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Alphabet's Google has struck a $1.1bn (£822m) deal with Taiwan's HTC to expand its smartphone business.

Google will not take a stake in the firm, but some HTC staff will join the Silicon Valley giant.

The Taiwanese company was once a major player in the smartphone market but has struggled to compete with the likes of Apple and Samsung.

Google expects the deal to close by early 2018, provided it gets the all clear from regulators.

Shares in HTC were suspended in Taiwan on Thursday.

Betting on hardware

The deal marks the latest move by Google to boost its hardware capabilities.

"It's still early days for Google's hardware business," the firm's senior vice-president of hardware Rick Osterloh said in a blog post on Google's website.

Under the deal, Google will acquire a team of people who develop Pixel smartphones for the US company and receive a non-exclusive license for HTC's intellectual property.

It builds on an existing partnership between the two tech companies.

"These future fellow Googlers are amazing folks we've already been working with closely on the Pixel smartphone line," Mr Osterloh said.

According to HTC half their smartphone research and development team - about 2,000 people - will go to Google.

HTC manufactures Google's smartphones, the Pixel and Pixel XL. The company will release updated version of the devices next month.

Image copyright Getty Images Image caption Google will unveil new products including smartphones next month

Analysis - Dave Lee, BBC North America technology reporter, San Francisco

Yesterday, within just a few hours, most of Apple's millions upon millions of users were using the latest mobile operating system, having tapped on the prompt to download iOS 11.

Contrast that experience on Android, where the company's impressive and innovative updates are greatly hampered as it can take months, sometimes years, for those features to filter to users.

Google knows this disconnect between its software and hardware is a massive problem. And so this curious deal with HTC, which falls short of the rumoured buyout, is about solving that problem. If it can have close control over key premium devices, it can be more ambitious with its software.

In some respects, this $1.1bn deal is like a good friend lending their pal a few quid to tide them over for a while. HTC needs Google's money to keep going. And Google needs HTC's expertise and manufacturing capability to remain competitive with its mobile devices.

Deal benefits

The deal marks Google's second major foray into smartphone manufacturing. In 2011 Alphabet, then named Google, bought Motorola's Mobility for $12.5bn, only to sell it on three years later.

Geoff Blaber from CCS Insight said while the HTC deal might "raise eyebrows" given Google's history with Motorola, it will give the firm valuable design and engineering resources.

"The far bigger risk for Google would be to stand by and do nothing as hardware becomes an all-important means to an end for its core business," Mr Blaber said.

But the big winner is HTC.

"It's a much needed investment as HTC struggles to maintain its smartphone business and grow its early start in virtual reality," he added.

HTC makes Vive, the VR headset favoured by Google, as the alternative Oculus Rift is owned by Facebook.

Vive is reportedly outselling Oculus Rift by a margin of nearly two-to-one, albeit with still modest numbers, and is recognised by many as the superior system.

Get news from the BBC in your inbox, each weekday morning</s>Alphabet's Google has struck a $1.1bn (£822m) deal with Taiwan's HTC to expand its smartphone business.

Google will not take a stake in the firm, but some HTC staff will join the Silicon Valley giant.

The Taiwanese company was once a major player in the smartphone market but has struggled to compete with the likes of Apple and Samsung.

Google expects the deal to close by early 2018, provided it gets the all clear from regulators.</s>Google is buying a major division of smartphone maker HTC for $1.1 billion (£815 million) to expand its efforts to build phones, speakers and other gadgets equipped with its arsenal of digital services.

The US group is buying the HTC engineering team that built the Pixel smartphone for Google in a cash deal, the companies said in a joint statement. Google is also getting a non-exclusive licence for Taiwan-based HTC’s intellectual property to help support Pixel phones.

The deal underscores how serious Google is becoming about designing its own family of devices to compete against Apple and Amazon in a high-stakes battle to become the technological hub of people’s lives.

“We think this is a very important step for Google in our hardware efforts,” Rick Osterloh, Google’s senior vice-president of hardware, said at a press conference in Taipei.

“We’ve been focusing on building our core capabilities. But with this agreement, we’re taking a very large leap forward.”

The deal, which needs regulatory approval, is expected to close by early next year.

