EVENT FLASH to Acquire Mobility Ramon T. Llamas Stephen D. Drake Stacy K. Crook Tom Mainelli Greg Ireland

SITUATION OVERVIEW

On Monday, August 15, Google announced its intention to purchase Motorola Mobility for $12.5 billion. The agreement comes at a time when Google's Android operating system is the leader in the OS market, but is struggling to gain traction in the media tablet market. In terms of unit shipments, Motorola's trail overall market leaders (Apple, , and ) as well as other Android smartphone vendors (Samsung, HTC, and LG Electronics as of 2Q11). Motorola's flagship Android media tablet - the Xoom was the first to market earlier this year with the Android tablet-specific Honeycomb version of the OS, but slow adoption of the device has forced the company to slash its price.

According to Google, Motorola Mobility will function as an independent company and as an independent licensee of Android. Google executives also noted that Android will remain available to all of its current OEM partners. Google expects to complete the transaction by the end of 2011/early 2012, pending regulatory approval.

BENEFITS FOR GOOGLE AND MOTOROLA MOBILIT Y

Clearly, Google benefits from Motorola Mobility's deep patent portfolio. After not acquiring any of Nortel's patents earlier this year, Google gains to Motorola's roughly 17,000 current patents and another 7,500 patents pending. Google has been the target of numerous patent lawsuits from Apple and , two companies at the forefront of Nortel's patent auction. Motorola Mobility has a long-standing patent history within mobility, which will not only provide protection to Google, but also the ability to challenge other vendors for patent infringement. This potentially sets up the scenario for all parties involved to either delay pending lawsuits or settle out of court without interrupting business.

Google's $12.5 billion spend for Motorola Mobility vastly exceeded the total spend for Nortel's patents ($4.5 billion for 6000 patents) by a consortium including Apple, EMC, Microsoft, RIM, and . But given Motorola Mobility's deep library and history (Motorola was founded in 1928), this acquisition provides a strong arsenal for Google. At the same time, Google's other options among Android handset makers would have been either cost prohibitive and complex (LG and Samsung) or not as deep from a patent perspective (HTC).

For Motorola Mobility, the influx of cash will provide monetary resources to move further along its strategy. Since its separation from in January, the company's balance sheet has remained strong but has been running at an operating loss each quarter. How Motorola Mobility will use this money remains to be seen, whether it be for research and development, marketing, or channel distribution enhancement. Will this agreement help Motorola Mobility sell more smartphones and media tablets? The impact of this acquisition will not be felt in the near term, as Google's strength is in its Android OS and , and it does not bring new distribution channels to Motorola Mobility. From a long term perspective, the company stands to be more strongly outfitted and supported to compete against other device vendors.

TIGHTER INTEGRATION OF SOFTWARE AND HARD WARE

The combination of Google's Android software coupled with Motorola Mobility's hardware provides Google the opportunity to gain similar integration synergies seen between Apple's iOS, iPhone, and iPad; and RIM's BlackBerry OS/QNX and its phones and tablet. However, doing so could come at the cost of alienating other Android device vendors, namely HTC, LG Electronics, and Samsung, which have made Android the cornerstone of their respective strategies – thus providing a potential downside to the Google acquisition. If key Android OEMs get nervous and are not getting the proper partner attention from Google there is a potential for defection as these OEMs seek other partners or acquisitions for the mobile OS. Despite assurances from Google that partners feel good about this acquisition there is a potential doomsday scenario for Google if key OEMs consider other platforms, including MeeGo, webOS, or Windows Phone. Windows Phone in particular provides an interesting play here. With the pending Nokia launch of Windows Phone devices as its core OS, a successful launch tied with OEMs reconsidering other OSes could provide further development of Windows Phone with the Android Big 3 OEMs – all of which have already deployed Windows Phone 7 devices.

Global Headquarters: 5 Speen Street Framingham, MA 01701 USA P.508.872.8200 F.508.935.4015 www.idc.com F.508.935.4015 P.508.872.8200 USA 01701 MA Framingham, Street Speen 5 Headquarters: Global Due to these valuable partners, however, IDC doubts that Google will abandon these relationships but believes that Google and its partners will have tighter integration between hardware and software, using Motorola Mobility as a reference platform for others to follow. This is similar to what Microsoft is doing with its Windows Phone 7 handset partners, and gives Google and its handset partners to bring further innovation and

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Copyright 2011 IDC. Reproduction is forbidden unless authorized. All rights reserved. Filing Information: August 2011, IDC #undefined, Volume: 1 Executive Information: Event Flash differentiation to Android smartphones. There is also a possibility that Google could push the integration with Motorola in one area, for example tablets, in order to enhance the user experience. This would limit the risk of OEM defection as the unit exposure is far lower.

