Yes, Google can afford to lose $9bn in Motorola sale. But did it really? So just how much has Google lost on buying and selling Motorola Mobility? $9bn - as The Telegraph seems to think? $7bn as simple arithmetic would seem to indicate? Or how about a very decent indeed profit as the vagaries of tax law might indicate - with that tasty patent portfolio thrown in for free? Let's start with a number …
I wouldn't say this is a mess. To the untrained eye it may appear so, but I should imagine, nay, put money on, this being Google's accountants/ strategists/ lawyers pan from the start. So we have;
- Buy a company with an operating loss for huge tax breaks (on top of the already huge ones in place)
- Sell off the profitable bits of it
- Strip out the loss making but still attractive parts and sell them (in this case to Lenovo)
- Keep enough of the carcass to offset against profits and create yet more tax breaks
- Acquire a shitload of patents to lock down the market in Android's favour, and potentially license to or sue infringing companies in the future
Many assumptions have been made of course, but to me this looks like a win win win win win for Google.
"I wouldn't say this is a mess. To the untrained eye it may appear so, but I should imagine, nay, put money on, this being Google's accountants/ strategists/ lawyers pan from the start. So we have;...."
As somebody who fulfils one of those functions in a not-directly related business, I can assure you that the smartest plans rarely go as expected. Sometimes you get lucky, but if it works out well assume that it did so by luck rather than judgement.
"...why the fudge Lonovo thought it was worth even $1bn without the patents?"
_NO_ patents at all? I got lost with all the "what ifs" in the article, but I don't think I read that definitively.
Anyways, that's why I read the article, sadly there is no mention of why they bought it. Who knows, maybe in 20 years they will have hardware locked down so tight in China that the software/services players come begging...or so maybe they think :-/.
If Lenovo are planning on making Android phones only, why do they need those patents?
As long as Google is using them to shield Android makers from Apple/MS/etc in any patent-related battles then it is not that important to Lenovo. They must see an opportunity to enter the market even more and profit.
"If Lenovo are planning on making Android phones only, why do they need those patents?....." Unfortunately it seems the mobe wars require a little MAD to keep everyone playing nice. I'm not sure I'd want to be reliant on Google's good will in the long run.....
> $700m a year for eight years and $1bn immediately: call it a round $6.5bn?
Google's acquisition of Motorola was only completed on 22 May 2012. That's less than two years of ownership. So why are you calculating with eight years of Motorola Mobility losses?
I'm also lost here:
"$700m a year in tax deductions from future profits"
I thought that a tax deduction was the amount that your were able to deduct from your taxable profits. In that case, you only save the tax that you would have paid on the $700M. I guess that makes the savings about 30% of what was stated.
I thought that a tax deduction was the amount that your were able to deduct from your taxable profits. In that case, you only save the tax that you would have paid on the $700M. I guess that makes the savings about 30% of what was stated.
good point, perhaps the author is confusing deductions with credits.
Tax law rewards you for saving loss-making companies. So I think you're allowed to take into account teh losses from the company for up to 5 years before you bought it. Assuming that's not been used already. As the whole of Motorola hadn't made profits for ages, I think that meant Google could expect 5 years losses of over a billion a year. Plus the 2 years they owned it
If so, that's $7 - $10bn of losses at about 30% corporation tax = around $3bn.
Better that a loss making company be rescued than not. So there are many situations when the tax write-off is a great idea. Even possibly here, as Google didn't kill Motorola they just sold it off in bits. But a company that's not looked like making a profit for that long is probably no loss to the economy, and some of its parts were worth something. Google were willing to stump up the cash adn absorb 2 years of losses (risking never being able to sell), so I guess they probably deserve the tax breaks - which have pretty much worked as designed. Even if it does look a bit icky.
Absolutely. The article seems to ignore the fact that in order to reclaim losses, you have to incur them in the first place! At best you end up neutral.
If the idea is that Google are reclaiming losses incurred by Moto before they bought the company, then how come it's ok for Google to offset the loss after selling to Lenovo, but Moto couldn't offset it elsewhere in their biz after selling to Google.
The whole article is speculation.
>If Motorola made losses while owned by Google, those should be added to the costs of Google, since that money went from Google into Motorola. Right?
True, but they are presumably operating losses, which have been paid for out of earlier profits - otherwise the company would not have paid its bills and been rendered insolvent. The only way the losses would be carried forward would be if they had borrowed money which has to be paid back in order to pay their debts.
I think the article said motorola still had a cash pile, so they don't have a negative bank-balance for Google to take on.
Don't forget that with this move Google has now close ties with Lenovo " number 1 business/windows pc manufacture " .
It's also a gentle strategic move of Google's part to push Lenovo to ship products
witch integrate service of Google (Chrome OS, Android, Google docs, gmail and other services) to it's business customers worldwide and of course Chinese home user.
