Will Google and HTC gamble pay off?

The Android market share drop in premium smartphone category has prompted Google to announce an agreement with HTC

Google has recently announced an agreement under which HTC employees working with Google to develop Pixel smartphones – will join Google and also receive intellectual property by paying $1.1 bn in cash to HTC.

The agreement is a testament to the decade-long strategic relationship between HTC and Google around the development of premium smartphones. But what’s the reason for Google and HTC to join hands?

In the past 5 years, the premium smartphone segment has more than doubled and there is growth taking place in the absolute volume terms.

Commenting on Google and HTC transaction, Faisal Kawoosa, Principal Analyst – Telecommunications & ESDM, CMR said, “From OS point of view, there were 6 OSs in this segment that has consolidated amongst Android and iOS. What is working against Google’s presence in this segment is the emergence of iOS over the period. iOS was just around 15% in 1Q 2012 that has short up to 40% as of 2Q 2017 as per India statistics. The spread of iOS has widened in this segment while keeping Android within a tight range. This is expected to further go down as only Samsung has been able to establish itself in this segment using Android. Rest all other brands are squeezing.”

The biggest challenge was that none of the OEMs barring Samsung, was able to bring iPhone equivalent experience for users and this resulted switching to iPhone from other platforms including Android as the users wanted to up the premium ladder added Kawoosa.

This agreement also supports HTC’s continued branded smartphone strategy, enabling a more streamlined product portfolio, greater operational efficiency and financial flexibility. HTC will continue to have best-in-class engineering talent, which is currently working on the next flagship phone, following the successful launch of the HTC U11 earlier this year.

HTC 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.

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.

Cher Wang, Chairwoman and CEO of HTC said, “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,” added Osterloh.

The transaction, which is subject to regulatory approvals and customary closing conditions, is expected to close by early 2018.

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