back to article 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 …

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  1. John Sanders
    Paris Hilton

    What a mess

    Really, what a mess, and on top of that the Suspicions around the deal with Samsung.

    1. Goldmember

      Re: What a mess

      I wouldn't say this is a mess. To the untrained eye it may appear so, but I should imagine, nay, put money on, this being Google's accountants/ strategists/ lawyers pan from the start. So we have;

      - Buy a company with an operating loss for huge tax breaks (on top of the already huge ones in place)

      - Sell off the profitable bits of it

      - Strip out the loss making but still attractive parts and sell them (in this case to Lenovo)

      - Keep enough of the carcass to offset against profits and create yet more tax breaks

      - Acquire a shitload of patents to lock down the market in Android's favour, and potentially license to or sue infringing companies in the future

      Many assumptions have been made of course, but to me this looks like a win win win win win for Google.

      1. Anonymous Coward
        Anonymous Coward

        Re: What a mess

        "I wouldn't say this is a mess. To the untrained eye it may appear so, but I should imagine, nay, put money on, this being Google's accountants/ strategists/ lawyers pan from the start. So we have;...."

        As somebody who fulfils one of those functions in a not-directly related business, I can assure you that the smartest plans rarely go as expected. Sometimes you get lucky, but if it works out well assume that it did so by luck rather than judgement.

      2. Matt Bryant Silver badge
        Go

        Re: Goldmember Re: What a mess

        ".....this looks like a win win win win win for Google." Indeed, but the funny thing is everyone seems to be focusing on the Google side of the deal and no-one seems to have thought to ask why the fudge Lonovo thought it was worth even $1bn without the patents?

        1. Anonymous Coward
          Anonymous Coward

          Re: Goldmember What a mess

          "...why the fudge Lonovo thought it was worth even $1bn without the patents?"

          _NO_ patents at all? I got lost with all the "what ifs" in the article, but I don't think I read that definitively.

          Anyways, that's why I read the article, sadly there is no mention of why they bought it. Who knows, maybe in 20 years they will have hardware locked down so tight in China that the software/services players come begging...or so maybe they think :-/.

        2. Paul Crawford Silver badge

          Re: "why the fudge Lonovo thought..."

          If Lenovo are planning on making Android phones only, why do they need those patents?

          As long as Google is using them to shield Android makers from Apple/MS/etc in any patent-related battles then it is not that important to Lenovo. They must see an opportunity to enter the market even more and profit.

          1. Matt Bryant Silver badge
            Pirate

            Re: "why the fudge Lonovo thought..."

            "If Lenovo are planning on making Android phones only, why do they need those patents?....." Unfortunately it seems the mobe wars require a little MAD to keep everyone playing nice. I'm not sure I'd want to be reliant on Google's good will in the long run.....

  2. Ralph B

    You lost me there

    > $700m a year for eight years and $1bn immediately: call it a round $6.5bn?

    Google's acquisition of Motorola was only completed on 22 May 2012. That's less than two years of ownership. So why are you calculating with eight years of Motorola Mobility losses?

    1. Chris Miller

      Re: You lost me there

      Because (Tim reckons) Google's (extremely) high-powered tax lawyers will have found a way to keep the tax losses - see article. Thanks for explaining that for us Tim :)

      1. E_Nigma

        Re: You lost me there

        And I'd say that the supposition is almost certainly true. Otherwise, the price would be higher than 3bn, because just the remaining 5 years of tax deductions amount to 3.5bn.

      2. mccp

        Re: You lost me there

        I'm also lost here:

        "$700m a year in tax deductions from future profits"

        I thought that a tax deduction was the amount that your were able to deduct from your taxable profits. In that case, you only save the tax that you would have paid on the $700M. I guess that makes the savings about 30% of what was stated.

        1. Anonymous Coward
          Anonymous Coward

          Re: You lost me there

          I thought that a tax deduction was the amount that your were able to deduct from your taxable profits. In that case, you only save the tax that you would have paid on the $700M. I guess that makes the savings about 30% of what was stated.

          good point, perhaps the author is confusing deductions with credits.

