This morning brought big news for the tech world: Google Inc. (GOOG) has finally cleared its last hurdle and closed its $12.5 billion acquisition of Motorola Mobility Holdings Inc. (MMI). This buyout has been in the works since mid-August and represents the largest wireless-equipment deal in over 10 years.
Motorola Mobility—best known for manufacturing Android-based smartphones like the popular Droid and the Defy—was spun off from Motorola Inc. in January of last year. The company also owns about 17,000 patents, which should be great for Google’s defense against lawsuits from competitors like Apple Inc. (AAPL) and Microsoft Inc. (MSFT).
And now that Google has ventured into hardware, the big question is whether the company could pose a bigger threat to Apple’s iPhone? Well, this one’s tricky. I’m sure that Google wants to have its own branded phone like Apple does, but the company has to balance on a tightrope between competing with other Android device manufacturers and assuring them that the Android operating system will remain open and available.
Plus, Google is probably going to need to spend some time getting Motorola’s financial house in order. As you can see from my Portfolio Grader report on MMI, this company still has plenty of room for improvement in terms of its fundamentals as it can’t pull off anything higher than a C except for its earnings momentum. Compare that to Apple’s rock-solid fundamentals and buying pressure. So while the Google acquisition has drummed up investor interest on Wall Street, I don’t see this search engine company shaking up the mobile market anytime soon.
The fact remains that Apple is still the most established player in the smartphone market, and while Android phones made up more than half of smartphone shipments in the first quarter, the market is becoming commoditized and differentiation is becoming a challenge for manufacturers. In a sea of Android phones that are fighting for lower and lower margins, Apple remains the king with its massive 60% profit margin on the iPhone and its near-cult following that isn’t going to jump on the Android bandwagon anytime soon.
So while I can’t recommend that you go out and load up on Google stock—which has been stuck in a trading range between $500 and $600 for the last several years—there are plenty of other fish in the sea. For example, in the June issue of Blue Chip Growth, we locked in a whopping 204% gain in Baidu Inc. (BIDU)—commonly called the "Google of China."