Over the past decade, Google had focused on giving away its Android operating system to an array of device makers, including HTC, to ensure people would keep using its ubiquitous search engine, email, maps, YouTube video service and other software on smartphones and other pieces of hardware.

But that changed last year when Google stamped its brand on a smartphone and internet-connected speaker. HTC manufactured the Pixel phones that Google designed last year, paving the way for this deal to unfold.
• READ MORE: John McLellan: could Amazon swallow up Facebook and Google?

HTC chief financial officer Peter Shen said about 2,000 engineers will be transferred to Google, Taiwan’s Central News Agency reported. The staff are “primarily focused on research and development,” Osterloh said.

Although Android powers about four out of every five smartphones and other mobile devices in the world, the software can be altered in ways that result in Google’s services receiving less emphasis or left out completely from the pre-installed set of apps.

That fragmentation threatens to undercut Google’s ability to increase the ad sales that bring in most of the revenue to its corporate parent, Alphabet Inc, as people spend more and more time on smartphones and other devices instead of personal computers.

Apple’s iPhone and other hardware products are also particularly popular among affluent consumers prized by advertisers, giving Google another incentive to develop its own high-priced phone as a mobile platform for its products and ads.
• READ MORE: Cash stash sparks talk of huge acquisitions for Apple

Google also wants to build more internet-connected devices designed primarily for home usage, such as its voice-controlled speaker that’s trying to catch up with Amazon’s Echo. The Home speaker includes a digital concierge, called Google Assistant, that answers questions and helps manage people’s lives, much like the Alexa in Amazon’s Echo.

Google’s previous forays into hardware haven’t panned out to be big winners so far. It paid $12.5bn for smartphone maker Motorola Mobility five years ago only to sell it off to Lenovo Group for less than $3bn after struggling to make a dent in the market. And in 2014, Google paid more than $3bn for home device maker Nest Labs, which is still struggling to make money under Alphabet’s ownership.

The latest purchase is a big gamble for Google. and parent company Alphabet, but analysts say this time it could pay off. That’s because it gives a financial lifeline to Google’s struggling Taiwanese partner while giving the Silicon Valley giant access to the strong R&D talent it needs in order to expand its share in the coveted premium smartphone market.
• READ MORE: Apple unveils glimpse of ‘future of the iPhone’

It’s “a business decision to have access to one of the best R&D teams,” said Neil Shah, research director at Counterpoint Technology Market Research. But it’s also “a sort of emotional decision to save its close partners.”

HTC, which teamed up with Google in 2008, has seen its market share shrink dramatically in the past decade in the fiercely competitive smartphone market. Its share of the global smartphone market fell to less than 1 per cent last year from nearly 9 per cent in 2011, according to Counterpoint data.

One risk, though, is that expanding into hardware threatens to further alienate Android-based device makers like Samsung Electronics, which has been forging closer ties with Google’s rival Facebook, and China’s Huawei.

Analysts also predicted Samsung could be the biggest loser as Pixel phones undercut the South Korean tech giant’s market-leading smartphone business as consumers potentially turned off by high priced Galaxy devices defect to the Pixel, which is slightly cheaper and has Google’s newest software.

Click here to ‘Like’ The Scotsman Business on Facebook</s>Google is doubling down on hardware.

The U.S. search giant said Thursday it will pay $1.1 billion to get its hands on smartphone expertise from struggling Taiwanese manufacturer HTC.

Under the deal, Google (GOOGL, Tech30) will take on a team of specialist HTC employees and gain access to the Taiwanese firm's intellectual property, the companies said in a statement.

Google said the move shows its commitment to developing smartphones and other devices.

"It's still early days for Google's hardware business," Rick Osterloh, Google's senior vice president of hardware wrote in a blog post. "We're focused on building our core capabilities, while creating a portfolio of products."

Google and HTC have been working together for a decade, including on the first smartphone to use the Android operating system.

HTC is also manufacturing Pixel, the first Google smartphone to carry exclusively Google branding. And many of the HTC employees joining Google under the new deal are already working on Pixel phones.