    2. I ain't Spartacus Gold badge

      Re: You lost me there

      Tax law rewards you for saving loss-making companies. So I think you're allowed to take into account teh losses from the company for up to 5 years before you bought it. Assuming that's not been used already. As the whole of Motorola hadn't made profits for ages, I think that meant Google could expect 5 years losses of over a billion a year. Plus the 2 years they owned it

      If so, that's $7 - $10bn of losses at about 30% corporation tax = around $3bn.

      Better that a loss making company be rescued than not. So there are many situations when the tax write-off is a great idea. Even possibly here, as Google didn't kill Motorola they just sold it off in bits. But a company that's not looked like making a profit for that long is probably no loss to the economy, and some of its parts were worth something. Google were willing to stump up the cash adn absorb 2 years of losses (risking never being able to sell), so I guess they probably deserve the tax breaks - which have pretty much worked as designed. Even if it does look a bit icky.

      1. Ralph B

        @I ain't Spartacus Re: You lost me there

        Thanks for the clear explanation, Non-Spartacus.

        (And thanks a lot to all the commentards who downvoted my question. Obviously my search for enlightenment deserved to be punished, FFS.)

  3. Tim Worstal

    I've since seen that Google is keeping the Project ARA bit. So they may well have an decent argument that they do get to keep those tax losses. They've sold out the assets, not the holding company perhaps?

  4. petur

    Losses are losses

    If Motorola made losses while owned by Google, those should be added to the costs of Google, since that money went from Google into Motorola. Right?

    1. Mr Spigot

      Re: Losses are losses

      Absolutely. The article seems to ignore the fact that in order to reclaim losses, you have to incur them in the first place! At best you end up neutral.

      If the idea is that Google are reclaiming losses incurred by Moto before they bought the company, then how come it's ok for Google to offset the loss after selling to Lenovo, but Moto couldn't offset it elsewhere in their biz after selling to Google.

      The whole article is speculation.

    2. P. Lee

      Re: Losses are losses

      >If Motorola made losses while owned by Google, those should be added to the costs of Google, since that money went from Google into Motorola. Right?

      True, but they are presumably operating losses, which have been paid for out of earlier profits - otherwise the company would not have paid its bills and been rendered insolvent. The only way the losses would be carried forward would be if they had borrowed money which has to be paid back in order to pay their debts.

      I think the article said motorola still had a cash pile, so they don't have a negative bank-balance for Google to take on.

  5. Joe Harrison

    Keeping track of all those billions must be hard work

    A billion here, a billion there, pretty soon you're talking real money

    1. Paul Crawford Silver badge
      Joke

      Re: Keeping track of all those billions must be hard work

      Really? I keep a similar amount down my codpiece...

  6. ItsNotMe

    What's $9bn amongst friends anyway?

    Google probably has more than that lost down behind the couch cushions at The Chocolate Factory's HQ.

  7. Porco Rosso

    Also strike against Microsoft

    Don't forget that with this move Google has now close ties with Lenovo " number 1 business/windows pc manufacture " .

    It's also a gentle strategic move of Google's part to push Lenovo to ship products

    witch integrate service of Google (Chrome OS, Android, Google docs, gmail and other services) to it's business customers worldwide and of course Chinese home user.

    (Microsoft didn't see this coming. )

    1. Queasy Rider

      Re: Also strike against Microsoft

      I know that Google's servers are custom-made, saving them maybe billions. Does anybody know if Lenovo is in the server biz somehow. That tie-in could save Google even more.

      1. Anonymous Coward
        Anonymous Coward

        Re: Also strike against Microsoft

        Remember? Just last week Lenovo bought IBM's x86 server line. Lock, stock, and engineers.

  8. Anonymous Coward
    Anonymous Coward

    Yeah but...

    Yeah but Google wasn't going to pay taxes anyway.

  9. Himalayaman

    Do we actually care if some evil (yes I know) big fat corporation lost a few billions???

    1. 2460 Something

      The point the article is making is that it is more likely they didn't.

  10. Anonymous Coward
    Thumb Down

    Ireland...

    When will the EU close that tax avoidance heaven hole?

    1. Vociferous

      Re: Ireland...

