Google Inks $1.1bn Smartphone Deal with Taiwan’s HTC

Business | September 21, 2017, Thursday // 11:35|  views

Google has broadened its smartphone manufacturing operations with an agreement to pay $1.1bn to transfer about 2,000 staff from Taiwanese smartphone maker HTC, reported Financial Times.

The companies have also inked a separate non-exclusive licence agreement for HTC’s intellectual property, the terms of which have not been disclosed. “This agreement is a brilliant next step in our longstanding partnership, enabling Google to supercharge their hardware business while ensuring continued innovation within our HTC smartphone and VIVE virtual reality businesses,” said Cher Wang, HTC co-founder and chair.

The purchase highlights the growing importance of hardware to Google as it seeks to entrench its advertising and internet services, particularly in the high end of the smartphone market, while also laying the ground for wider use of its artificial intelligence. Google created its own hardware division last year and launched the Pixel, the first smartphone to feature only the Google brand and to be designed in-house. It hired HTC as the contract manufacturer for the phone, extending a close handset partnership that dates to 2008 to the first device to carry Google’s Android operating system.

Google said many of the HTC employees who will be involved are “already working with Google to develop Pixel smartphones”. The purchase will reinforce Google’s manufacturing capabilities for future handsets and make it less reliant on the struggling Taiwanese manufacturer, according to analysts. “They are buying a future for Pixel, if you assume HTC wouldn’t go on much longer on its own,” said Carolina Milanesi, an analyst at Creative Strategies.

Boosting smartphone manufacturing could also provide a stronger hedge against Google’s heavy reliance on Samsung, which has become the dominant supplier of high-end smartphones using Google’s Android operating system. “If Samsung were to falter, there’s no other brand with the scale to compete against Apple,” said Geoff Blaber, an analyst at CCS Insight. Google “has to take control of Android in the high tier”. The dependence on Samsung also leaves Google exposed if the South Korean manufacturer pushes ahead with creating a rival ecosystem of software and services. And there have been worries on Wall Street this year about the higher amounts Google has had to pay device makers and other companies for traffic to its advertising services, adding to the incentive to reach consumers directly.

Google first broke into smartphone manufacturing through its $12.5bn purchase of Motorola Mobility in 2011. It went on to run Motorola’s handset division as a standalone operating unit, before selling the business to Lenovo in 2015 for $3bn. Moving deeper into hardware just two years after bailing out with the sale of Motorola “is going to raise some eyebrows”, said Mr Blaber. He added that Google needs “hardware endpoints in a number of categories” to collect data to feed its machine learning systems, and to act as a platform for an intelligent digital assistant.

While adding to Google’s capabilities, the HTC purchase will now be “a game-changer”, said Mrs Milanesi. To give the Pixel a significant boost against Apple and Samsung, Google would have to get far more aggressive in its marketing and distribution of the device, she added. The transaction is expected to close by early next year.

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Tags: Google, Android, HTC, Samsung, deal, agreement, Apple


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