Related: How Android beat the iPhone to world domination

HTC, which has lost hundreds of millions of dollars in recent years, said the Google agreement won't hurt its own smartphone business, suggesting it will allow it to streamline its range of products.

The Taiwanese company also said it will continue to pursue other technologies including VIVE, its well-known virtual reality unit, and artificial intelligence.</s>Ahead of the Pixel 2 launch, Google has acquired part of HTC's smartphone business for $1.1 billion, paid to HTC in cash. Referring it as a Cooperation Agreement, many of the HTC employees who worked on Pixel smartphones will join Google. Google will also receive HTC IP through Non-Exclusive Licensing Agreement. Google and HTC had a decade-long strategic relationship around development of premium smartphones that started with the first Android smartphone G1, announced a decade ago. Google's first Pixel smartphone was also manufactured by HTC.

For Google, this agreement further reinforces its commitment to smartphones and overall investment in its emerging hardware business. In addition to the talented and experienced team of professionals, Google will continue to have access to HTC's IP to support the Pixel smartphone family. Additionally, this agreement also represents a significant investment by Google in Taiwan as a key innovation and technology hub. Even after this agreement, HTC will continue to come up with its flagship smartphones and will also continue to build the virtual reality ecosystem to grow its VIVE business, while investing in other next- generation technologies, including the Internet of Things, augmented reality and artificial intelligence.

"As a pioneer of the smartphone market, we are very proud of our history of innovation. Our unmatched smartphone value chain, including our IP portfolio, and world-class talent and system integration capabilities, have supported Google in bolstering the Android market," said Cher Wang, Chairwoman and CEO of HTC. "This agreement is a brilliant next step in our longstanding partnership, enabling Google to supercharge their hardware business while ensuring continued innovation within our HTC smartphone and VIVE virtual reality businesses. We believe HTC is well positioned to maintain our rich legacy of innovation and realize the potential of a new generation of connected products and services."

"HTC has been a longtime partner of Google and has created some of the most beautiful, premium devices on the market," said Rick Osterloh, Senior Vice President of Hardware at Google. "We're excited and can't wait to welcome members of the HTC team who will be joining Google to fuel further innovation and future product development in consumer hardware."

The transaction, which is subject to regulatory approvals and customary closing conditions, is expected to close by early 2018.</s>Taiwan's struggling smartphone maker HTC said on Thursday it would sell part of its smartphone business to Google for $1.1 billion as the US giant looks to take greater control of its hardware business.

Google will take on half of HTC's research staff -- about 2,000 people -- many of whom have already been working on the Silicon Valley firm's Pixel handset, as well as intellectual property (IP) licensing.

HTC said in a statement the deal is expected to be completed early next year, pending regulatory approval.

"For Google, this agreement further reinforces its commitment to smartphones and overall investment in its emerging hardware business," HTC spokesman Peter Shen told a press conference in Taipei.

"In addition to the talented and experienced team of professionals, Google will continue to have access to HTC’s IP to support the Pixel smartphone family. This agreement also represents a significant investment by Google in Taiwan as a key innovation and technology hub."

He declined to give further details but stressed that HTC would continue to develop and sell smartphones under its own brand. Shares in HTC were suspended before the announcement but had fallen more than 12 percent since the start of January.

The Taiwanese firm is currently working on its new flagship phone and will also continue to invest in areas such as virtual reality, artificial intelligence and internet of things, Shen added.

"The agreement is a testament to the decade-long strategic relationship between HTC and Google around the development of premium smartphones," Google said in a joint statement with HTC.

The agreement will give Google more control of its mobile handset hardware as it seeks to bolster its presence in a market dominated by Apple and Samsung.

The tie-up will give Google a greater ability to integrate smartphone hardware and its Android operating software in the same manner as Apple, a feature that is seen as helping the iPhone.

"It’s still early days for Google’s hardware business. We’re focused on building our core capabilities," Rick Osterloh, senior vice president of hardware, said in a blog post, according to Bloomberg News.

"A team of HTC talent will join Google as part of the hardware organization. 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."

It would not be the first foray into hardware for Google, which in 2012 acquired handset maker Motorola for $12.5 billion, only to sell it two years later for less than $3 billion.

