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  • Google is buying part of HTC’s smartphone division for
    $1.1 billion, and acquiring 2,000 new employees.
  • It’s a lifeline for HTC, which has struggled in recent
    years.
  • And it demonstrates that Google is serious about its
    smartphone ambitions as its Pixel phones go head to head with
    Apple and Samsung, analysts say.

google pixel smartphone phoneA
person tries a new Google Pixel phone at the Google pop-up shop
in the SoHo neighborhood on October 20, 2016 in New York
City.
Spencer Platt/Getty
Images

After weeks of rumours, it’s finally official: Google is buying
part of HTC’s smartphone business.

The
Californian technology giant is spending $1.1 billion (£820
million) to acquire a significant proportion of the struggling
Taiwanese firm’s engineers
, as well as access to intellectual
property, as it doubles down on its hardware plans.

There are two key reasons for the deal, analysts say.

First, it offers a lifeline to HTC — helping the company keep
going and ensuring a key partner for Google doesn’t drop out of
the hardware game.

And secondly, it means Google can further refine its flagship
Pixel smartphone offering — making the Pixel more competitive
against the likes of Apple and Samsung, while acting as a shining
example to other smartphone makers of what can be possible on
Android.

The deal itself

So what exactly has Google paid for? It hasn’t bought HTC
entirely, or even its entire smartphone unit — like what happened
when it acquired Motorola.

Instead, it has effectively acquired HTC’s Pixel unit — the
employees at the Taiwanese company that were already working on
the Pixel. It is getting 2,000 new staff, as well as
non-exclusive access to HTC’s intellectual property.

It was jointly announced late Wednesday/early
Thursday (depending on your timezone),
with Google SVP of hardware Rick Osterloh writing in a blog post
that
“these future fellow Googlers are amazing folks we’ve
already been working with closely on the Pixel smartphone line,
and we’re excited to see what we can do together as one team.”

But the twin announcements are also fairly light on details, CCS
Insight analyst Ben Wood said in a telephone interview —
including on whether Google will get any factories or
manufacturing capabilities as part of the deal.

Bank of America Merrill Lynch analysts guessed that they wouldn’t
in a note to clients, writing that “product details related to
the transaction are somewhat opaque … no mention of
manufacturing assets … Google likely to continue to outsource
hardware manufacturing.”

1. HTC’s in trouble — and this deal is a lifeline

 htc u11 1.JPGThe HTC
U11.
Jeff Dunn/Business
Insider

HTC, once a major player in the smartphone game, has struggled in
recent years against the likes of Samsung and Apple, and is
increasingly looking at its virtual reality division as a key
part of its future.

But it has also been a key partner of Google in the smartphone
for years, most recently with the Pixel devices. Google will have
been worried about the future of HTC’s phone business and the
resources it provides, Wood said.

“Arguably it could be seen as a defensive move insofar as Google
feel as though they want to keep developing the Pixel platform,
and they were probably concerned that one of their key suppliers
was not in particularly good shape … they probably thought in
order to have those resources available on tap to push the
envelope on Pixel, they needed to make sure they shored it up.”

But that’s not the complete picture.

2. Google is doubling down on the Pixel

The Pixel, announced in 2016, was a major shift in direction for
Google. While it launched its own phones before, the Nexus line,
these were largely symbolic standard bearers. They
demonstrated the possibilities of Android to other OEMs
but never sold in large numbers.

In contrast, the Pixel is marketed as a premium consumer phone,
and goes head-to-head with Apple’s iPhone and Samsung’s Galaxy
devices.

So with the HTC acquisition, Google isn’t just trying to maintain
the status quo — it is demonstrating that it remains committed to
that Pixel vision — and wants to accelerate it by bringing all
the relevant engineers under its direct control.

“To me this is about Google getting more serious into the
hardware business. This is different than when Google bought
Motorola – they were after the patents then. HTC doesn’t have any
important patents,” Gartner research vice president Annette
Zimmermann wrote in an email. “Hence there is not much value
to get apart from building up its own hardware business to get
the hardware, software, experience and AI all optimized for
Google.”

Wood said similar, adding that it would also help to ensure Pixel
remains a clear example to other Android manufacturers of what
Google sees as Android at its best.

“At the moment, when all the smartphones are starting to look the
same, and there’s a growing wave of apathy towards this sea of
sameness in smartphones you need someone pushing from the front,
saying: ‘No no no, smartphones aren’t boring, look at this
cool stuff you can do!'”

There are still questions surrounding the future of HTC’s phone
business

HTC has said this isn’t the end of its phone business, and
will produce another flagship in 2018. But analysts are uncertain
about its future.

“Let’s say Google wouldn’t have announced this deal today –
HTC would continue to burn money the next quarters and eventually
have a very small business with remaining vendors they work with
and possibly exit the phone business,” Zimmermann wrote. “So by
agreeing to this dead with Google they are sending their
smartphone know-how to Silicon Valley, which is a short-term fix
money-wise but certainly not a long-term strategy for their
smartphone business.”

Wood added: “HTC has stated that it will stay
in the phone business but I still think it is hard to see how it
continues long term given the tough market conditions for all
smartphone makers.”

Get the latest Google stock price here.

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