Google isn’t really all that worried about how much money it is losing with Motorola.
Google’s smartphone manufacturer continues to be the company's biggest cost sink. In its third quarter earnings today, Motorola lost another $248 million on revenue of $1.18 billion. So far this year, Google’s Motorola division has cost the search giant $861 million. If Motorola has another poor performance in the fourth quarter this year, Google’s smartphone maker could cost the company a cool billion dollars.
At the same time, Google finalized the sale Motorola’s set-top TV box in April to the Arris Group for $2.05 billion. Technically, Google is up on Motorola for the year.
Investors and tech pundits will cry that buying Motorola for $12.5 billion in August 2011 was the company’s worst decision ever. Especially since Motorola announced four new smartphones in the third quarter including three Droid smartphones on Verizon and the Moto X, the first flagship smartphone that is derived out of the collaboration between Google and Motorola.
Is Google sucking wind with Motorola? Or is the partnership just in the beginning stages and ultimately will be extremely profitable? There is still a chance that Motorola is still the worst decision that Google has ever made—but it's hard to know for sure when the flagship smartphone that the companies have created together has been on the market for only a couple of months.
Moto More Than Just A Number On A Balance Sheet
The fact of the matter is that Google is pushing the bounds of current smartphone technology with the Moto X and is showing other Android manufacturers some of the possibilities that can be done with Android smartphones. Google is working on technologies such as motion and gesture control that are found in the Moto X but not necessarily in other Google products.
Google is also working on language technology and voice recognition, technologies that play a big role in the Moto X. These are the types of technologies that get a proving ground in Motorola’s smartphones, but which can also play a wider role should, for instance, Google add them to a new version of Android or to the Chrome browser (which would essentially extend them to basically every Internet-capable device in the world).
Google would love to be able to turn its Motorola division into the next Apple or Samsung. But it is not critical to Google’s bottom line in the short term. Google has restructured Motorola, turning it from the bloated manufacturer it bought in 2011 to a division within Google with fewer than 10,000 employees (it employed 20,000 at the time of acquisition). With a few more flagship smartphones under its belt and a little traction in the market, Google would be happy if Motorola eventually broke even while remaining a source of protection from patent lawsuits and a test bed for pushing the bounds of mobile innovation.
Of course, Motorola can't be a drag on Google's profits forever. But in the short term, there is less importance on how much the smartphone maker is losing than on building the company, its technology and infrastructure.
"It is still early days for us," said Google's chief financial officer Patrick Pichette. "I think [Motorola CEO Dennis Woodside] and the team have made a huge transformation at Motorola. We now have great product quality with the Moto X, the first device that has come out, has been very well received, great product. The team is really now working on building out marketing and distribution, that is the next area. That is the mindset we have with Motorola. This is not really a this quarter or next quarter but this is much more of an optimistic reception of the company."