HTC, once a star of the intensely competitive smartphone sector, has been struggling in the face of stiff competition from Apple and Samsung as well as strong Chinese brands like Huawei.

The firm's revenue fell to a 13-year low of Tw$3 billion ($100 million) in August and it suffered a ninth consecutive quarterly loss of Tw$1.95 billion in April-June.</s>Google and HTC have officialized a deal under which a portion of HTC employees, many of whom were already working with Google developing Pixel phones, will join Google. As part of the agreement, HTC will receive US$1.1 billion in cash from Google. Conversely, the search giant and Android developer will receive a non-exclusive license for HTC intellectual property.

HTC will continue to operate its smartphone business separately, which according to the company has a team of engineers currently working on their next flagship phone to follow the HTC U11, which we recently reviewed and praised. HTC will also continue to work on Vive VR, Internet of Things, augmented reality and artificial intelligence, all of which will remain independent to the Google deal.

For Google, it's clear they are furthering their commitment to phone hardware and a decisive move following last year's launch of "Made by Google" products, evidenced by the shift from more barebones Nexus offerings to the Google Pixel and Pixel XL smartphones.

Google and HTC are no strangers as the two companies have collaborated on multiple occasions. The search giant commissioned HTC to build its first-gen Pixel smartphones. A recent FCC filing indicates that HTC is also manufacturing the smaller Pixel 2 (the XL variant is reportedly being developed by LG). Acquiring a hardware specialist like HTC seems like a smart move but we have to remember, Google has been down this road before and it didn’t end well.

Pixel 2 in blue, Pixel 2 XL in white and black (Droidlife)

In mid-2011, Google purchased Motorola’s mobile unit for $12.5 billion. Less than two years later, Google sold the division to Lenovo for a mere $2.91 billion. In 2016, former Motorola president Rick Osterloh rejoined Google and was put in charge of a new hardware division.

“HTC has been a longtime partner of Google and has created some of the most beautiful, premium devices on the market,” said Rick Osterloh, Senior Vice President of Hardware at Google. “We're excited and can't wait to welcome members of the HTC team who will be joining Google to fuel further innovation and future product development in consumer hardware.”

The transaction is subject to regulatory approvals and is expected to close by early 2018.

HTC to suspend trading of its shares ahead of major announcement

Google’s acquisition of HTC is nearly ready for primetime. On Wednesday, the Taiwan Stock Exchange announced that trading of shares in the company will come to a halt on September 21 “pending the release of material information.”

Rumors emerged earlier this month that Google was in the final stages of negotiating a deal to purchase HTC. Exactly what the deal entails, however, isn’t yet known. Some have speculated that Google is only interested in select aspects of the business – perhaps the Vive VR division or the mobile sector. A full takeover of the entire company seems a bit less likely but still plausible.</s>We’ve been saying that HTC may sell off parts of or the whole business. Google was soon rumored to purchase HTC’s mobile business. And just yesterday, HTC fueled Google acquisition rumors after they suspend trading. Now, Google has made an official announcement that it has signed an agreement with HTC. This partnership continues the tech giant’s move to expand its hardware division.

In a blog post, former Motorola CEO Rick Osterloh announced that they have signed an agreement with HTC to work on hardware. This team-up will bring HTC talents to join the hardware organization. Some of them have already worked together on the Pixel phone manufactured by HTC. WIth this deal, Google also gets a non-exclusive license for HTC intellectual property.

Google has launched the Made by Google products. The line replaced the Nexus series and has introduced more Google-powered devices such as the Pixel phones, Google Wifi, Google Home, Chromecast Ultra, and Daydream View. A new wave of products will be launched this coming October 4.

HTC and Google have long been working together. The first Android phone is actually an HTC device—the HTC Dream in case you’ve forgotten. It was more known as the T-Mobile G1. Google has also released the Nexus and the Nexus 9, and the Pixel—all made by HTC. This partnership will be good for both companies—more business for HTC and a stronger hardware division for Google.

In a separate press release, HTC announced the US$1.1 Billion Cooperation Agreement with Google. This will have some HTC employees joining Google and reinforce the Taiwanese tech giant’s commitment to innovation and the branded smartphone business strategy.