      When the Irish economy stops being in need of a respirator to stay alive.

      1. Semtex451
        Headmaster

        Re: Ireland...

        The Irish economy is doing fine without a respirator

        1. Vociferous

          Re: Ireland...

          > The Irish economy is doing fine without a respirator

          No, it isn't. It's held under the arms by EU subsidies and EU special rules allowing it to offer golden deals to non-EU companies to set up shop (and pay very little tax) in Ireland.

          There isn't a country in the union which should love the EU as Ireland.

          1. Hans 1

            Re: Ireland...

            @ Vociferous

            Yes there is, the UK ... with the "We want our money back" BS Maggie managed to make the UK look like the poor bastard of the Union, thus they bag more for less funding than the two other big players (I mean the Froggies and Sauerkrauts).

            The area that loves the EU most is Corsica, they share their cattle around the island so each farmer gets way more subventions.

            And, the one citizen of Europe who loves the EU the most is of course the Queen ugly betty II, she gets more money from the EU than anybody else ... and, out of the top 50, my guess would be 45 are British lords (only slightly exaggerated).

            And it's us in the middle who have to pay up for all that. If at least we could have a EU football team, the dream team! I mean we deserve it .... and no, I don't like/watch football, I know it is a "very" popular or pubular sport in the UK and I have to compensate for speaking of our Queen like that ;-)

            Click ↓ to downvote

    2. Anonymous Coward
      Anonymous Coward

      Re: Ireland...

      Do you really think that Ireland is the problem? Starbucks managed to pull off pretty much the same level of "tax management" in the UK without any reference to Ireland, and most of the rest of Europe would like to implement a "Tobin tax" but opposition from politically powerful firms in the City of London is one of the main barriers to it's implementation:

      http://en.wikipedia.org/wiki/Tobin_tax#European_Union_financial_transaction_tax

      The so called "Double-Irish Dutch Sandwich" has no impact on UK tax revenues anyway (it is designed to allow US companies defer payment of US corporate taxes) and even if Ireland adopted UK tax laws tomorrow, companies like Google would still find it tax advantageous to bill their UK sales through half a dozen other EU countries. And the UK is even more strenuously opposed to a single EU-wide Tax regime than Ireland is!

      1. Anonymous Coward
        Thumb Down

        Re: Ireland...

        Yeah, I forgot to mention the Netherlands, that nice tulips chaps.

  11. Howard Hanek
    Facepalm

    Am I Reading Variety?

    The lead in to the story sounds like you recruited writers from Variety? Google's Off Handset Max Tax Axe trick ....or something.....

  12. Herby

    Death and Taxes

    Only sure things. Looks like Google has figures out both of them.

  13. Carl

    No idea

    What that article was on about.

    However, while reading this accountancy gobbledegook, I became sure of one thing:

    The sooner the B-ark is ready for launch the better.

    1. deadlockvictim

      Re: No idea

      Hi Carl,

      Did you ever get that diploma in telephone sanitation? There could be good news coming your way soon.

      Kind regards

  14. Semtex451
    Thumb Up

    Very pleased you wrote this Tim, yet again the mainstream media are exposed.

    Keep up the good work.

  15. ideapete
    Pint

    Indeed thanks Tim , Or why Journalists ( and Bloggers ) are not Tax wizards ( pun ) and vice versa

  16. Craig 2

    Look at this from the opposite side: Google would probably have paid 9bn just for the patents so they can help defend or deflect lawsuits. They know they are weak on mobile patents and open to attack from (mainly) Apple.

    The attached company is irrelevant. 9bn was for the patents, sales of any assets are a nice bonus.

    1. Hans 1
      Coat

      Google is not going to use the patents to hit Apple, are you nuts ? They are gonna hit Microsoft, you know, all those billions that go over to Redmond, I thought it was like $1 or 2 for each and every Android handset sale.

      Apple only attacks companies that steal tech it took years/decades to design and get right. Just read all the iPhone killer articles on elReg, you will see failed attempts to beat iPhone on coolness ... then Samsung succeeded with galaxy by creating a cc, as far a looks were concerned.

