Google deal with Motorola may shake up smartphone market

Google Inc.'s $12.5-billion agreement to buy mobile handset maker Motorola Mobility Holdings Inc. will probably trigger a shake-up — and shake-out — in the smartphone market.

As Google prepares to take on Apple Inc. and its iPhone, remaining handset makers may be forced to realign their allegiances, cutting deals to put new operating systems on their phones or buying firms themselves to gain valuable technology patents.

While Google wants to build its own devices to compete with the iPhone, it also wants control of Motorola’s 17,000 patents to protect itself against patent infringement claims.

Competing software and handset makers may think they also need to bolster their patent arsenals, analysts said, because successful lawsuits can lead to huge damage awards and court orders halting sales of infringing devices.


“We could see more consolidation out of this, whether it’s for patents or technology,” said Shaw Wu, an analyst at Sterne Agee. The companies are “trying to position themselves for the next 10 years, and they want to make sure their businesses are not disrupted.”

That could mean stronger firms such as Microsoft Corp. or Samsung Corp. snapping up patent-rich cellphone manufacturers that have fallen behind in the marketplace such as Nokia Corp. and BlackBerry maker Research in Motion Ltd.

RIM, in particular, could be left most vulnerable by the acquisition. The Waterloo, Canada, company, which used its own operating software to build its BlackBerry brand worldwide, has fallen on hard times.

Its once-dominant BlackBerrys have been losing their grip on the global smartphone market for several years. The company’s share of global sales fell to 12% in the second quarter from 19% a year earlier, according to research firm Gartner Inc. That’s well behind Google’s Android operating system, with 43% of the market, and Apple’s iOS-powered iPhone, with 18%.


RIM’s stock price has plunged 54% since the start of the year, losing 18 cents Tuesday to $26.93, and the company recently said it would cut more than 2,000 jobs. And its tablet computer, the PlayBook, hasn’t sold well.

“As a stand-alone company, they’re in trouble,” said Scott Sutherland, an analyst at Wedbush Securities, noting that the company has had trouble coming up with a viable tablet or a Web-enabled television system. RIM’s devices, he said, “aren’t as good, their PlayBook was disappointing and their ability to attack all screens is an Achilles’ heel.”

But Microsoft, for one, might well be interested in RIM’s more than 2,000 patents on such technologies as wireless e-mail, messaging and mini-keyboards, Sutherland said, and the Redmond, Wash., software giant has tens of billions in cash to spend.

Microsoft has been fighting to gain a bigger piece of the smartphone market. Its Windows Phone operating system controls only 1.6% of the worldwide market.


In April, it signed a multibillion-dollar deal with Nokia to use Microsoft’s system on the Finnish firm’s smartphones starting next year. The deal closely bound Nokia’s fate to Microsoft, raising the possibility that those companies eventually would merge.

Microsoft also hopes to see interest in its software from current Google allies, which may now be worried that Motorola will get preferential treatment from the Internet search giant, analysts said. The other major Android handset makers — Samsung Electronics Co., HTC Corp. and LG Electronics — also make Windows-powered smartphones.

“I think they have to go back and reevaluate their strategy,” Forrester Research analyst Charles Golvin said about Google’s manufacturing allies. “They’re going to be asking, ‘Are we properly hedged? Should we be tilting back toward Microsoft?’ ”

Hewlett-Packard Co. also may have a card to play as the industry finds a new equilibrium. The company owns the WebOS operating system, a well-liked system it inherited in buying Palm Inc. last year. But HP smartphones accounted for less than 1% of global sales in the recent quarter, and its TouchPad tablet, like RIM’s PlayBook, has had trouble finding an audience.


Any company looking for a way to reduce its reliance on Google’s Android might be thinking about licensing — or buying — WebOS from HP, Wu said.

Assuming Google, which must get federal antitrust clearance, completes its acquisition, he said, other Android phone manufacturers “have to think about controlling their own destinies again.”