Yes, Google can afford to lose $9bn in Motorola sale. But did it really? So just how much has Google lost on buying and selling Motorola Mobility? $9bn - as The Telegraph seems to think? $7bn as simple arithmetic would seem to indicate? Or how about a very decent indeed profit as the vagaries of tax law might indicate - with that tasty patent portfolio thrown in for free? Let's start with a number …
In the contemporary phone market that has developed as a result of the first iPhone (in my humble opinion) aesthetics are becoming increasingly commensurate with performance, looking at Lenovo's history (or lack of) design and the absence of the Motorola R&D unit in the sale, one could speculate that Motorola's opportunities in the consumer market are greatly reduced.
However you have to consider that Lenovo is effectively an enterprise company, now upon the puchase of IBM's Hardware Division and the Thinkpad brand in 2004 there were worries of increased espionage against Western corporations when a Chinese Government backed company was effectively supplying their hardware. Whilst this clearly never dented Lenovo's success we can assume this is largely down to the fact that the user is interacting with an American home-brand OS. As to whether these western companies will be as willing to embrace a product where not only the hardware but also the software is overseen by Lenovo remains to be seen.
Do you know why financial analysts are considered by many finance professionals and senior executives to be the most unreliable and annoying people in the financial sector? I know.
It's because financial analysts come at you with 'hard facts', but everyone knows the available data doesn't actually contain enough information to make operational assessments or forecasts with any level of reliability or accuracy. It's like an airline pilot that jumps on a random plane and takes off without knowing where he's going, or even if there's fuel in the plane, but assures you he's got it under control.
Financial analysis based on regulatory findings is 100% a marketing operation. That's why senior marketing or operational people deal with the analysts. Hell, even analys lunches and dinners come straight from the marketing budget. Go take a hard look at analysts output, the only useful information is always just a copy/paste of public filing info with a small margin both ways. Everything else is wholly made up, or fed to the analysts as part of brand marketing campaigns.
Executives don't hang out and talk about buzzword financials. The talk about the same stuff we do, with maybe a bit more cursing. Why do you think insider trading is such a big deal? Unfair distribution of information is part of it, but a bigger part is that insider trading actually gives insights into the actual business, not GAAP gobbledygook. That stuffs for the Feds and the Proles.
Analysts are also the only people in the world who say stuff like 'Company B can afford to lose $(x) billion'. If a CEO said that he'd be up on federal charges and going to prison. Other executives would be fired and banned from corporate employment forever. Losing the money might not put them out of business, but that still doesn't mean they can 'afford' it. This is business remember, you get to keep the extra money you know. That's why everyone works so hard to get the extra money.
All that boils down to this: Only a lunatic, or day trading superstar wannabe, makes any sort of decision based solely on the publicly available numbers. That's why institutional investors and big individual traders spread that shit around. They know full well the analysts can't make valid assessments with the information that's out there. There's a lot of luck, understanding the company and just being the quickest to move that actually keeps those people making money. It isn't the financial fiction of analysts.
My wife and I decided long ago that our kids could grow up and follow any career path they wanted, as long as it was an industry analyst (any industry) or weather forecaster. I won't always be around to help them and going into a career where nobody expects you to be right, about anything, and where you can't kill people or get killed if you're wrong is one hell of a safety net :)
Motorola should never have gotten so heavily involved in retail, ever. There's a lot of money in retail, but it's .03 cents at a time and is extremely prone to sudden, and enormous, changes in 'fashion'. It's the exact opposite of what engineering heavy companies are good at.
You provide an environment that supports engineers, engineering thinking and engineering planning and you've always got something, always. You force engineers to deal with a fickle, and largely stupid, retail public and it's guaranteed to go as pear shaped as something can.
Motor ola
They started as a retail consumer company. Chips, OEM, Infrastructure etc was all later. They have always been a retail product company with consumer products.
http://www.radiomuseum.org/dsp_hersteller_detail.cfm?company_id=738
http://en.wikipedia.org/wiki/Motorola#History
Car Radios from 1929 (Consumer Radio only began 1921/1922!)
Car & Home Radios
Transistorised Color TV
Cable TV Set boxes (analogue then Digital)
End user Modems
Analogue Mobile Phones (from their Commercial 2 way radio experience since 1937!)
Digital Mobile Phones.
To the article's analysis, add the value of the $3B in cash that Google received at the close with Motorola. In essence, the starting point cost to Google was $9.5B above the cash they received. That makes the "cost" to Google $3 billion more attractive (less costly) than the article.
The other benefit Google has is that they completed the sale using stranded offshore cash that would have to be repatriated to the US at a 35% tax rate. Asset sales to Arris and Lenovo do not incur a tax liability. That brings down the $12.5B purchase price to $8.1B.
So Google potentially made billions after tax.
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