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Google points to future devices for still-unprofitable Motorola

Google points to future devices for still-unprofitable Motorola


Larry Page and CFO Patrick Pichette would like to redirect your attention from today's losses to the product pipeline 12-18 months out

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Gallery Photo: Motorola Droid RAZR HD / RAZR Maxx HD review
Gallery Photo: Motorola Droid RAZR HD / RAZR Maxx HD review

Motorola has been both a promise and a problem for Google since the $12 billion acquisition in May 2012. For the last three quarters, Motorola has delivered a modest boost to revenue (at Google scale) and a large drag on profits. This quarter, Motorola is a particularly thorny problem for Google's accountants.

In December, Google sold the Motorola Home division, makers of cable boxes, routers, and other non-mobile hardware, to Arris for $2.35 billion in cash and stock, laying off several thousand employees. This means Google had to issue two sets of revenue and profit numbers, one including Motorola Home, and one without.

"We're really in the early days of Motorola"

Motorola Mobility poses a different problem. Last quarter, Google's cellphone and tablet division posted an operational loss of $523 million. This quarter's loss of $353 million shows a modest quarter-over-quarter improvement, but things still aren't healthy by any means. (Last year, in the same quarter, an independent Motorola's mobile division posted a loss of $70 million.)

"We're really in the early days of Motorola with respect to Google's acquisition of it," CEO Larry Page said on the earnings call.

Google still has many product improvements in mind for its mobile phones. "Battery life is a huge issue," said Page. "You shouldn't have to worry about constantly recharging your phone. When you drop your phone, it shouldn't go splat. Everything should be a ton faster and easier. There’s real potential to invent new and better experiences."

This is largely consistent with December's rumors of a new "X Phone" from Google and Motorola, featuring bendable screens and ceramic materials that would make the device more durable, plus new image and gesture recognition software.

Chief Financial Officer Patrick Pichette pointed out that Google hadn't yet the chance to put its own imprint on Motorola's mobile line. "We are really 180 days into this business," he said, largely repeating the same mantra that he offered last quarter. Then, however, Motorola was in its "first 150 days." (Pichette's arithmetic here is elusive. For the record, it's been 245 days since the Motorola acquisition closed.)

Google inherited Motorola's product pipeline

"Remember, we inherited 12 to 18 months of a product pipeline we have had to work through," Pichette said. Most of the immediate changes at Motorola have been structural, including selling the Home division and outsourcing device manufacturing.

In other words, Motorola's first post-acquisition products, the Razr M and Razr HD, are not representative of the mobile manufacturer Google wants to own. And neither are the Motorola phones we're likely to see in the immediate future.

Google, Pichette promised, has been working to rebuild a new product pipeline of its own. "[The mobile] team has been focused on it. It does take time before it shows up."

"We are not in the business of losing money on Motorola."

Even though he called Motorola's $353 million loss "not consequential… relative to Google or the kind of turnaround we're seeing," Pichette said "we do care about profitability. That is our goal in every one of the areas where we invest... We are not in the business of losing money on Motorola," he insisted, as a loss leader cross-subsidized by Android, search advertising, or anything else.

Until the new products arrive and find a foothold, Pichette warned analysts to expect more volatility in Motorola's revenue and profits. "It's just the nature of the beast when you reinvent the business," he said.

So that's where Google stands on the losses at Motorola. Now, Google has to deliver on that promise, with compelling new devices that it can't disclaim responsibility for.

On one hand, Larry Page said on the call that "In today’s multi screen world, the opportunities are endless." On the other, he said later that "the best way to predict the future is to make it." In order to turn its Motorola division around, Google will have to find some way to turn its endless opportunities into new inventions of its own design.

Otherwise, Google just bought Motorola for the patents.