Analysts do the math: Google will pay $510,204.08 for each of Motorola's patents

Analyst comments are pouring in following Google Inc.’s (GOOG) somewhat out of left field announcement that it would make Motorola Mobility Holdings Inc. (MMI) it’s largest acquisition target yet to the tune of $12.5 billion. And virtually everyone sees the move as a play for Motorola’s vast patent portfolio.
Rajeev Chand, managing director and head of research at Rutberg & Co., said patents are the principal driver. He points out that Google can mitigate or eliminate the patent risk for Android, which could free up as much as $8 per device in royalties. Other drivers for the deal include development in new markets, specifically mobile payments, and developing a vertically integrated solution to more effectively compete with Apple, Chand wrote.
“In 2005, the problem Android was addressing was the tight coupling of carriers, device software, and mobile services. The problem today is different. All of the devices look the same, and no one has been able to create the next Razr or iPhone. Further, competition in devices and services is being driven by multi-screen experiences,” Chand added.
Over at IHS iSuppli (IHS), analysts echo the importance of Motorola’s patents.
“From an intellectual property (IP) standpoint, the acquisition bolsters Google’s negotiating position with Apple, in the event that Apple goes after Android-based products the same way it did with Samsung in Europe,” said Francis Sideco, principal analyst on wireless communications for IHS. “If nothing else, Google will be able to assert Motorola’s IP for the 3GPP and 3GPP2 cellphone specifications, which are used in both the iPhone and iPad.”
Tina Teng, senior analyst at IHS, notes that Motorola could also help Google ramp up its product cycle and development. “Motorola can serve as Google’s product R&D department as Android spreads into new markets,” Teng said. “Motorola has engineering expertise in a wide range of products where Android will be used, including set-top boxes and televisions. The addition of Motorola’s engineering and intellectual property will accelerate Android’s time-to-market in these areas and potentially revitalize the Google TV business, which so far has met with little success.”
Though Google is presenting the deal as a positive for its other Android partners, the marriage could prompt some licensees to search for other operating systems. “Although Google has said Motorola will continue to operate as a separate company, this development has to raise questions among the other Android licensees as to the level of support they will get from Google in the future. Even before this announcement, Motorola already had gotten preferential treatment, receiving first access to Honeycomb on the tablet side. While it’s unlikely that the other licensees will abandon Android, they could shift their priorities and focus more R&D toward Windows Phone from Microsoft,” Teng added.
Frost & Sullivan analyst Craig Cartier reiterated the popular opinion that Google’s $12.5 billion bet is largely driven by Motorola’s strength in patents. Industry giants “have taken the battle from the marketplace to the courtroom with a host of suits and counter-suits against one another. Directly or Indirectly, Google and its Android operating system has been a popular target recently,” Cartier said, noting that Google has been at an IP disadvantage compared to its peers.
“The Google-Motorola deal is not about hardware — it is about patents,” he continued. “Google’s business model — offering a free platform as a route to advertising and application revenue — depends on that platform being, well, free. That status has been threatened as a result of the aforementioned flurry of recent patent litigation. It is rumored that HTC, one of Androids main OEM partners, settled a suit with Microsoft by agreeing to pay $5 for every Android device it sells. Other Android manufacturers have also been under attack,” Cartier said.
Finally, Cartier did the math and determined that Google will effectively pay $510,204.08 for each of Motorola’s 24,500 patents if the deal goes through.
“In the Motorola acquisition, Google bought a patent portfolio and got a mobile phone business thrown in for free,” Cartier concluded.