When Google (GOOG) announces its quarterly earnings on Thursday this week, the results, for the first time, will reflect Google's recent acquisition of Motorola's mobile phone business. Now Google will be designing and manufacturing cell phones to compete directly with Apple's (AAPL) iPhone in the global marketplace.
For many investors, primary concerns center on what will be the financial impact and how they should value Google's share price going forward.
In May, Google announced the completion of it's $12.5 billion dollar deal to buy Motorola's cell phone business. The purchase, by far the largest in Google's history, will bring a new hardware business for cell phones, tablets, cable set-top boxes to Google. The acquisition will also add about 17,000 employees to Google's payroll, increasing its total employees by over 50%.
During the first quarter 2012, Google delivered about $2.9 billion dollars in net income on $10.9 billion dollars of revenue. Motorola Mobility, on the other hand, lost about $89 million dollars on $3.1 billion dollars in revenue during its first quarter of 2012.
Clearly, the Motorola acquisition is NOT likely to have a positive impact on Google's earnings this quarter and will almost certainly reduce Google's profit margin.
I believe the key issue will be whether the company can make investors feel positive about the Motorola acquisition. The company needs to show how the acquisition will create exciting new opportunities for Google as well as greater earnings growth over the next 3 to 5 years.
Certainly, the deal has brought in an estimated 17,000 patents, which will help Google defend itself against future lawsuits affecting its Android software. In addition, Google will probably announce the sale of around 5-6 million smartphones during this quarter. With Apple's mobile phone sales greater than 30 million last quarter, it is unlikely that these facts alone will help convince investors of the wisdom of the Motorola purchase.
I suspect that investors will be not willing to wait on a strategy that appears to have more questions than answers. If the business case for Google's acquisition is not clear and greeted with some investor enthusiasm on Thursday, look for a Google share price to decline on Friday following the earnings announcement.
Disclosure: I am long AAPL.
Additional disclosure: I have no positions in Google (GOOG) at this time
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Samsung Asks to Limit Apple References to Jobs at Trial - Bloomberg
Samsung Electronics Co. (005930) asked a federal judge to restrict references by Apple Inc. (AAPL)’s lawyers to the company’s late founder Steve Jobs at a jury trial scheduled for July 30 over mobile-device patents.
Harold McElhinny, a lawyer for Apple, told U.S. District Judge Lucy Koh in San Jose, California, yesterday that he plans to show jurors two slides of Jobs during opening statements in the case. The slides include one when Jobs announced the release of the iPhone in 2007 -- an “announcement that went around the world,” the lawyer said.
“I don’t want to see an opening statement where jurors see 15 images of Steve Jobs,” Charles K. Verhoeven, a Samsung attorney, told Koh.
“Whether Mr. Jobs made a presentation is not relevant to their case” and excessive use of his image is “prejudicial to the jury,” Verhoeven said. “It shouldn’t be a popularity contest.”
The dispute over the use Apple plans to make of its iconic founder came at the conclusion of arguments and rulings over pretrial issues. In the lawsuit, Suwon, South Korea-based Samsung and Cupertino, California-based Apple, the world’s two biggest makers of high-end phones, have accused each other of copying designs and technology for mobile devices. The companies are fighting patent battles on four continents to retain their dominance in the $219 billion global smartphone market.
“I’m not doing a complete prohibition of Steve Jobs, but it needs to be relevant,” Koh said, adding that she wants to see the images Apple wants to display before she issues a final ruling.
The case is Apple Inc. v. Samsung Electronics Co. Ltd., 12- cv-00630, U.S. District Court, Northern District of California (San Jose).
To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net
To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net
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