It’s a scenario that will likely never be more than a “what if,” but Piper Jaffray analysts say that if Google were to follow Apple’s model and make Android proprietary to Motorola, it could bring the search giant a very big chunk of change.
Since Google announced its plan to buy Motorola Mobility on Monday, industry watchers have bandied about several different outcomes for the blockbuster acquisition. Gene Munster, a senior research analyst at Piper Jaffray and Co., thinks the most likely scenario is that Google will hold on to Motorola Mobility’s valuable patent profile and sell off the company’s device and set-top box businesses.
But “just to compare Motorola’s potential to Apple,” he ran the numbers on the remote possibility that Google actually closes off Android to other OEMs and fully integrates Android with Motorola’s hardware.
His conclusion? Google could make more than $10 billion in operating profit in 2015, which would add about 35 percent to its overall income.
“It’s massively accretive, but unlikely to happen given Google is too concerned about losing search share to Bing,” Munster said in an email.
To get there, Munster assumed the following:
• Google makes Android exclusive to Motorola as of 2013.
• Android market share goes from 43 percent in 2012 to 20 percent in 2015.
• As a result, Google/Motorola sells 172.5 million smartphones in 2015.
• Motorola ASPs go from $400 in Q211 to $350 in CY15, compared to $654 and $517 for Apple's iPhone.
• Motorola's gross margin goes to 35 percent in 2015 from 25 percent currently and operating margin goes to 20 percent from near break even, compared to Apple currently at 50 percent gross margin for the iPhone and 40 percent operating margin.
• Google loses $4.5 billion in Android ad revenue at $10 per user in 2015, compared to Android's current trajectory.
(ASP is the average selling price per handset.)
In this model, Google stands to make a big profit, but at the cost of abandoning its current strategy of being the leader in search and advertising. Limiting Android to Motorola would give up market share to Microsoft and damage its mobile advertising business, Munster said.
In a statement released by the company Monday, Andy Rubin, Google’s senior vice president of mobile, said, “We expect that this combination will enable us to break new ground for the Android ecosystem. However, our vision for Android is unchanged and Google remains firmly committed to Android as an open platform and a vibrant open source community.”