BrandArena: Google to buy HTC's Pixel phone division in a $1.1 bn deal

Thursday, 21 September 2017

Google to buy HTC's Pixel phone division in a $1.1 bn deal

Tech giant Google's parent company Alphabet has signed a $1.1billion (£815million) deal with embattled Taiwanese smartphone giant HTC.

The deal which is expected to be closed early next year as soon as clearance is secured from regulators will see some HTC staff join the Silicon Valley Giant with Google not taking a stake in the firm. It also marks the latest move by Google to boost its hardware capabilities.

On Wednesday, HTC announced it was suspending trading in its shares ahead of the publication of what it called 'material information', fuelling rumours of a deal.

HTC, a once big player in the Smartphone market has recently struggled due to fierce competition with the likes of Apple and Samsung.

According to the firm’s senior vice-president of hardware Rick Osterloh in a blog post on Google’s website, “It’s still early days for Google’s hardware business,”.

“These future fellow Googlers are amazing folks we’ve already been working with closely on the Pixel smartphone line,” Mr Osterloh said.

Under the deal, Google will acquire a team of people who develop Pixel smartphones for the US company and receive a non-exclusive license for HTC’s intellectual property.

It builds on an existing partnership between the two tech companies.

HTC further reveals that part of the deal will see half of it Smartphone research and development team – about 2,000 people go to Google.

HTC manufactured Google’s first smartphones, the Pixel and Pixel XL, last year. The company will release updated version of the devices next month.

However, Google’s Pixel is far from a top-selling phone. External estimates pegged sales at 552,000 units during its first quarter. Yet selling Pixels has auxiliary benefits for Google, chief among them the boost to its primary sales. With each Pixel phone it moves, Google doles out less in traffic acquisition costs: it pays money to partners like Apple and carriers to install Google’s search service. That cost has risen steadily, pulling down its sales totals last quarter in particular.

Yesterday, within just a few hours, most of Apple’s millions upon millions of users were using the latest mobile operating system, having tapped on the prompt to download iOS 11.

Contrast that experience on Android, where the company’s impressive and innovative updates are greatly hampered as it can take months, sometimes years, for those features to filter to users.

Google knows this disconnect between its software and hardware is a massive problem. And so this curious deal with HTC, which falls short of the rumoured buyout, is about solving that problem. If it can have close control over key premium devices, it can be more ambitious with its software.

In some respects, this $1.1bn deal is like a good friend lending their pal a few quid to tide them over for a while. HTC needs Google’s money to keep going. And Google needs HTC’s expertise and manufacturing capability to remain competitive with its mobile devices.

The deal marks Google’s second major foray into smartphone manufacturing. In 2011 Alphabet, then named Google, bought Motorola’s Mobility for $12.5bn, only to sell it on three years later.

Geoff Blaber from CCS Insight said while the HTC deal might “raise eyebrows” given Google’s history with Motorola, it will give the firm valuable design and engineering resources.

“The far bigger risk for Google would be to stand by and do nothing as hardware becomes an all-important means to an end for its core business,” Mr Blaber said.

But the big winner is the Taoyuan-based company.

“It’s a much needed investment as HTC struggles to maintain its smartphone business and grow its early start in virtual reality,” he added.

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