Google and HTC announced a $1.1 billion deal that lets Google hire some of the Taiwanese smartphone maker’s employees and inks a non-exclusive license for HTC intellectual property, strengthening the search engine giant’s hardware bench.
In a blog post Thursday, Google senior vice president Rick Osterloh said the deal would help Google with its hardware products five to 20 years in the future. Last year Google introduced its first Made by Google products, including Pixel smartphones and Google Home. It will unveil its second generation of products Oct. 4.
Google and HTC have had chummy relations before. HTC, which delivered hardware for Google’s Google Pixel phones last year, is expected to make at least one of the new Pixels likely to be announced Oct. 4. (LG out of Korea could produce another). Some of the HTC staff slated for Google are already working on Pixels, the companies said.
HTC said it’s not getting out of smartphones altogether. It plans to launch a new phone. It also said it would also expand the “ecosystem” around its virtual reality headset Vive.
Google Pixel was lauded by critics bit it hasn’t been a huge sales hit. During the most recent quarter, Google Pixel accounted for only 0.2% of global smartphone shipments, according to Strategy Analytics.
HTC was once a dominant player in the global smartphone market, peaking at 10.8% in the third quarter of 2011, but held just 0.5% in the quarter that ended June 30, says Neil Mawston, executive director of London-based research firm Strategy Analytics.
Google has gone this route before, and not successfully, having purchased Motorola Mobility for about $12.5 billion in 2012, before selling it off to Lenovo for a fraction of the price only a couple of years later. Google did hold on to patents.
This deal does have some parallels to Google’s previous forays into the smartphone market, but “perhaps it could be different this time,” said David McQueen, research director at ABI Research.
“What is in Google’s favor this time is that it is buying just a part of HTC, and it is a part that can help it deliver smartphones with a premium, elegant industrial design while also providing much tighter integration between hardware, the Android OS and Google’s services.”
Most likely, Google made this deal to “guarantee capacity and resources such that the previous ramp-up problems that occurred with Pixel do not happen again,” said Richard Windsor, an analyst at Edison Investment Research. “This will also provide the infrastructure and distribution to produce Pixel smartphones in high volumes, something with which last year’s product really struggled.”
For its part, HTC was an early Android mainstay, and has had a strong track record in delivering phones that garnered critical approval. The problem, though, is that over the last several years, HTC branded phones have barely moved the needle sales-wise, as the company not only lost ground to the most dominant of all the Android players, Samsung, but also to various Chinese rivals such as Huawei.
To that end, the deal “also makes sense for HTC as the company has been struggling to make a commercial impact in the smartphone market for some time despite being one of the most aggressive OEMs in adopting technology innovation,” McQueen said. “However, it will be a continuing struggle for HTC’s remaining smartphone business to remain competitive in the market, and the company could be squeezed even further if it also hives off its Vive VR business.”
A Google-HTC deal, either a wholesale takeover or an acquisition of assets, had been expected. Wednesday the Taiwan Stock Exchange said that trading would be halted starting Thursday “pending the release of material information.”