Google’s hardware makeover to get uneasy welcome

SAN FRANCISCO: Google on Thursday will report quarterly results for the first time since closing its $12.5bn acquisition of smartphone maker Motorola in May.

Google’s purchase of Motorola, as well as ongoing uncertainty about the global economy, mean that Google suddenly looks a lot less familiar, and less predictable, to many investors — a fact that will be underscored in the company’s second-quarter report.

“This is the first quarter that Motorola is going to be consolidated into results, and it’s going to be messy,” Reuters quoted BGC Partners analyst, Colin Gillis, as saying.

The absence of Chief Executive Larry Page from the public eye, due to an unspecified ailment that has caused him to have “lost his voice,” hasn’t helped buoy investor confidence as the company faces a critical juncture.

Shares in Google are down roughly 14 per cent from their 52-week high of $670.25.

Google is an “an execution story, which is why it’s so unnerving that Larry now has an illness that’s not defined,” said BGC’s Gillis.

“He set the company down this path and now there’s no undoing it. If he becomes sick in the middle of it and can’t put as much energy into it as he’d like to, that’s a risk.”

Page, a co-founder of Google, returned to the Chief Executive Officer role in April 2011 and quickly reset many of the company’s priorities, shutting down underperforming products, launching the Google+ social network to challenge Facebook Inc and buying Motorola, the largest acquisition in Google’s history.

Investors have a wide range of questions about Google’s expansion into the hardware business, where margins are low and competition with the likes of Apple Inc and Samsung is fierce. In addition to acquiring Motorola, Google recently launched the Nexus 7 tablet in partnership with Taiwan’s Asustek and released the first Google-designed and manufactured consumer electronics device, dubbed the Nexus Q.

“We need to hear from management about not only the strategy for the hardware business but also how much they’re planning to invest in the business,” said Colin Sebastian, an analyst with Robert W. Baird & Co, referring to the Motorola business.

Google’s hardware push comes at a time when its core Web search advertising business is under pressure from consumers’ increasing use of smartphones to surf mobile versions of the Web – where ad rates are lower – and as Europe’s struggling economies raise fears of a broader advertising-spending slowdown.

When Google first announced plans to acquire Motorola in August 2011, Google’s chief financial officer, Patrick Pichette, told investors the deal would be “mildly accretive.”

But Baird & Co’s Sebastian says that a lot has changed in the smartphone market since then and he estimates that the deal may actually be dilutive to earnings at this point.

Google has said very little about its plans for Motorola since the deal closed.

Many investors recognize the benefit of Motorola’s vast portfolio of patents amid the technology sector’s increasing legal battles.

But Motorola’s hardware business, which includes factories in China, Taiwan and Brazil for building phones and television set-top boxes, is a less obvious fit with Google’s high-profit-margin Internet business. In the first quarter of the year, Motorola reported a net loss of $86m.