Eric Schmidt, Google (NASDAQ:GOOG)’s chairman, was recently spotted using the company’s upcoming Moto X phone, an offering that should help Microsoft Corporation (NASDAQ:MSFT)‘s fortunes and frighten players like Samsung.
Indeed, the first big launch of a Motorola phone since Google bought Motorola Mobility for over $12 billion in 2012 changes the dynamics in the cell phone market in a big way. While Google Inc (NASDAQ:GOOG) has repeatedly stressed that it wanted Motorola’s patents, it now looks like it will be taking on all of the phone makers who have bet their future on the company’s Android operating system (OS).
A Risky Move
That’s a risky move for Google Inc (NASDAQ:GOOG) that takes it out of its position of neutral ally. In fact, the company’s search and Android businesses historically made money by getting as many people to use them free of charge as possible. Google earned its keep by selling advertising and applications.
That’s been a huge business success for the search giant, with sales going from $1.4 billion to over $50 billion over the past decade. Earnings have gone from $0.40 a share to over $32. That’s incredible growth. The only problem is that new businesses aren’t as profitable as the old ones, leading the profit margin to fall 10 percentage points over the last three years.
Top-line growth has hidden that decline, but the issue is notable enough to make it into the company’s annual Risks list. Now that Google is shifting its model to take on the partners that have been so important in building its business, the top-line could see pressure, too, if other mobile operating systems gain in popularity. Investors need to watch margins and sales at Google Inc (NASDAQ:GOOG) and be prepared to sell if either head south.
A year ago there wasn’t a notable competitor to Android other than Apple Inc. (NASDAQ:AAPL)‘s Mobile OS. But Apple doesn’t give its technology to anyone. Microsoft’s, however, recently launched a new version of Windows Mobile with Nokia Corporation (ADR) (NYSE:NOK)‘s Lumia acting as the showcase. The updated Windows Mobile could quickly find itself the bell of the ball as Google partners scramble to find alternatives to Android.
Microsoft’s top line has been heading higher since the end of the 2007 to 2009 recession. Although new product launches took the bottom-line from about $2.70 to $2 between 2011 and 2012, growth investors should like the opportunity that Google is basically throwing in Microsoft’s lap.