      Go on and look at Samsung's offering, a black and white variant for each device, all look very close to the iPhone 3[G|GS]. They somewhat differ from Samsung/Nokia/HTC/YouNameIt devices that came out before iPhone.

      Don't call me fanboy, I have a Z30.

  17. Ian Michael Gumby
    Facepalm

    Food for thought...

    So Google has the holding company which owns the patents.

    OK,

    So is it possible for Google to then transfer those assets (patents) to an Irish subsidiary and then use it for a Double Irish tax dodge?*

    Wouldn't this also be a way to gain extra value out of the patents, regardless of how enforceable they are?

    *I say dodge, but its all legal even if it leaves a bad taste in our mouths...

  18. booms

    Superb article

    This is why I read the Register. Lightyears ahead of anything, including national newspapers. And knowing a bit about corporation tax, well thought through.

    1. Tim Worstal

      Re: Superb article

      Most kind. I'm sure the editor will be taking requests for pay rises soon......

  19. Number6

    I would say this says more about those who write tax laws and those who interpret them than anything else.

    Perhaps the world could club together to organise a big convention for them on a tropical island in the Pacific somewhere, and when they're all having a party, nuke it from orbit.

  20. W. Anderson

    Value of Patents & Copyrights

    Neither Wall Street,the average citizen nor any of the ranting Microsoft dupes on TheRegister, ZDNet or TechTarget have any technical or legal knowledge about the 17,000 patents that came as part of Google purchase of Motorola, nor would they have any expertise to value such patents.

    Therefore, it is just crude speculation to surmise whether Google' transactions between buying and selling Motorola is good or profitable or not. Intellectual Property Experts, specializing on Patent and Copyright Law at an established Law firm in Bermuda recently told me that outright owning 'legitimate' Patents on Software or Networking protocols and designs can be worth up to $billions, depending on the business of the patent owners, as a slid protection against competing technologies.

    I recommend the peasant technology experts to sit quiet for a while.

    1. Michael Wojcik Silver badge

      Re: Value of Patents & Copyrights

      Intellectual Property Experts, specializing on Patent and Copyright Law at an established Law firm in Bermuda recently told me that outright owning 'legitimate' Patents on Software or Networking protocols and designs can be worth up to $billions

      Did they also Tell you that Capital Letters make your Post seem More Authoritative?

      And certainly we'd all be foolish to discount your unsubstantiated report of claims made by anonymous "Experts" in Bermuda. As the saying goes, if you can't trust hearsay attributed to a Bermudan lawyer, who can you trust?1

      1Though it really ought to be "whom can you trust", as "whom" is the object of "trust". I suppose that alone might cause us to doubt this piece of conventional wisdom.

  21. At0micAndy
    Mushroom

    Crikey, looks to me like Google have set Microsoft up for a big fall. I suspect the major future home for Office will be on Apple [ windows may already be terminally ill]. I did think the cloud, but then, well, what's the betting Office soon runs like a whale on Chrome?

    Looks to me like a remarkably astute move by Google. So glad that I do not knowingly use their products. Soon they will be sending Androids back in time to kill as all in a Thermo Nuclear war engineered..... sorry, I'll get my coat.

  22. Anonymous Coward
    Anonymous Coward

    Google is in the asset stripping business now?

    1. Francis Boyle Silver badge

      No,

      but it's in the killer robot business these days.

  23. LewisAnthony

    Prejudice and Suspicion

    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.

  24. Don Jefe

    Affordability

    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.

    1. phil dude
      Pint

      Re: Affordability

      you make it sound like a fun job....:-)

      Beer, 'cos....

      P.

      1. Don Jefe

        Re: Affordability

        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 :)

  25. BigGdog

    Money well spent

    Let's not forget the other benefit of turning Motorola from being the rebellious OEM threatening switching to bing to the prize pupil demonstrating innovative features on top of near AOSP code.

    1. Don Jefe

      Re: Money well spent

      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.

      1. Mage Silver badge

        Re: Money well spent

        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.

  26. Anonymous Coward
    Anonymous Coward

    Don't forget cash!

    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.

  27. ChrisInAStrangeLand

    Stranded offshore income benefits.

    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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