggressively seeking to block import and export of Apple iPads in and out of China. ((Proview Asks China Customs to Stop IPad Imports, Exports, Bloomberg, February 14th, 2012)) However, considering the huge market that it would impact and the immense popularity of the iPad, imposing such a ban looks difficult. But if an export ban does happen, it could impact Apple’s iPad sales worldwide as the majority of the iPads are assembled in China.

Later in the week, Apple released a preliminary version of the next upgrade to its Mac OS X operating system, dubbed ‘Mountain Lion’, to developers on Thursday. Further, the iPhone manufacturer said that the software will be made available for download from the Mac App Store in late summer. That will make the Mountain Lion one of the company’s fastest Mac OS rollouts to date, as Apple usually follows a two year cycle period between consecutive upgrades. We believe Microsoft’s planned Windows 8 launch this year may have prompted the company to speed up the process. (see Apple to Rollout Mac OS Upgrade By Mid-2012)

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