HTC CEO and Chairwoman Cher Wang shared: “This agreement is a brilliant next step in our longstanding partnership, enabling Google to supercharge their hardware business while ensuring continued innovation within our HTC smartphone and VIVE virtual reality businesses. We believe HTC is well positioned to maintain our rich legacy of innovation and realize the potential of a new generation of connected products and services.”

This Google and HTC transaction is still subject to regulatory approvals and customary closing conditions according to HTC. It is expected to be finalized early next year.</s>Google has announced it’s acquiring a $1.1bn chunk of HTC’s smartphone business, and with it providing the once leading Taiwanese phone brand a much needed lifeline. But what does Google want with part of a smartphone business?

Google isn’t buying the whole of HTC, just a relatively large part of the Taipei-based company’s smartphone business and not its Vive virtual reality headset business. Google gains half of HTC’s research and development team – about 2,000 people – and a non-exclusive license for HTC’s intellectual property, allowing it to take advantage of some of HTC’s advances in smartphone technology.

HTC gets a cash injection, which will help it survive in some very competitive markets, and Google gets to continue its “big bet on hardware” according to Rick Osterloh, the company’s senior vice president for hardware.

It’s “a business decision to have access to one of the best R&D teams”, said Neil Shah, research director at Counterpoint Technology Market Research. But it’s also “a sort of emotional decision to save its close partners”.

While Google is the creator of the Android operating system, which is now used on more than 2bn devices a month, or 89% of mobile devices according to IDC, it has only dabbled with making its own smartphones and tablets. It routinely partnered with firms such as HTC, LG and Huawei to make the Nexus series of a devices, which sold in low volumes and acted as showcases for each new version of Android.



Google bought Motorola in 2011 for $12.5bn (£9.24bn), and while it ran it as a separate company selling smartphones aimed at the low end, the acquisition was really about a large stock of important patents.

“Its main reasoning was to acquire Moto’s patent portfolio so as to protect against Apple (and Microsoft) while also providing stiffer competition to Samsung (although Google would never admit this),” said David McQueen, research director at ABI Research.

Google sold Motorola to China’s Lenovo in 2014 for $2.9bn without the collection of patents.

It wasn’t until 2013 that Google’s first true own-brand hardware arrived in the form of the Google Chromebook Pixel – a £1,000 laptop designed and made as much as a developer showcase and for use internally at Google as a viable product to sell to the public. Google also launched its Chromecast streaming stick in 2013, which has since become its biggest hardware success with more than 30m units sold since launch.

Google followed up with a revised Chromebook Pixel in 2015, but it wasn’t until 2016 that the company made its own Pixel Android smartphone. The Pixel and Pixel XL were premium smartphones aimed directly at Apple’s iPhone and were manufactured by HTC for Google, with no branding or mention of HTC on the product or packaging.

The Pixel smartphones represented a new stage in Google’s ambition to do battle with its rival Apple directly, rather than continue conducting a proxy war using Android and various third-party manufacturers such as Samsung.

What Google has done with its HTC deal is buy the expertise that made last year’s Pixel smartphones, bringing the team responsible in-house.

Thomas Husson, Vice President and principal analyst for Forrester, said: “Two weeks ahead of the likely announcement of new Pixel smartphones and other emerging hardware devices, HTC’s acquisition illustrates Google’s commitment to the consumer device space. Official release of new products on 4 October is likely to demonstrate that Google is finally serious in developing a more tightly-controlled device ecosystem.”

As the percentage of smartphone owners in developed nations nears saturation point and the differences between device hardware have diminished, the smartphone game has rapidly become much more focused around the services the phone can deliver rather than the device itself.

For Google, this means its plethora of web services. From Gmail to Google Play to the latest entrant in the series, Google Assistant, it’s all about keeping people within the Google ecosystem. The more time people spend with Google products, the more information the company can glean and the more potential contact points it has to sell advertising.

That was the reason Android was developed in the first place, as Google saw mobile as the next evolution of computing and needed its search and services front and centre in the new smartphone world. It’s also the reason Google pays Apple $3bn a year to remain the default search provider on the iPhone.

