Google to buy Motorola: Defensive or Offensive?

(List compiled by Alexander Crawford)

Google just announced plans to buy handset manufacturer Motorola Mobility for $12.5 billion cash – a 61% premium. But early morning trading indicates that Google’s investors aren’t too happy with the news, and many analysts are left with more questions than answers.

The Google-Motorola deal represents a complete shift in strategy. Until now, Google has been a software company (and the search engine monopoly). Yet handset maker Motorola is strictly hardware – factories, relationships with suppliers and distributors, and (most importantly) low margins.

So why is Google integrating software and hardware? Look to Apple and Microsoft.

Google’s Android operating system has been highly fragmented by many different versions on many different hardware providers. Perhaps Motorola will help consolidate Android in order to implement Microsoft’s strategy of “ubiquity.” Or, perhaps it is an acknowledgement that Apple’s hardware-software integration solution is superior. Based on the conference call and statements released about the deal, analysts suspect that it is a purely defensive move.

Microsoft has yet to integrate software with hardware, so many are interested in their reaction to the news. On one hand, Google just spent $12.5 billion on a seemingly defensive strategy shift, and they have probably upset their hardware business partners by becoming a new competitor. But on the other hand, if Google-Motorola does prove that software-hardware integration is the mobile solution, Microsoft will need to acclimate.

Do you think that Google’s bet on software-hardware integration will pay off? Below we report interesting data on the three companies involved:

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1. Google Inc. (GOOG): Internet Information Providers Industry. Market cap of $182.04B. The stock has gained 15.92% over the last year.

2. Apple Inc. (AAPL): Personal Computers Industry. Market cap of $349.50B. Might be undervalued at current levels, with a PEG ratio at 0.72, and P/FCF ratio at 12.01. The stock has gained 51.34% over the last year

3. Microsoft Corporation (MSFT): Application Software Industry. Market cap of $210.29B. Might be undervalued at current levels, with a PEG ratio at 0.89, and P/FCF ratio at 10.81. The stock has gained 5.37% over the last year.

Interactive Chart: Press Play to see how analyst ratings have changed for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


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