Saturday 25 Oct 2014

Google’s acquisition of Motorola sends shockwave throughout industry

Since the announcement on August 15, the world has been abuzz with the news of Google’s $12.5 billion acquisition of Motorola Mobility Holdings, which Google purchased to help protect its growing Android operating system (OS).

Home to major leading smartphone manufacturers, Korea’s industry observers have been following the deal closely, but not everyone sees the acquisition in the same light. While some believe that Google has made a move to protect the patents owned by Android makers and distributors, others suspect that Google has set itself up for a future monopoly over Android software.

Reactions ◊ According to Reuters, shares in Samsung Electronics, currently the world’s second-largest cellphone maker, rose 6.1 percent as a result of the buyout. In the Wall Street Journal, Samsung spokesman Kevin Kim said the company “welcomes Google’s proposed acquisition of Motorola, which is aimed at protecting the patents owned by the Android camp.” According to the LA Times, representatives from Sony Ericsson, HTC, and LG Electronics made similar comments, all including the words “defending Android.”

Conversely, Local news media Chosun Ilbo published an article that points out the fact that major smartphone makers worldwide have teamed up with producers of operating systems, but Samsung Electronics is still on its own and relies heavily on Google for software. The Ilbo spoke with Cho Shin of Korea’s Ministry of Knowledge Economy, who believes that Google will not continue to offer the Android platform to other firms and that they are likely to manufacture their own smartphones through Motorola.

OS markets ◊ According to market research firm Strategy Analytics, Korea is a powerful force in the handset industry and accounted for 28.3 percent of the global smartphone market in 2Q 2011, but has no influence in the global OS market. Google’s Android OS accounts for 43.4 percent, while Apple’s iOS controls 18.2 percent of the global market. Samsung’s OS bada accounts for a mere 1.9 percent.

Growth in Korea’s smartphone software sector is unlikely without government support, and even if Korean firms do pursue OS development, they may face copyright lawsuits from foreign rivals. A better alternative would be for Korean smartphone makers to invest in design and user-friendly functions, which are areas where they are on firmer ground.

Impact on local firms ◊ Local industry observers are watching Samsung Electronics and waiting to see its next move. The Korea Times has reported that, Lee Kun-hee, chairman of Samsung Electronics, urged his company on August 16 to step up efforts to develop its software competitiveness, secure patents, and to obtain more human resources, even through mergers and acquisitions if necessary.

Local news media JoongAng Daily represents popular optimism for Samsung’s in their article, “Too soon to say if Google deal good or bad for Korea”, which states that Google will not be willing to sacrifice its partnership with Samsung, as the latter was Android’s biggest client in 2Q. Unfortunately, the same cannot be said of LG and Pantech, which Google will consider more disposable allies, and the two smaller Korean companies may face problems in the future.

Changes to come ◊ Korea’s Ariang News spoke with Lee Sung-ho from the Samsung Economic Research Institute who said that global trends “indicate that more consolidations between hardware and software are taking place,” so it will be difficult for Korea to lead the global smartphone business unless it increases competitiveness in software.

Thus, some experts argue that Samsung’s plan is a double-edged sword for the domestic software business as it already suffers from a shortage in highly skilled workers. Korea’s Electronic Times also reported that this acquisition may have a “domino effect” and trigger a series of M&As that will reconfigure the local industry.

Conclusion ◊ In sum, local industry experts do not entirely agree on the precise effect Google’s acquisition will have on Korean companies, but most have a consensus on two points. The first is that this acquisition is likely to set off a series of M&As in global and domestic smartphone industries. The second is that the largest conglomerates, like Samsung, will have staying power while smaller firms struggle.

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