(Microsoft didn't see this coming. )
> The Irish economy is doing fine without a respirator
No, it isn't. It's held under the arms by EU subsidies and EU special rules allowing it to offer golden deals to non-EU companies to set up shop (and pay very little tax) in Ireland.
There isn't a country in the union which should love the EU as Ireland.
@ Vociferous
Yes there is, the UK ... with the "We want our money back" BS Maggie managed to make the UK look like the poor bastard of the Union, thus they bag more for less funding than the two other big players (I mean the Froggies and Sauerkrauts).
The area that loves the EU most is Corsica, they share their cattle around the island so each farmer gets way more subventions.
And, the one citizen of Europe who loves the EU the most is of course the Queen ugly betty II, she gets more money from the EU than anybody else ... and, out of the top 50, my guess would be 45 are British lords (only slightly exaggerated).
And it's us in the middle who have to pay up for all that. If at least we could have a EU football team, the dream team! I mean we deserve it .... and no, I don't like/watch football, I know it is a "very" popular or pubular sport in the UK and I have to compensate for speaking of our Queen like that ;-)
Click ↓ to downvote
Do you really think that Ireland is the problem? Starbucks managed to pull off pretty much the same level of "tax management" in the UK without any reference to Ireland, and most of the rest of Europe would like to implement a "Tobin tax" but opposition from politically powerful firms in the City of London is one of the main barriers to it's implementation:
http://en.wikipedia.org/wiki/Tobin_tax#European_Union_financial_transaction_tax
The so called "Double-Irish Dutch Sandwich" has no impact on UK tax revenues anyway (it is designed to allow US companies defer payment of US corporate taxes) and even if Ireland adopted UK tax laws tomorrow, companies like Google would still find it tax advantageous to bill their UK sales through half a dozen other EU countries. And the UK is even more strenuously opposed to a single EU-wide Tax regime than Ireland is!
Look at this from the opposite side: Google would probably have paid 9bn just for the patents so they can help defend or deflect lawsuits. They know they are weak on mobile patents and open to attack from (mainly) Apple.
The attached company is irrelevant. 9bn was for the patents, sales of any assets are a nice bonus.
Google is not going to use the patents to hit Apple, are you nuts ? They are gonna hit Microsoft, you know, all those billions that go over to Redmond, I thought it was like $1 or 2 for each and every Android handset sale.
Apple only attacks companies that steal tech it took years/decades to design and get right. Just read all the iPhone killer articles on elReg, you will see failed attempts to beat iPhone on coolness ... then Samsung succeeded with galaxy by creating a cc, as far a looks were concerned.
Go on and look at Samsung's offering, a black and white variant for each device, all look very close to the iPhone 3[G|GS]. They somewhat differ from Samsung/Nokia/HTC/YouNameIt devices that came out before iPhone.
Don't call me fanboy, I have a Z30.
So Google has the holding company which owns the patents.
OK,
So is it possible for Google to then transfer those assets (patents) to an Irish subsidiary and then use it for a Double Irish tax dodge?*
Wouldn't this also be a way to gain extra value out of the patents, regardless of how enforceable they are?
*I say dodge, but its all legal even if it leaves a bad taste in our mouths...
Neither Wall Street,the average citizen nor any of the ranting Microsoft dupes on TheRegister, ZDNet or TechTarget have any technical or legal knowledge about the 17,000 patents that came as part of Google purchase of Motorola, nor would they have any expertise to value such patents.
Therefore, it is just crude speculation to surmise whether Google' transactions between buying and selling Motorola is good or profitable or not. Intellectual Property Experts, specializing on Patent and Copyright Law at an established Law firm in Bermuda recently told me that outright owning 'legitimate' Patents on Software or Networking protocols and designs can be worth up to $billions, depending on the business of the patent owners, as a slid protection against competing technologies.
I recommend the peasant technology experts to sit quiet for a while.
Intellectual Property Experts, specializing on Patent and Copyright Law at an established Law firm in Bermuda recently told me that outright owning 'legitimate' Patents on Software or Networking protocols and designs can be worth up to $billions
Did they also Tell you that Capital Letters make your Post seem More Authoritative?
And certainly we'd all be foolish to discount your unsubstantiated report of claims made by anonymous "Experts" in Bermuda. As the saying goes, if you can't trust hearsay attributed to a Bermudan lawyer, who can you trust?1
1Though it really ought to be "whom can you trust", as "whom" is the object of "trust". I suppose that alone might cause us to doubt this piece of conventional wisdom.
Crikey, looks to me like Google have set Microsoft up for a big fall. I suspect the major future home for Office will be on Apple [ windows may already be terminally ill]. I did think the cloud, but then, well, what's the betting Office soon runs like a whale on Chrome?
