Google had a solid quarter, beating most estimates. But this is interesting:

Motorola Operating Loss – GAAP operating loss for Motorola was $233 million ($192 million for the mobile segment and $41 million for the home segment), or -19% of Motorola revenues in the second quarter of 2012. 

In other words, in their first quarter as a Google subsidiary, Motorola managed to lose more money than ever before. For some context, for the entire 2011 fiscal year, Motorola posted a loss of $285 million.

Need I remind you, this is a company that Google paid $12.5 billion for

Ina Fried:

Google is believed to also be open to a deal, but the two sides appear very far apart in the kind of deal they envision. Sources close to Microsoft say the company is interested only in the kind of deal that would see the balance of licensing revenue headed in its direction.

So Google (now the official owner of Motorola) is going to cut a deal with Microsoft to pay them a portion of each Android handset sale? Yeah… Don’t see that happening. But it would be pretty humorous. 

Dan Frommer on the Google/Motorola deal:

One opportunity would be to formally split Android devices into three tracks: Plain-old-Android, do what you want with it; the Nexus program (significant Google control, available to select partners); and a third line (complete Google control, exclusive to Motorola, ideally the highest-quality line). We’ll see if that happens — and if it does, whether it works. Everyone has different motivations for Android: Google, phone manufacturers, carriers, and consumers. They might never harmonize.

I do think track three will happen eventually. And when it does, track two will become meaningless. You simply cannot have your cake and eat it too — and then throw it up and eat it again.

It would be one thing to point out StarTAC once as a fun homage to Motorola’s history, but Google goes out of its way to point out the device in both their official blog post about the Motorola deal and the propaganda facts onesheet.

The money line:

Its many industry milestones include the introduction of the world’s first portable cell phone nearly 30 years ago, and the StarTAC–the smallest and lightest phone in the world when it was launched.

I mean, that was 16 years ago! Google couldn’t come up with some innovation a little more recent?

Admittedly, it is pretty hard. The only recent innovation I can nail down is perfecting the art of losing money.

I’m shocked that Google is replacing a guy who managed to lose $80 million last quarter. Almost as shocked as I am that Google is buying this company losing hundreds of millions of dollars a year for $12.5 billion

Let me reiterate my stance that Sanjay Jha is a wizard. He’ll likely walk away with tens of millions of dollars for pulling this thing off.

This Motorola deal continues its downward spiral. It’s already a bad — some might say awful — deal from a pure business perspective. But now the seemingly lone bright spot of the deal for Google — the patents — are turning into a headache as well. 

Bloomberg only mildly touches on some of this, Daniel Eran Dilger of AppleInsider and Florian Mueller of FOSS Patents go deeper. Of note: if Google is committed to staying the course with Motorola’s patent licensing strategy (which they say they are), they’re going to find themselves enforcing patents related to H.264, the video codec that Google itself is trying to kill with WebM. 

They also may find themselves suing Apple over patents and demanding a royalty for each iPhone sold. 

The problem Google is likely to face is that if they aren’t agressive with the patents in the way that Motorola has been, how can they possibly hope to license them in the way they say they will? Who would license something when they don’t have to? This is a slippery slope. 

Bigger picture: after going on and on about the dubious patent tactics by rivals like Apple and Microsoft (and rightfully so in most cases), Google may find themselves in the same position thanks to this Motorola deal.

Charles Arthur of The Guardian makes the case for why Google will have to get aggressive with their patents, lest the Motorola deal look like one of the worst purchases in recent years — maybe ever.

Writes Arthur:

The really profitable bit of the business is the “Home” division, which makes set-top boxes, but has been bumping along at around $900m revenues for the past year. It actually makes money - only around $60m per quarter, but at least it’s profit, compared to the consistent losses in the mobile business, which has only made a profit in two of the past nine quarters. Even so, it would take 75 years for the Home business’s profit to make back the money Google paid for the business.

In other words, in purely financial terms, MMI is a dog.

On the face of it, the Motorola deal is such a bad one for Google that it makes absolutely no sense. But one level deeper, when you consider how badly Google was getting screwed in the patent bidding wars, it actually almost seems like they had to do this deal — and that Motorola chief Sanjay Jha knew it.

The problem Google faces is that this reality doesn’t translate easily to shareholders. They’ll see Motorola dragging down Google’s numbers and wonder what the hell they were thinking with the buy? 

Even if Google spins out Motorola, it will look bad. 

That’s why Arthur’s argument isn’t totally crazy here. I still doubt Google will become a patent pusher — though you could have said the same about Microsoft a couple decades ago — but I think that’s the most obvious way to show what they got out of the Motorola deal. 

Motorola warned their Q4 numbers would be bad. And boy are they ever. A rundown:

They shipped — shipped, not sold — 5.3 million smartphones in the quarter. As a reminder, Apple sold 37 million.

For the full year, Motorola shipped — shipped, not sold — 18.7 million smartphones. As a reminder, Apple sold 37 million smartphones last quarter.

They shipped — shipped, not sold — 200,000 tablets last quarter. TWO HUNDRED THOUSAND. As a reminder, Apple sold 15 million tablets.

For the year, Motorola shipped — shipped, not sold — 1 million tablets. As a reminder, Apple sold 15 million tablets last quarter.

The company lost $80 million in the quarter — $70 million of that was by the mobile division. The unit lost $285 million for the year.

This is a company that Google is buying for $12.5 billion.

Sanjay Jha is a wizard.

One Out Of Three Ain’t Bad…

All we’ve heard for the past year-plus is how Android is killing it. The phones are taking over the world. And that’s true — from a unit perspective. But from an actual business perspective, things are decidedly murkier. Google says they’re making a good amount of money as a result of Android, but it’s clearly nothing compared to their main business. The carriers are doing well too — but carriers always do well. Being overly greedy tends to have this effect. As for the OEMs… well, that’s a different story.

The three largest Android OEMs are Samsung, HTC, and Motorola. Samsung just posted record quarterly profit. So far so good. But HTC just reported its first profit drop in two years. And Motorola just warned that its 4th quarter sales were going to miss as well. When you have to warn ahead of actual earnings, that’s a very bad sign.

So one of the three top Android OEMs is doing well. The other two are doing poorly. This matters because of what it means for the future. 

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We are currently assessing this source code, and over the next month we will be determining which devices will get the upgrade and when…

Motorola explaining their next steps to release Android Ice Cream Sandwich

To an 99.9% of end users, this entire thing must read like pure Latin.

Actually, scratch that.

Pure gibberish. 

Worse, when translated, this clearly means it’s going It’s to be months before any Motorola Android user gets ICS.

This entire post encompasses Android’s true fragmentation problem wrapped in one big shit-stained bow.