But as services have become more and more important, third-party Android manufacturers, including the biggest smartphone player of them all, Samsung, have started to develop their own services. Samsung’s Bixby is a clear shot across the bow of Google Assistant, for instance, while HTC and others started integrating Amazon’s Alexa.

The European Union is also currently investigating Google’s marshalling of Android for anticompetitive practices, which might force the company to stop pre-loading Google search on third-party Android devices, among other things.

Faced with the potential for a changing landscape where Android is no longer as effective a delivery system for Google services, the decision to produce its own hardware starts to make sense.

Osterloh said: “Our team’s goal is to offer the best Google experience — across hardware, software and services — to people around the world.”

With the Pixel smartphone line, Google has the opportunity to drive home a device that is all Google, no longer diluted by other’s services and produce a device line that could weather the storm of EU intervention within Android ecosystem. As Apple has proved time and time again with the iPhone, when you fully control both hardware and software on a device, you can do things with the wider services-and-devices ecosystem others would struggle with.

McQueen said: “What is in Google’s favour this time is that it is buying just a part of HTC, and it is a part that can help it deliver smartphones with a premium, elegant industrial design while also providing much tighter integration between hardware, the Android OS and Google’s services.”

Despite being the maker of Android, there’s no doubt Google faces a massive uphill battle in the smartphone market. Samsung dominates with a global smartphone marketshare of 21% in 2016 with 311m units shipped, according to data from IDC. Apple is a close second with 15% and 215m units, while China’s Huawei is the third-largest smartphone manufacturer and rising, with a marketshare of 9% and 139m units. For perspective, Google sold around 2m Pixel smartphones in 2016 and HTC sold just 13.9m with a marketshare of 0.9%.

“Although shipments in the Pixel range are currently less than 2m a year, this tie-up will undoubtedly be a good thing for Google. It will help it grow scale in the high-end while turning it into a major competitive threat to the other Android original equipment manufacturers rather than just as a point of reference,” said McQueen.

The next evolution of smart technology is arguably artificially intelligent voice assistants. This “ambient computing” revolution promises access to information anywhere, at any time by means other than a device – think Star Trek: the Next Generation’s ever-present computer.

The smartphone was the first wave of access to information anywhere, any time, and will likely be a ready conduit for the foreseeable future. Most smartphones already come with some form of voice assistant, from Siri and Google Assistant to Cortana and Alexa.

For Google this next stage of computing is incredibly important. Google Assistant is its latest foray, connecting various related features from search and voice commands to Google’s massive internal encyclopaedia and delivering it not only through a smartphone but also smart speakers, computers and even cars.

For Google to compete fully with the likes of Amazon in this new voice-enabled arena, it needs hardware efforts. The Google Home smart speaker was a crucial first step and it is expected to be joined by a smaller Google Home speaker on 4 October.

Geoff Blaber, vice president of research, Americas, for CCS Insight said: “As computing, AI and search become pervasive, Google needs to ensure that it can deliver its services as seamlessly and broadly as possible. That requires deeper involvement in hardware”

Whether it’s a speaker, a smartphone or a computer, in an increasingly competitive landscape, Google needs much better integration between hardware and software if its services are to continue to thrive.</s>SAN FRANCISCO: Google is set to announce it is buying part of Taiwan-based smartphone manufacturer HTC, the Wall Street Journal reported on Wednesday (Sep 20).

The deal for HTC's smartphone design unit would give the US tech giant more control of its mobile handset hardware as it seeks to bolster its challenge to market leaders including Apple and Samsung.

Google did not respond to an AFP query on the report, which said an announcement could come later in the day.

HTC is already a partner of the California giant and has produced the Google-branded Pixel smartphone, an upgrade of which is set to be released next month.

But the tie-up could give Google greater ability to integrate smartphone hardware and its Android operating software in the same manner as Apple, a feature which is seen as helping the iPhone.

HTC shares have fallen sharply over the past few years as its smartphone market share has dropped. Trading in HTC was suspended pending an announcement.

It would not be the first foray into hardware for Google, which in 2012 acquired handset maker Motorola for US$12.5 billion, only to sell it two years later for less than US$3 billion.
Google strikes a $1.1bn (£822m) deal with Taiwan's HTC to expand its smartphone business.