Looks to me like a remarkably astute move by Google. So glad that I do not knowingly use their products. Soon they will be sending Androids back in time to kill as all in a Thermo Nuclear war engineered..... sorry, I'll get my coat.
In the contemporary phone market that has developed as a result of the first iPhone (in my humble opinion) aesthetics are becoming increasingly commensurate with performance, looking at Lenovo's history (or lack of) design and the absence of the Motorola R&D unit in the sale, one could speculate that Motorola's opportunities in the consumer market are greatly reduced.
However you have to consider that Lenovo is effectively an enterprise company, now upon the puchase of IBM's Hardware Division and the Thinkpad brand in 2004 there were worries of increased espionage against Western corporations when a Chinese Government backed company was effectively supplying their hardware. Whilst this clearly never dented Lenovo's success we can assume this is largely down to the fact that the user is interacting with an American home-brand OS. As to whether these western companies will be as willing to embrace a product where not only the hardware but also the software is overseen by Lenovo remains to be seen.
Do you know why financial analysts are considered by many finance professionals and senior executives to be the most unreliable and annoying people in the financial sector? I know.
It's because financial analysts come at you with 'hard facts', but everyone knows the available data doesn't actually contain enough information to make operational assessments or forecasts with any level of reliability or accuracy. It's like an airline pilot that jumps on a random plane and takes off without knowing where he's going, or even if there's fuel in the plane, but assures you he's got it under control.
Financial analysis based on regulatory findings is 100% a marketing operation. That's why senior marketing or operational people deal with the analysts. Hell, even analys lunches and dinners come straight from the marketing budget. Go take a hard look at analysts output, the only useful information is always just a copy/paste of public filing info with a small margin both ways. Everything else is wholly made up, or fed to the analysts as part of brand marketing campaigns.
Executives don't hang out and talk about buzzword financials. The talk about the same stuff we do, with maybe a bit more cursing. Why do you think insider trading is such a big deal? Unfair distribution of information is part of it, but a bigger part is that insider trading actually gives insights into the actual business, not GAAP gobbledygook. That stuffs for the Feds and the Proles.
Analysts are also the only people in the world who say stuff like 'Company B can afford to lose $(x) billion'. If a CEO said that he'd be up on federal charges and going to prison. Other executives would be fired and banned from corporate employment forever. Losing the money might not put them out of business, but that still doesn't mean they can 'afford' it. This is business remember, you get to keep the extra money you know. That's why everyone works so hard to get the extra money.
All that boils down to this: Only a lunatic, or day trading superstar wannabe, makes any sort of decision based solely on the publicly available numbers. That's why institutional investors and big individual traders spread that shit around. They know full well the analysts can't make valid assessments with the information that's out there. There's a lot of luck, understanding the company and just being the quickest to move that actually keeps those people making money. It isn't the financial fiction of analysts.
My wife and I decided long ago that our kids could grow up and follow any career path they wanted, as long as it was an industry analyst (any industry) or weather forecaster. I won't always be around to help them and going into a career where nobody expects you to be right, about anything, and where you can't kill people or get killed if you're wrong is one hell of a safety net :)
Motorola should never have gotten so heavily involved in retail, ever. There's a lot of money in retail, but it's .03 cents at a time and is extremely prone to sudden, and enormous, changes in 'fashion'. It's the exact opposite of what engineering heavy companies are good at.
You provide an environment that supports engineers, engineering thinking and engineering planning and you've always got something, always. You force engineers to deal with a fickle, and largely stupid, retail public and it's guaranteed to go as pear shaped as something can.
Motor ola
They started as a retail consumer company. Chips, OEM, Infrastructure etc was all later. They have always been a retail product company with consumer products.
http://www.radiomuseum.org/dsp_hersteller_detail.cfm?company_id=738
http://en.wikipedia.org/wiki/Motorola#History
Car Radios from 1929 (Consumer Radio only began 1921/1922!)
Car & Home Radios
Transistorised Color TV
Cable TV Set boxes (analogue then Digital)
End user Modems
Analogue Mobile Phones (from their Commercial 2 way radio experience since 1937!)
Digital Mobile Phones.
To the article's analysis, add the value of the $3B in cash that Google received at the close with Motorola. In essence, the starting point cost to Google was $9.5B above the cash they received. That makes the "cost" to Google $3 billion more attractive (less costly) than the article.
The other benefit Google has is that they completed the sale using stranded offshore cash that would have to be repatriated to the US at a 35% tax rate. Asset sales to Arris and Lenovo do not incur a tax liability. That brings down the $12.5B purchase price to $8.1B.
So Google potentially made billions after tax.
The Register 
Biting the hand that feeds IT
Copyright. All rights reserved © 1998–2024
