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Google did not lose $8 billion on the Motorola deal. It did not “fritter away” $10 billion. Jeez.

January 30th, 2014 |  Published in Uncategorized

 

Google Motorola deal

 

30 January 2014 – So the mobile media is agog with news that Google is selling Motorola Mobility to Lenovo, giving Lenovo a major presence in the US market. Lenovo will buy Motorola for $2.91 billion in a mixture of cash and stock. Google will retain ownership of the vast majority of Motorola’s patents, while 2,000 patents and a license on the remaining patents will go to Lenovo. At the deal’s closing, Lenovo will pay Google $660 million in cash and $750 million in stock, while the remaining $1.5 billion will be paid out over three years.

And the press is awash in “analysis” that says it is a “major loss” for Google. No. The math does not work that way. It is messy math but I have been looking at these deals for years now so just a few back-of-the-envelope points:

* When Google bought Motorola, the hardware maker had about $3 billion in cash on hand and nearly $1 billion in tax credits. So that brings the original deal’s effective price down to about $8.5 billion.

*Then, Google sold Motorola’s set-top box business to Arris for nearly $2.4 billion. That lowers the effective price to roughly $6.1 billion.

*Now, Google is selling Motorola Mobility — primarily the handset business, along with a few patents — for $2.9 billion. So we’re at about $3.2 billion.

*It’s worth noting a few more things. In a regulatory filing in 2012, Google disclosed that it valued Motorola’s overall “patents and developed technology” at about $5.5 billion.

*And … not to blind you with telecom analystics … there are accounting tweaks. We can see that Google paid out $280M in traffic acquisition costs (TAC) to Mozilla in 2012. That was about 2.5% of total TAC. Even after accounting for further payments to Apple, other OEMs, and telcos (such as Verizon), we can see a large gap in accounting for TAC. That means that a large share of total TAC ($10 billion in 2012, projected to be over $12 billion in 2013) was a result of their network affiliate share. That piece of the business has completely different margins from search, since there is a significant pay out to publishers.

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