TAIPEI
(Reuters) - Alphabet Inc’s (GOOGL.O) Google said it would pay $1.1 billion in
cash to acquire the division at Taiwan’s HTC Corp (2498.TW) that develops the
U.S. firm’s Pixel smartphones, its latest push into hardware manufacturing.
Google has
sought to beef up its hardware capability with deals and product launches, and
last year hired Rick Osterloh, a former Motorola executive, to run its hardware
division.
“For Google,
this agreement further reinforces its commitment to smartphones and overall
investment in its emerging hardware business,” the search giant said in a
statement.
Under the
deal, Google will also receive a non-exclusive license for HTC’s intellectual
property. The Taiwanese firm will continue to run its remaining smartphone
business.
HTC is a
long-time partner of Google and some analysts estimate that Pixel smartphones
account for 20 percent of HTC’s smartphone shipments.
But the Taiwanese
firm, which once sold one in 10 smartphones globally, has seen its market share
dwindle sharply due to competition from Apple Inc (AAPL.O), Samsung Electronics
Co (005930.KS) and Chinese rivals.
Its sharp
decline had some analysts questioning the wisdom of the deal.
“HTC is past
its prime in terms of being a leading hardware design house, mainly because of
how much it has had to scale back over the years as because of declining
revenues,” said Ryan Reith, an analyst at research firm IDC.
“Unless Google
really wants to control hardware for its other businesses like Home and
Chromebooks in addition to smartphones, then I don’t see this as being a bet
that pays off.”
Google
hardware executive Rick Osterloh and HTC CEO Cher Wang (front) attend a news conference
to announce Google to acquire HTC's Pixel smartphone division, in Taipei,
Taiwan September 21, 2017. REUTERS/Tyrone Siu
The deal
marks Google’s second major foray into smartphone manufacturing. It purchased
Motorola Mobility for $12.5 billion in 2012 and sold it off to China’s Lenovo
Group Ltd (0992.HK) for less than $3 billion two years later.
“It’s still
early days for Google’s hardware business,” Osterloh said in a blog post,
adding it is focused on bringing together the best of Google software and
hardware for a suite of its core products.
Other
hardware initiatives include its acquisition of thermostats maker Nest for $3.2
billion in 2014, while product launches include voice-controlled speaker Google
Home and virtual-reality device Daydream View.
Google’s
strategy of licensing Android for free and profiting from embedded services
such as search and maps has made Android the dominant mobile operating system
with some 89 percent of the global market, according to IDC.
But it has
long been frustrated by the emergence of many variations of Android and the
inconsistent experience that has produced. Pushing its own hardware will likely
complicate its relationship with Android licensees, analysts said.
HTC shares
were on a trading halt on Thursday. The stock has suffered steep declines over
the past couple of years. It has fallen 12 percent so far this year and the
company is worth around $1.9 billion.
HTC’s
worldwide smartphone market share declined to 0.9 percent last year from a peak
of 8.8 percent in 2011, according to IDC. Google’s Pixel had less than 1
percent market share since it was launched a year ago, with an estimated 2.8
million shipments, IDC estimates.
The
transaction, which is subject to regulatory approvals, is expected to close by
early 2018.
Evercore
served as financial advisor to HTC and Lazard served as financial advisor to Google.
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