Google bets on $1.1bn deal to chase Apple

Bloomberg

Google officially closed its $1.1 billion deal with HTC Corp., adding more than 2,000 smartphone specialists in Taiwan to help the search giant chase Apple Inc. in the cut-throat premium handset market.
The deal will help Google design more of its own consumer hardware and could set it up to wade deeper into special-purpose chips—like Apple. Google’s most recent Pixel model came with a new image processor to improve the device’s camera. More of this “custom silicon” will come in the future, Google’s hardware chief Rick Osterloh said.
Osterloh brought in HTC engineers and designers to help Google control more of the design and production of its products, including working more closely with suppliers. Google previously focused on software and let manufacturers including Samsung Electronics Co. and HTC handle the hardware. But modern phones offer features like augmented reality and artificial intelligence-based services that require close integration of software and hardware.
“You have to be vertical in some cases to really push the envelope for consumers,” Osterloh said. “Our intention is to invest in this for the long term. You’ll see a steady increase in investment from us.” HTC said in a separate statement that it plans to proceed with its next flagship smartphone and will focus its efforts in the segment. “Today marks the beginning of an exciting new chapter at HTC as we continue to drive innovation in our branded smartphone and VIVE virtual reality businesses,” Cher Wang, chairwoman at HTC said in the statement.
For Google, a bigger step would be to create its own “system-on-a-chip”—the main processors inside phones that Apple now inserts into its devices. Qualcomm Inc. provides the bulk of these chips to Android phone makers, and Osterloh said Google will keep working with the supplier for the foreseeable future.
Still, by designing more silicon itself, Google could cut business for other suppliers. Apple released its first system-on-a-chip in 2010, and has added special chips to store fingerprint and payment data, track motion, crunch graphics and run AI algorithms on mobile devices.
Google’s Pixel sales have been a fraction of Apple’s, but another phone maker designing more of its own components is a bad sign for suppliers. Dialog Semiconductor Plc slumped last month after telling investors that Apple, its biggest customer, could design its own power-management chips. Imagination Technologies Group Plc suffered a similar fate after Apple stopped buying the UK company’s graphics chips in favour of in-house designs.
The HTC deal is also bad news for manufacturers of phones based on Google’s Android operating system. Most of these companies have struggled to make money selling premium handsets that compete with the iPhone, while Google benefited from distributing search and other software services on those devices.