The 2 key reasons behind the $1.1 billion Google-HTC smartphone deal (GOOG)

Google is buying part of HTC's smartphone division for $1.1 billion, and acquiring 2,000 new employees.
It's a lifeline for HTC, which has struggled in recent years.
And it demonstrates that Google is serious about its smartphone ambitions as its Pixel phones go head to head with Apple and Samsung, analysts say.

google pixel smartphone phone After weeks of rumours, it's finally official: Google is buying part of HTC's smartphone business.

The Californian technology giant is spending $1.1 billion (£820 million) to acquire a significant proportion of the struggling Taiwanese firm's engineers, as well as access to intellectual property, as it doubles down on its hardware plans.

There are two key reasons for the deal, analysts say.

First, it offers a lifeline to HTC — helping the company keep going and ensuring a key partner for Google doesn't drop out of the hardware game.

And secondly, it means Google can further refine its flagship Pixel smartphone offering — making the Pixel more competitive against the likes of Apple and Samsung, while acting as a shining example to other smartphone makers of what can be possible on Android.

The deal itself

So what exactly has Google paid for? It hasn't bought HTC entirely, or even its entire smartphone unit — like what happened when it acquired Motorola.

Instead, it has effectively acquired HTC's Pixel unit — the employees at the Taiwanese company that were already working on the Pixel. It is getting 2,000 new staff, as well as non-exclusive access to HTC's intellectual property.

It was jointly announced late Wednesday/early Thursday (depending on your timezone), with Google SVP of hardware Rick Osterloh writing in a blog post that "these future fellow Googlers are amazing folks we’ve already been working with closely on the Pixel smartphone line, and we're excited to see what we can do together as one team."

But the twin announcements are also fairly light on details, CCS Insight analyst Ben Wood said in a telephone interview — including on whether Google will get any factories or manufacturing capabilities as part of the deal.

Bank of America Merrill Lynch analysts guessed that they wouldn't in a note to clients, writing that "product details related to the transaction are somewhat opaque ... no mention of manufacturing assets ... Google likely to continue to outsource hardware manufacturing."

1. HTC's in trouble — and this deal is a lifeline

htc u11 1.JPG HTC, once a major player in the smartphone game, has struggled in recent years against the likes of Samsung and Apple, and is increasingly looking at its virtual reality division as a key part of its future.

But it has also been a key partner of Google in the smartphone for years, most recently with the Pixel devices. Google will have been worried about the future of HTC's phone business and the resources it provides, Wood said.

"Arguably it could be seen as a defensive move insofar as Google feel as though they want to keep developing the Pixel platform, and they were probably concerned that one of their key suppliers was not in particularly good shape ... they probably thought in order to have those resources available on tap to push the envelope on Pixel, they needed to make sure they shored it up."

But that's not the complete picture.

2. Google is doubling down on the Pixel

The Pixel, announced in 2016, was a major shift in direction for Google. While it launched its own phones before, the Nexus line, these were largely symbolic standard bearers. They demonstrated the possibilities of Android to other OEMs but never sold in large numbers.

In contrast, the Pixel is marketed as a premium consumer phone, and goes head-to-head with Apple's iPhone and Samsung's Galaxy devices.

So with the HTC acquisition, Google isn't just trying to maintain the status quo — it is demonstrating that it remains committed to that Pixel vision — and wants to accelerate it by bringing all the relevant engineers under its direct control.

"To me this is about Google getting more serious into the hardware business. This is different than when Google bought Motorola – they were after the patents then. HTC doesn’t have any important patents," Gartner research vice president Annette Zimmermann wrote in an email. "Hence there is not much value to get apart from building up its own hardware business to get the hardware, software, experience and AI all optimized for Google."

Wood said similar, adding that it would also help to ensure Pixel remains a clear example to other Android manufacturers of what Google sees as Android at its best.

"At the moment, when all the smartphones are starting to look the same, and there's a growing wave of apathy towards this sea of sameness in smartphones you need someone pushing from the front, saying: 'No no no, smartphones aren't boring, look at this cool stuff you can do!'"

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