GETTING ANDROID INTO THE ENTERPRISE

Google's planned acquisition of Motorola Mobility also has some interesting ramifications from an enterprise point of view. While shipments of Android devices around the world have increased at astounding volumes each quarter, its presence in the enterprise has yet to follow suit. The reason for this discrepancy is many companies are not comfortable with the level of manageability and security that Android offers as a standalone platform. To remedy this, Android licensees such as Motorola Mobility and others have taken it upon themselves to develop relationships with key partners in the mobile device management and security space to offer more enterprise-friendly Android devices. Motorola Mobility's Ready for Business is the commercial brand for the enterprise features that sit within the Motorola Android Platform (MAP). The enterprise features that make up Ready for Business are extensive and encompass core mobile device management, mobile security, and productivity tools (email, PIM, and Office capability). Motorola Mobility has also partnered with key providers to deliver IPSec VPN and has opened up an SDK for third-party mobile device management and mobile security vendors to plug into the platform. In addition, Motorola bought 3LM (founded by former Google employees), a provider of MDM/security for the Android platform earlier this year. From the hardware perspective, Motorola offers several enterprise-focused Android devices including the Droid Pro, Atrix and XPRT.

Clearly, Motorola has invested a good deal of time and resources to make its Android devices more enterprise friendly. Thus, one possible outcome of the deal is that Motorola influences Google to develop a more coherent strategy around enterprise mobility – which could be made available to all Android OEMs. To do so, Google would likely develop and offer additional MDM/security API's for the Android platform. It would make sense if Motorola was offered deeper integration into the enterprise functionality to give its device portfolio a leg up in the enterprise market, but in the spirit of not alienating other licensees, Google would need to offer at least a subset of these capabilities to the others as well. Given the fact that Samsung, HTC, LG and others have also been building an enterprise story around Android, it will be important for Google to offer these other companies similar opportunity or risk losing that business.

SET TOP BOXES

Overshadowed by the mobile side of the deal is what impact Google might have on Motorola's Home business which includes set-top boxes (STB) and other solutions for multichannel pay TV and broadband service providers. Motorola remains a leading STB vendor, but IDC believes it is unlikely Google will find immediate synergies between its Google TV platform and the service provider STB assets. STBs, fundamentally, are defined by service provider requirements. Google's ownership of a STB business therefore does not necessarily signal a wide open door for Google TV to penetrate the digital home. Service providers already wary of Google's interests in defining the connected home experience and driving new advertising models will likely remain wary, and Motorola's interest in maintaining STB marketshare will be dependent on making devices that cater to service provider demands. IDC believes that Google TV still has opportunities in the retail market and the acquisition of Motorola should not distract Google from refining its offering for connected TVs and similar devices. But perhaps the more interesting angle with respect to Motorola might be how Google could leverage the Medios multiscreen experience management platform. Medios is one of a number of software solutions aimed at enabling service providers to manage content delivery across multiple devices and networks. With the adoption of connected devices ranging from game consoles to media tablets, the importance of the STB is diminished in future connected home and connected consumer content consumption scenarios. Medios is a key part of this transition. Perhaps Google finds a way to integrate its adverting solutions, including location-based and targeted ads, into future iterations of the Medios platform.

TABLE TS

Android-based tablets have failed to catch fire in the market for two major reasons: The operating system still lacks polish, and the first wave of devices launched at much too high a price points. Google's ownership of Motorola Mobility gives the company the ability to address both issues. Future versions of Android will undoubtedly address many of the rough spots still inherent in the OS, and that was going to happen regardless of this acquisition. However, by owning the hardware itself, Google can focus on more tightly integrating the software and the device. Done well, this helps Motorola to better compete with Apple's highly polished iPad products in an area where the risk of alienating other OEMs is far lower. Second, and equally important, is that Google's deep pockets give Motorola the ability to ship devices at much more affordable price points.

F I N A L W O R D

Although this announcement is significant in the mobile space, the impact may not be as dramatic as the headlines. IDC expects that Google will not abandon its position as leading OS or its corresponding strong partnerships with key OEM partners, but the acquisition provides new fuel to OEMs considering alternative platforms. With the ownership of hardware, Google has a real opportunity to go to the next phase where it can differentiate on the hardware and software experience to build reference platforms. Such a scenario provides for much better overall integration of software and hardware. Although many questions remain on the role of Motorola within Google including management culture and brand, it is clear for now Google is letting Motorola

#undefined ©2011 IDC remain as a standalone entity. However, beyond an improved hardware and software integration for both companies, much needed patent protection for Google and more financial stability for Motorola, this announcement does not shake-up the market, but rather provides the opportunity to enhance the Android experience across the ecosystem.