Shares of Google Inc. fell after disappointing results from Motorola Mobility Holdings Inc., the handset maker it plans to buy, underscored the hurdles it will face vying with Apple Inc. in the smartphone-hardware market.
Google dropped 4.2 percent to $622.46 at the close in New York, the biggest decline since Aug. 18. Motorola Mobility, which Google aims to acquire for $12.5 billion, reported preliminary fourth-quarter sales on Jan. 6 that trailed analysts’ predictions.
“The MMI pre-announcement could serve as a reminder of the operational challenges for Google to enter the hardware space and the clouded optics surrounding an overall slower-growth, lower-margin Google once the deal closes,” JPMorgan Chase & Co. analysts wrote today in a research report.
Google, which makes the Android mobile-phone operating system used by Motorola Mobility, is counting on the deal to bolster its intellectual-property holdings and expand its reach in the mobile industry. Motorola Mobility has more than 17,000 patents that Mountain View, California-based Google can use in its legal tussles with rivals such as Apple, which makes the iPhone handset.
Motorola Mobility’s fourth-quarter sales were probably little changed at $3.4 billion, the Libertyville, Illinois-based company said in a statement. Analysts had forecast revenue of $4 billion, according to a Bloomberg survey. Motorola Mobility, which recently won a German patent ruling against Apple, cited higher costs from intellectual property litigation and an “increased competitive environment” in the mobile-device market in the quarter.
The handset maker said it shipped about 10.5 million devices during the period, of which more than half were smartphones. The company expects the acquisition to be completed early this year.
“The problems at MMI appear significant and will soon become one of Google’s key concerns,” Stifel, Nicolaus & Co. analysts wrote in a note today. “Even if Google purchased MMI for its mobile-patent portfolio, the loss of momentum is still relevant and may become a thorn in Google’s side.”
© Copyright 2014 Bloomberg News. All rights reserved.