With $1.1 Billion Google bets big on hardware with HTC deal

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Tech giant Alphabet Inc’s Google signed a deal with Taiwan’s HTC deal Corp. for $1.1 billion to buy part of the Taiwanese company’s smartphone business. The deal, which includes the division at Taiwan’s HTC Corp that develops the US firm’s Pixel smartphones, marks its latest push into hardware manufacturing. The deal include HTC employees who worked on Google’s Pixel smartphone and intellectual property rights, the two companies said in a statement, without disclosing the number of staff involved.

“HTC will receive $1.1 billion in cash from Google as part of the transaction. Separately, Google will receive a non-exclusive licence for HTC intellectual property (IP),” the statement said.

The deal marks Google’s second billion-dollar foray into smartphone manufacturing. The company had purchased Motorola Mobility for $12.5 billion in 2012 and sold it off to China’s Lenovo Group Ltd for less than $3 billion two years later.

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.

The deal will help Google beef up its hardware manufacturing abilities as the Silicon Valley major will have access to HTC’s IP to support the Pixel smartphone family.

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

HTC is a long-time partner of Google and some analysts estimate that Pixel smartphones account for 20 per cent of HTC’s smartphone shipments, according to Reuters.

However the Taiwanese firm has seen its market share dwindle sharply in recent times due to competition from Apple Inc, Samsung Electronics Co and Chinese rivals.

Currently the premium smartphone market has been dominated by Apple and Samsung. To counter this Google felt a need to get a direct slice of the premium users which is important for Android platform and business model, according to Counterpoint Research

This deal is unlikely to affect Chinese smartphone makers as very few Chinese brands are competing in $700+ premium segment, Counterpoint Research said.

Cher Wang, the chairwoman and CEO of HTC, said the agreement will enable Google to supercharge their hardware business while ensuring continued innovation within HTC’s smartphone and VIVE virtual reality businesses.

The transaction, which is subject to regulatory approvals and customary closing conditions, is expected to close by early 2018.

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