WASHINGTON, Aug 16 – Google shook up the mobile phone industry Monday with the announcement it is buying US smartphone maker Motorola Mobility for $12.5 billion in cash in a bid to extend the reach of its Android platform.
The surprise move gives Google a strong patent portfolio to defend Android against lawsuits from rivals such as iPhone and iPad maker Apple and turns an Internet company known for its software into a hardware manufacturer.
Analysts said the acquisition also has major implications for handset makers such as Taiwan’s HTC, South Korea’s Samsung and others who are using Android to power their mobile devices.
Google and Motorola Mobility said the Internet titan will buy Motorola Mobility for $40.00 per share, a 63 percent premium over Friday’s closing price.
Google shares lost 1.16 percent on Wall Street on Monday to close at $557.23 while Motorola Mobility, which was created in January after splitting off from parent company Motorola, finished the day up 55.78 percent at $38.12.
Google and Motorola Mobility said their boards of directors have unanimously approved the deal — Google’s largest acquisition ever, dwarfing its $3.1 billion purchase of online advertising firm DoubleClick.
Under the agreement, Motorola Mobility will remain an Android licensee and Google will run the unit, which employs 19,000 people and reported a net loss of $56 million last quarter, as a separate business.
Besides smartphones, Motorola Mobility is a leading maker of TV set-top boxes and analysts said the acquisition could see Google make a renewed push for Google TV, which merges online content with traditional TV programming.
Motorola Mobility also makes an Android-powered tablet computer, the Xoom, and Gartner analyst Michael Gartenberg said Google has “shaken up the tablet market in a big way.”
“Google no longer has to depend on third parties to deliver their vision to compete with the iPad,” he said.
“Suddenly you have Google, already a serious platform player, becoming a serious integrated vendor from end-to-end for everything from phones to tablets to television sets,” Gartenberg said.
Google chief executive Larry Page said Google and Motorola Mobility “will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners and developers.”
He said the deal will help protect Android against patent lawsuits targeting the open-source mobile operating system which Google provides to smartphone and tablet makers for free.
“Our acquisition of Motorola will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies,” he said.
Google earlier this month accused Apple, Oracle, Microsoft and other firms of using “bogus patents” to wage a legal campaign against Android.
Google bid earlier this year for 6,000 patents held by bankrupt Canadian firm Nortel but lost out to a consortium made up of Apple, EMC, Ericsson, Microsoft, Blackberry maker Research in Motion and Japan’s Sony.
In a conference call with financial analysts, Motorola Mobility chief executive Sanjay Jha said his company has over 17,000 issued patents and another 7,500 pending.
Google’s chief legal officer David Drummond said the acquisition will require regulatory approvals in the United States, the European Union and elsewhere but he expects it to receive the green light.
The US Federal Trade Commission is already conducting a probe into Google’s Internet search and advertising business and past Google acquisitions have come in for close scrutiny from US and European regulators.
Andy Rubin, senior vice president of mobile at Google, said the Mountain View, California company will continue to provide Android to other handset makers.
“It’s business as usual for Android,” Rubin said. “I see it as basically protecting the ecosystem and extending it as well.”
Google provided quotes from Android partners Samsung, HTC, Sony Ericsson and LG Electronics praising the deal.
“We welcome today’s news, which demonstrates Google’s deep commitment to defending Android, its partners, and the ecosystem,” J.K. Shin, president of Samsung’s mobile communications division, was quoted as saying.
Gartenberg, the Gartner analyst, said the patent protection would indeed be welcome news for Android partners but “that’s probably the only good thing that comes out of this for third parties.”
“All of a sudden they went from a pretty level Android playing field where they were all essentially competing with each other,” Gartenberg said. “Now they’re all competing with each other but suddenly competing with Google.”
Forrester Research analyst John McCarthy said the deal leaves Google in the “awkward position of being half-pregnant and trying to be a provider of an open source ‘environment’ while at the same time competing with its ‘customers.’”
He said it could potentially open the way for Microsoft to offer its mobile operating system, Windows Mobile, to handset makers as an Android alternative.