Google Reveals Moto's Patent Price

Motorola Mobility's patents and "developed property" are worth $5.5 billion, less than half of what Google (Nasdaq: GOOG) spent to acquire the company, the Android maker revealed in a regulatory filing Tuesday.

Google spent $12.4 billion to acquire Moto, a deal that closed in May after regulatory reviews. The driving force behind the merger was Google's need to shore up its patent defenses to fight the lawsuits its handset maker partners are facing. (See Google Closes $12.5B Motorola Deal .)

Of the remaining $6.9 million Google spent, $2.9 billion was for cash acquired, $2.6 billion for goodwill, $730 million for customer relationships and $670 million for other net assets acquired, the SEC filing revealed.

"The acquisition is expected to protect and advance our Android ecosystem and enhance competition in mobile computing," Google wrote in the filing.

The company didn't divulge its plans for Motorola on its second-quarter earnings call last week, only promising changes to come. It reported that Moto contributed $1.25 billion in revenue to the merged company, but it also posted an operating loss of $233 million. (See Google Keeps Quiet on Plans for Moto and Google Posts $2.79B Profit in Q2.)

Why this matters
Given how much it spent on Moto compared to its patents' worth, Gogle may have more in store for Moto than just a patent play -- although it certainly needs that as well.

Google will have to tough task ahead in making Motorola smartphones solid competitors to market leaders like Apple Inc. (Nasdaq: AAPL) and Samsung Corp. , while not alienating any of its other partners. (See Google & Moto: What's Next? and Google Plays Favorites With Moto Buy.)

At the same time, Google is likely to also be shopping around Motorola's cable assets, including its set-top boxs, cable modems, video processing and access network gear. (See Light Reading Poll: Who Will Take Motorola Home?)

For more
— Sarah Reedy, Senior Reporter, Light Reading Mobile

Pete Baldwin 12/5/2012 | 5:26:23 PM
re: Google Reveals Moto's Patent Price

Actually, if you factor out the cash and goodwill, which I think would be fixed costs, it looks like Google really did pay mostly for the patents, and only a little bit for the actual Moto business.

That's a non-accountant's take, anyway. Am I interpreting the numbers right?

RFLR 12/5/2012 | 5:26:16 PM
re: Google Reveals Moto's Patent Price

I guess the Moto brand (included in goodwill) does have a lot of value and not only an accouting entry.

In terms of assets,  while the phone division is not going to turn a profit for some time, Google will eventully manage to sell the Moto Home division (which is profitable). That would further reduce the acqusition price.

alandal 12/5/2012 | 5:26:14 PM
re: Google Reveals Moto's Patent Price

I guess it would be difficult to know the actual portions for SW, HW and etc.

For HW ones, most must be very much antiquated and would have a little or no values in todays’ design.

Given Google’s recent court win over Oracle, values of some SW patent would also be dismissed.

So the actual net value of this acquisition still remains to be seen.

There is no way that Google would go ahead promoting MOTO for some time to come given the current Samsung’s dominating market position.







iansltx 12/5/2012 | 5:26:02 PM
re: Google Reveals Moto's Patent Price

When Google bought Motorola, the big three Android handset manufacturers at the time (HTC, Samsung, Motorola) were busy skinning Android beyond belief. HTC's Sense was the most usable offender, with Samsung second at first, then third later as they failed to iterate TouchWiz and Motorola toned town MOTOBLUR. Bringing Moto in house sent a signal to HTC and Samsung that, if they kept on heavily skinning Android on non-Nexus devices, Google would put pressure by way of Motorola to give a purer Android experience. Fast-forward to today and Sense is ligher-weight than before, as is TouchWiz on Samsung's newest devices (including the Galaxy SIII in my pocket...its TouchWiz implementation is non-annoying enough that it's still my default launcher). If this was one of Google's loads, it worked.

Also, I have a feeling that the engineers who designed and built the Nexus Q, the Nexus 7 and Google Fiber's STB/media server/gateway weren't "legacy Google" only. Think about it...who better to design a high performance gateway or STB than a company that has done that for years? Sure, it will be hard to find traces of Motorola on the Google Fiber equipment, but my bet is that they're there. Maybe Moto talent helped Google with other aspects of Google Fiber as well. Same with the Nexus 7...Google isn't an end-user hardware design and production company. Motorola is.

When you can't get vendors to make a product that's up to your specs and you have the money, you vertically integrate. This is what Google seems to have done with Moto...and it's what they're doing with Google Fiber. Brilliant, really, patent costs aside.

ethertype 12/5/2012 | 5:25:55 PM
re: Google Reveals Moto's Patent Price

Goodwill is not just "brand value", though that is a common simplification.  Goodwill is actually an accounting "plug" number that represents the value of a business above and beyond the book value of it's net assets (assets minus liabilities).  Viable companies are worth more than their net assets, or else their shareholders would be better off shutting down, selling off the equipment and pocketing the cash.

Typically an accounting value for goodwill is only established when a business is sold, and it is simply the difference between the purchase price and the book value of net assets.  In this case, Google accountants decided to also create a value for "customer relationships", which is also a subjective number and, in reality, not all that different from goodwill.  They both represent the company's ability to generate cash as a going concern.

So when you subtract the patents and cash, Google is saying "we believe we bought a business worth $4B."  How that breaks down for accounting purposes into hard assets, customer relationships and goodwill is secondary.   

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