Google buys HTC's Pixel smartphone division in US$1.1b deal

Alphabet Inc's Google says it will pay $1.1 billion (S$1.48 billion) for a division at Taiwan's HTC Corp that develops the US firm's Pixel smartphones - its second major foray into phone hardware after an earlier costly failure.
Attendees view the new HTC U Ultra at the HTC stand at the Mobile World Congress in Barcelona.
Attendees view the new HTC U Ultra at the HTC stand at the Mobile World Congress in Barcelona.PHOTO: REUTERS

TAIPEI (REUTERS) - Alphabet Inc's Google said it would pay US$1.1 billion (S$1.48 billion) in cash to acquire the division at Taiwan's HTC Corp that develops the US firm's Pixel smartphones, its latest push into hardware manufacturing.

Google has sought to beef up its hardware capability with deals and product launches, and last year hired Rick Osterloh, a former Motorola executive, to run its hardware division.

"For Google, this agreement further reinforces its commitment to smartphones and overall investment in its emerging hardware business," the search giant said in a statement on Thursday (Sept 21).

Under the deal, Google will also receive a non-exclusive license for HTC's intellectual property. The Taiwanese firm will continue to run its remaining smartphone business.

HTC is a long-time partner of Google and some analysts estimate that Pixel smartphones account for 20 percent of HTC's smartphone shipments.

But the Taiwanese firm, which once sold one in 10 smartphones globally, has seen its market share dwindle sharply due to competition from Apple Inc, Samsung Electronics and Chinese rivals.

Its sharp decline had some analysts questioning the wisdom of the deal.

"HTC is past its prime in terms of being a leading hardware design house, mainly because of how much it has had to scale back over the years because of declining revenues," said Ryan Reith, an analyst at research firm IDC. "Unless Google really wants to control hardware for its other businesses like Home and Chromebooks in addition to smartphones, then I don't see this as being a bet that pays off."

The deal marks Google's second major foray into smartphone manufacturing. It purchased Motorola Mobility for US$12.5 billion in 2012 and sold it off to China's Lenovo Group Ltd for less than US$3 billion two years later.

"It's still early days for Google's hardware business," Osterloh said in a blog post, adding it is focused on bringing together the best of Google software and hardware for a suite of its core products.

Other hardware initiatives include its acquisition of thermostats maker Nest for US$3.2 billion in 2014, while product launches include voice-controlled speaker Google Home and virtual-reality device Daydream View.

Google's strategy of licensing Android for free and profiting from embedded services such as search and maps has made Android the dominant mobile operating system with some 89 per cent of the global market, according to IDC.

But it has long been frustrated by the emergence of many variations of Android and the inconsistent experience that has produced. Pushing its own hardware will likely complicate its relationship with Android licensees, analysts said.

HTC shares were on a trading halt on Thursday. The stock has suffered steep declines over the past couple of years. It has fallen 12 per cent so far this year and the company is worth around US$1.9 billion.

HTC's worldwide smartphone market share declined to 0.9 per cent last year from a peak of 8.8 per cent in 2011, according to IDC. Google's Pixel had less than 1 per cent market share since it was launched a year ago, with an estimated 2.8 million shipments, IDC estimates.

The transaction, which is subject to regulatory approvals, is expected to close by early 2018.