Google takes on Apple with Motorola deal

Net giant and Android owner becomes mobile phone maker after $12.5bn buy

Google sent shockwaves through the mobile phone industry yesterday with the surprise acquisition of Motorola's smartphone and tablet computing business in a deal worth $12.5bn (£7.7bn).

Google's chief executive, Larry Page, said the $40-a-share cash deal for Motorola Mobility, would "supercharge" its Android mobile phone operating system. This marks the first time the company has owned a phone hardware business and is also its largest acquisition, dwarfing the $3.1bn paid for DoubleClick in 2007. Mr Page said Motorola would be run as a separate business, but the company would not say whether it would change the name of the80-year-old telecoms group.

The deal, according to one senior telecoms industry manager, will put Google squarely up against Apple "in terms of hardware and software". It is also seen as an important defensive move to protect itself against what the company calls "anti-competitive patent attacks on Android".

Alison Hyde, a fund manager at Cavendish Asset Management, said the "key factor here seems to be Motorola's impressive patent portfolio". The deal brings 17,000 patents, with 7,500 more pending. The fiercely competitive smartphone market has seen some of the biggest companies in the world heading to the courts over patent infringement. Intellectual property "has developed into a key battleground", Ms Hyde added.

Last week, a German court ordered European Union customs officials to seize the new tablet computers developed by Samsung, after it backed Apple's claim that the devices were too similar to the iPad.

Google missed out on a portfolio of 6,000 patents from the collapsed Nortel Networks, bought by a consortium including Apple and Microsoft for $4.5bn last month. This deal will give the company protection in the impending legal action and follows the $1bn it spent on IBM patents.

Google said the deal would "increase competition by strengthening Google's patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies".

Since its launch in November 2007, more than 150 million phones running the Android system have been activated around the world. Yet the deal raised questions over how handset makers would react to a rival being snapped up by Android's developer.

Yet, the major handset makers to use Android – HTC, Samsung, LG and Sony Ericsson – all issued statements of support yesterday. Experts said the new patents gave them extra security over using the operating system. Peter Chou, the chief executive of HTC, said he welcomed the acquisition "which demonstrates that Google is deeply committed to defending Android, its partners and the entire ecosystem".

Google's senior vice-president of mobile, Andy Rubin, said the deal would "enable us to break new ground for the Android ecosystem". But he added: "Our vision for Android is unchanged and Google remains firmly committed to Android as an open platform and a vibrant open-source community. We will continue to work with all of our valued Android partners."

Motorola developed the first portable cell phone almost three decades ago. It split from the business side in January. Sanjay Jha, the chief executive of Motorola Mobility, said the deal offered "compelling new opportunities for our employees, customers and partners ".

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