Google buys HTC team for $1.1b

The US search giant is tightening control of the smartphone hardware that carries its Android software. Tension with distributers Samsung and Huawei may build.

Google said it has bought the team of developers that helped build its Pixel smartphone from the struggling Taiwanese device maker, HTC, for $1.1 billion in cash.

The US search engine, a unit of Alphabet Inc., is paying up to inject the hardware expertise into its own smart phones. About 2,000 research and development engineers, or half of HTC's R&D department, will transfer across to Google.

Google wants more control over the apps preinstalled on mobile phones that run its Android software, the most used operating system for smartphones globally.

More control for Google may alienate Huawei and Samsung, which distribute the Android software. 

The HTC team will work on product development of consumer hardware at the US search engine.

Many of the HTC employees are already working with Google to develop the next version of its Pixel smartphone, Google and HTC said in a joint statement on Thursday.

Separately, Google will receive a non-exclusive license for HTC intellectual property (IP).

Acquiring the HTC team also shows Google is trying a different tack in hardware. It sold Motorola’s handset business to China’s Lenovo in 2014 for $2.9 billion.

Google paid $12.5 billion to acquire Motorola in 2011 – mainly for the latter’s huge portfolio of patents, to defend the Android operating system against legal challenges from its rivals. Google maintained ownership of the vast majority of Motorola’s patent portfolio and licensed patents to Lenovo, according to it announcement at the time.

Google and HTC have been developing smartphones together for around a decade.

Google will continue to have access to HTC’s IP to support the Pixel smartphone.

The worldwide mobile phone market will reach a total of 1,981.2 million unit shipments in 2017, up slightly 0.4% from the 1,972.6 million units shipped in 2016, according to market data provider International Data Corporation.

HTC had 10,929 employees at the end of 2016, far more than Sony Mobile, which only had about 4,000 employees. HTC reported a net loss of NT$1.95 billion in the second fiscal quarter. Sales were NT$16.1 billion, down 14% year-on-year. 

HTC's smartphone business is far from breakeven. Personnel expenses account for around half of HTC's operating expenditure.

“There is no reason why HTC cannot cut half of its employees and remain fully functional,” said David Dai, an analyst at Bernstein in a report to investors on September 8.

Notably, Sony Mobile cut its headcount from 7,100 to 4,000 and turned the business in the black.

HTC expects a 30% to 40% fall in operating expenses after this transaction goes through.

Google and HTC expect the deal, which is subject to regulatory approval, to close by early 2018.

¬ Haymarket Media Limited. All rights reserved.
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