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Google Acquires the Pixel Division of HTC for $1.1 Billion

Google takes control of its hardware, while HTC sloughs off costs it could no longer afford.

Reality has fallen a bit short of rumors that Google would acquire Taiwanese smartphone maker HTC — today, the two companies announced that Google will only acquire the division of HTC responsible for producing the Pixel smartphone, accounting for 20 percent of HTC’s workforce (about 2,000 employees). The $1.1 billion deal will also give Google non-exclusive rights to HTC’s intellectual property.

The upshot of this is that Google is only buying as much of HTC as they need to. Little wonder — HTC, once one of the market leaders in smartphones, has slipped far behind Apple, Samsung, and a number of other rising competitors. HTC’s flagship phones, including this year’s U11, have not sold particularly well, but the company was bolstered by some patronage from Google, which has been using HTC as their hardware partner to design and manufacture the Pixel.

But, Google never wanted the Pixel to be like their Nexus devices. With the Nexus devices, Google was content to leave the design process to their hardware partners — they took a more hands-on approach with last year’s Pixel, and with the purchase of the entire HTC team dedicated to the Pixel, it’s clear that Google now wants to control the entire design process.

Google won’t be buying any part of HTC related to manufacturing — HTC figures to still handle that part. Interestingly, this won’t be a Microsoft-Nokia situation, either. HTC still plans to design and manufacture its own devices, with the joint statement from today indicating that HTC is currently working on their next flagship phone, presumably the successor to the U11.

More importantly, the deal is a way for HTC to trim down its research and development and labor costs significantly. The joint release suggests that HTC will put a lot of that freed up money towards the Vive, their VR headset. The Vive was likely never a possibility to go to Google — HTC spun off their VR business as a separate company last year.

Google will now have to prove that they aren’t repeating mistakes. Google acquired Motorola in 2012 in a deal that saw the beginnings of the Moto line of smartphones, all for the company to sell Motorola on to Lenovo in 2014 at a $10 billion loss. Google seems to be taking a more cautious approach by just buying the talent and licensing the intellectual property they need for the Pixel phones, but the only thing that matters is whether or not the deal will help Google sell more Pixel phones — a pressing concern after sales of the first generation disappointed.

Google is expected to announce the second generation of the Pixel early next month, which figures to be the last Pixel designed by HTC. The two companies expect this deal to close by early next year, which should pave the way for Google to have full control over the design of the third generation.

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