- Google is buying part of HTC’s smartphone division for $US1.1 billion and acquiring 2,000 new employees.
- It’s a lifeline for HTC, which has struggled in recent years.
- And it demonstrates that Google is serious about its smartphone ambitions as its Pixel phones go head-to-head with Apple and Samsung, analysts say.
After weeks of rumours, it’s finally official: Google is buying part of HTC’s smartphone business.
The California-based technology giant is spending $US1.1 billion, or £820 million, to acquire a significant portion of the struggling Taiwanese firm’s engineers, as it doubles down on its hardware plans.
There are two key reasons for the deal, analysts say.
First, it offers a lifeline to HTC — helping the company keep going and ensuring that a key partner for Google doesn’t drop out of the hardware game.
And second, it means Google can further refine its flagship Pixel smartphone offering, making the Pixel more competitive against the likes of Apple and Samsung while acting as a shining example to other smartphone makers of what can be possible on Android.
The deal itself
So what exactly has Google paid for? It hasn’t bought HTC entirely or even its entire smartphone unit in the way it acquired Motorola.
Instead, it has effectively acquired HTC’s Pixel unit — the employees at the Taiwanese company who were already working on the Pixel. It is getting 2,000 new employees. Separately, Google also signed a nonexclusive deal to licence HTC’s intellectual property.
The deal was jointly announced early Thursday, with Google’s senior vice president of hardware, Rick Osterloh, writing in a blog post that “these future fellow Googlers are amazing folks we’ve already been working with closely on the Pixel smartphone line, and we’re excited to see what we can do together as one team.”
But the twin announcements are also fairly light on details, the CCS Insight analyst Ben Wood said in a telephone interview, including on whether Google will get any factories or manufacturing capabilities as part of the deal.
Bank of America Merrill Lynch analysts guessed that it wouldn’t, writing in a note to clients that “product details related to the transaction are somewhat opaque … no mention of manufacturing assets … Google likely to continue to outsource hardware manufacturing.”
1. HTC’s in trouble — and this deal is a lifeline
HTC, once a major player in the smartphone game, has struggled in recent years against the likes of Samsung and Apple, and it is increasingly looking at its virtual reality division as a key part of its future.
But it has also been a key partner of Google for years, most recently with the Pixel devices. Google will have been worried about the future of HTC’s phone business and the resources it provides, Wood said.
“Arguably it could be seen as a defensive move insofar as Google feel as though they want to keep developing the Pixel platform, and they were probably concerned that one of their key suppliers was not in particularly good shape … They probably thought in order to have those resources available on tap to push the envelope on Pixel, they needed to make sure they shored it up.”
But that’s not the complete picture.
2. Google is doubling down on the Pixel
The Pixel, announced in 2016, was a major shift in direction for Google. While it had launched its own phones before with the Nexus line, those phones were largely symbolic standard bearers. They demonstrated the possibilities of Android to other manufacturers but never sold in large numbers.
In contrast, the Pixel is marketed as a premium consumer phone, and it goes head-to-head with Apple’s iPhone and Samsung’s Galaxy devices.
So with the HTC acquisition, Google isn’t just trying to maintain the status quo. It is demonstrating that it remains committed to that Pixel vision and wants to accelerate it by bringing all the relevant engineers under its direct control.
“To me this is about Google getting more serious into the hardware business,” Gartner’s vice president of research Annette Zimmermann wrote in an email. “This is different than when Google bought Motorola — they were after the patents then. HTC doesn’t have any important patents. Hence there is not much value to get apart from building up its own hardware business to get the hardware, software, experience and AI all optimised for Google.”
Wood also said the purchase would also help to ensure that Pixel remained a clear example to other Android manufacturers of what Google sees as Android at its best: “At the moment, when all the smartphones are starting to look the same, and there’s a growing wave of apathy towards this sea of sameness in smartphones you need someone pushing from the front, saying: ‘No no no, smartphones aren’t boring, look at this cool stuff you can do!'”
There are still questions surrounding the future of HTC’s phone business
HTC has said that this isn’t the end of its phone business and that it will produce another flagship in 2018. But analysts are uncertain about its future.
“Let’s say Google wouldn’t have announced this deal today — HTC would continue to burn money the next quarters and eventually have a very small business with remaining vendors they work with and possibly exit the phone business,” Zimmermann wrote. By agreeing to the deal, she continued, “they are sending their smartphone know-how to Silicon Valley, which is a short-term fix money-wise but certainly not a long-term strategy for their smartphone business.”
Wood added: “HTC has stated that it will stay in the phone business but I still think it is hard to see how it continues long term given the tough market conditions for all smartphone makers.”
Get the latest Google stock price here.
Business Insider Emails & Alerts
Site highlights each day to your inbox.