Google buys HTC talent for $1.1bn to spur devices push

Bloomberg

Google agreed to buy part of HTC Corp.’s engineering and design teams for $1.1 billion, taking on a cadre of veterans that worked on the Pixel phone and could bolster its nascent hardware business.
Alphabet Inc.’s Google is taking on some 2,000 employees with experience working on its signature Pixel devices, intended to showcase the best features of the Android software that now power the vast majority of the world’s smartphones. The deal also comes with a non-exclusive licensing agreement for HTC intellectual property.
Google now gains tighter control over the design and production of the Pixel and other devices, potentially helping sales. Those gadgets are becoming the pillars of a strategic push to distribute critical software products like its voice-enabled assistant and better compete with Apple Inc. The search giant is preparing to unveil a second generation of devices in October, building on a portfolio that runs the gamut from Google Home speakers to Daydream virtual reality headsets.
“The end game here is more flexibility on hardware innovation, which can spur incremental revenue through services enabled by those innovations,” said Jitendra Waral, a senior analyst with Bloomberg Intelligence. “Google essentially gets more control over its hardware design, it can help them accelerate innovation with its own products and use that as the benchmark for the Android ecosystem to follow.”
Alphabet investors may be concerned about history repeating itself. In 2012, Google paid $12.5 billion for Motorola Mobility, then a leading Android handset manufacturer. In less than three years, Google sold it to Lenovo Group Ltd. for less than $3 billion, while keeping Motorola’s valuable patent portfolio. Owning Motorola had eroded the search giant’s profit margins and upset other phone makers that relied on Android, Google software that it supplies to handset manufacturers to promote its services.
The HTC transaction however costs a lot less and comes at a very different time—when Google and its biggest rivals are more focused than ever on consumer devices built around new artificial-intelligence and augmented-reality services.
AR demands powerful, expensive cameras and sensors working in sync with software to process and superimpose 3-D images on real world scenes. Having different Android partners making their own phones with disparate components makes this task more difficult for Google—especially when Apple can pick one set of AR hardware to marry to its software.
“For Google, HTC is a completely different deal than Motorola,” said Jason Low, a Canalys analyst. “It needs better control over manufacturing if it expects the Pixel series to compete with iPhones someday.”
Google has also launched its own phones since Motorola, so Android phone makers have gotten used to their partner as a rival.
And some of the biggest emergent manufacturers, such as China’s Huawei Technologies Co. and Xiaomi Corp., are now less reliant on Google for services. The production resources of HTC, that assembled the first Pixel device and was key to the Nexus line, may support its existing phone operation.