Google inks $1.1 bn cash deal with HTC for Pixel team and IP

HTC Google dealThe US-based Google has offered $1.1 billion cash to HTC Corporation, for buying the team that is working on Pixel premium smartphone and IP.

HTC aims to utilize the funds for reviving the ailing smartphone business and VR expansion plans.

John Baptista of Warwick Business School said: “Despite its larger user base, Google’s future in the smartphone market is being threatened by Apple’s superior ability to integrate hardware and software centred on user experience.”

This deal with HTC shows confidence that Google has the ideas to drive this process, but needs to work more with manufacturers to develop a more consistent experience between the phone and other devices such as wearables, home automation, car automation, as well as increasingly work related applications and integration with office systems.

“Augmented reailty and virtual reality look increasingly to be the future for mobile, so it might be that Google needs to work more with chip manufacturers to develop the hardware in conjunction with their software to deliver AR and VR capabilities,” John Baptista said.

“HTC has been a longtime partner of Google and has created some of the most beautiful, premium devices on the market,” said Rick Osterloh, senior vice president of Hardware at Google.

HTC employees, who are working with Google to develop Pixel smartphones, will join the Internet search engine company.

Google will receive a non-exclusive license for HTC intellectual property (IP). Earlier, Google bought Motorola in 2011 and later sold the smartphone business to Lenovo. The main focus was to acquire the IP of Motorola.

This agreement supports HTC’s branded smartphone strategy, enabling a more streamlined product portfolio, operational efficiency and financial flexibility.

HTC will continue to developing the next flagship smartphone, following the launch of the HTC U11 earlier this year. HTC will continue to build the virtual reality ecosystem to grow its VIVE business, while investing in other technologies, including Internet of Things, augmented reality and artificial intelligence.

HTC lost its significance in the smartphone market after the arrival of several China-based phone brands such as OPPO, Vivo, Huawei, among others.

Google said it reinforces its commitment to smartphones and overall investment in its emerging hardware business. Google will continue to have access to HTC’s IP to support the Pixel smartphone family.

“Our smartphone value chain, including IP portfolio, and talent and system integration capabilities, has supported Google in bolstering the Android market,” said Cher Wang, chairwoman and CEO of HTC.
OS market in IndiaFaisal Kawoosa, principal analyst Telecommunications & ESDM at CyberMedia Research said the acquisition will support the strategy of Google to create a strong Pixel that can compete with Apple iPhone in the premium smartphone segment.

Google may be worried because iOS is becoming the default operating system for future applications because of the success Apple iPhones in the premium phone segment across the world.

Google did not buy the entire HTC. Google is getting HTC’s team as well as some IPs for the Pixel portfolio. It has essentially acquired the entire assets that HTC was using for the Pixel phones for Google.

In the past 5 years, the Indian premium smartphone Segment has more than doubled as depicted by the red curve line in the chart. The $500 and above contribution to the overall smartphone shipments has gone done from 14 percent in 1Q 2012 to 3 percent in the end of 2Q 2017.

What is working against Google’s presence in this segment is the emergence of iOS. iOS was just around 15 percent in 1Q 2012 that has short up to 40 percent as of 2Q 2017.

The spread of iOS has widened in this segment while keeping Android within a tight range. This is expected to further go down as only Samsung has been able to establish itself in this segment using Android.