Google Motorola Unit Abandons Profit For 2014

1/2/14 12:06PM EST

Google Motorola Unit Abandons Profit For 2014 Google Motorola Unit Abandons Profit For 2014

Image via Flickr/ andsnleo

Google Inc (NASDAQ:GOOG) bought Motorola’s handset unit in 2011 for $12.5 billion. The company has not been able to reach a profit. Google as a company is a fan of hiding its true intentions, and the reasons behind its Motorola purchase have remained a mystery for years. A decision to lower the price of the company’s premium smart phone, the Moto X, reveals some interesting intentions behind the $12.5 billion spend.

The Moto X will now cost US customers $399, down from the $550 it originally retailed for. The price, which is available directly from Google Play without a wireless contract, shows that Motorola is no more interested in making a profit in 2014 than it was in 2013. The company is reaching for something other than margin, it wants to change the way the smart phone market works. The Moto X, and its cousin the Moto G, are its way of ensuring success on that front.

Google Taking Apple Down

Google is not battling Apple Inc. (NASDAQ:AAPL) directly on many fronts, but the company’s interests do overlap across a wide group of areas. Google powers the operating system on most of the world’s smart phones, but the company does not have much control over the hardware market. Motorola is their way of gaining control, and Google appears to have just one goal.

Google is trying to speed up the commoditization of the smart phone market. The process is a natural one, and has already been occurring. Competition and scarce components mean that margins in the mobile device market are being compressed. Google wants that pattern to occur much more quickly, so that more people have access to better smart phones.

Apple is charging $650 for its top of the line smartphone the iPhone 5s. Though arguments can be made about the relative virtues of the devices, there is little between the two in terms of features. If Apple and other smart phone makers start to feel the pressure from Google’s ultra-low price premium smart phones, the company will have succeeded in changing the shape of the market.

Google Shareholders Abandon Hardware Profit

Most Google Inc (NASDAQ:GOOG) hardware is developed and built by a third part. This is the case with the company’s Nexus series of tablets, and the company’s Nexus 5 smart phone. Motorola is the only truly Google branded hardware maker, and that means its costs weigh on the company’s budget. Google shareholders are seeing a $12.5 billion acquisition lose them money year after year.

Motorola is probably never going to make a profit, at least as long as Google maintains its current strategy. Shareholders in the web giant are going to have to get used to the way it operates. The company is probably going to be in the red when Google releases its fourth quarter accounts, and it’s unlikely to recover for some time.

Investors seem to trust Google, even when the company is losing money on a huge acquisition. That trust drove the company’s shares to all time highs this year. If the company’s margin-killing strategy pays off, losses might even increase at Motorola, but Google itself should still be looking strong.

Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted.