Google's First In-House Smartphone and Tablet

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Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG) dominated tech news in 2012. Apple maintained its dominance in the smartphone and tablet markets, but faced heightened competition against devices running on Google's Android OS.

According to market research firm International Data Corp (IDC), Android managed to capture 75% of the worldwide market in the third quarter (Q3) of 2012 — an increase of 17.5% from Q3 2011. Apple's iOS accounted for 14.9% market share and Research In Motion's (NASDAQ: BBRY) Blackberry's OS at 4.3%.

On May 22, 2012, Google acquired Motorola Mobility Holdings for $12.5 billion to improve its patent portfolio. According to The Wall Street Journal (WSJ), Google is working with Motorola to develop its first in-house smartphone dubbed the"X Phone" to support its Android software. Google will also develop an "X Tablet" after its completion.  

Dennis Woodside, Motorola's CEO, refused to discuss products under development in an interview with WSJ, but noted that Motorola was "investing in a team and a technology that will do something quite different than the current approaches." He explained that Motorola has "fallen under hard times," but the company "now has the support of a shareholder in Google that has resources to do big things."

Lior Ron, Google's former product manager, is reportedly the lead developer of the X Phone at Motorola. The company has not announced a specific date for release. WSJ reveals the X Phone will launch sometime in 2013.

Google's entry into the hardware business will vertically integrate the Android OS with the X Phone the same way Apple has with its products. Vertical integration is a business model where one company owns all components of its product line. Since 1976, Apple has integrated its software and hardware. It has given Apple a competitive advantage that other technology companies try to match. It makes sense to have everything under one roof.

Google's Android OS horizontally integrates with its manufacturing partners Samsung Electronics, LG, Sony (NYSE: SNE) and HTC smartphones and tablets. Horizontal integration refers to two companies in the same stage of production. Google supplies the operating system. Samsung manufactures the hardware. Both companies share resources to co-develop a product.

Google has encountered problems with the X Phone's supply chain and manufacturing. This caused the company to reorganize some of its early plans for the device.

Google aims to implement a flexible organic light-emitting diode (OLED) screen similar to the displays Samsung will reveal at the Consumer Electronics Show (CES) 2013. CES will take place at the Las Vegas Convention Center from January 8-11 in Las Vegas, Nevada, United States. 

On October 3, 2012, Motorola acquired Viewdle, an imaging and gesture recognition company for an undisclosed amount. The company produces applications for gaming, networking, photo management and marketing. Google seeks to incorporate Viewdle's technologies into the X Phone.

What Ramifications Will Google Face Pushing Its Own Phone?

Google has depended on its original equipment manufacturing (OEM) partners — particularly Samsung, a Motorola rival — to develop its Nexus branded smartphones and tablets. According to IDC, the South Korean company shipped 40.3% of all Android phones in Q3 2012.

Some may view the Google and Motorola relationship as a hedge if Google's and Samsung's partnership flops. Google has downplayed any talks about directing its resources and innovations solely into Motorola — dampening future business with Samsung and other OEM partners.

"I don't necessarily agree," Mr. Woodside said. He explained that Motorola is "operating independently" from Google to "preserve the success of Android."

Google and Motorola's relationship may potentially fracture the Android's community whose flagship devices will rival the X Phone. Google will face tough challenges in 2013 managing and maintaining its relationships with its Android community.

Fool blogger Christopher De Sousa does not own shares in any of the companies mentioned in this entry. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. The Motley Fool is short Sony Corp (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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