Google Borrows From Apple to Boost Its Hardware Business

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Google parent company Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) is known for internet search, the Android operating system, artificial intelligence , and self-driving car technology. The smartphone? Maybe not so much, but recent moves from the company suggest that Google may want that to change.

A defection from a big competitor

Rumors surfaced before Christmas that Google had hired John Bruno, formerly a system architect at Apple (NASDAQ: AAPL) who’s known as a chip expert. Bruno’s LinkedIn profile offered confirmation, showing a December start date at Google, again with the title system architect.

What does a system architect do? Much like an architect on a building, a system architect builds hardware and software, optimizing its design for a specific use. This specific system architect was the previous founder and lead of the Apple team that developed chips for the iPhone and iPad.

This isn’t the first move like this. Google has apparently been luring away other hardware engineers from Apple and chipmaker Qualcomm (NASDAQ: QCOM) . The hires would suggest that the Alphabet division best known for its search engine company is also interested in developing its own chipsets. A previous business decision would seemingly add fuel to that speculation.

A new asset via Taiwan

In September, it was announced that Google was purchasing a portion of consumer electronics maker HTC’s business. The $1.1 billion deal earned the software company a team of about 2,000 employees from the Taiwanese company that had been working on the Pixel phones and devices. The agreement also came with access to certain HTC intellectual property.

Google's Pixel hardware lineup. Two phones, a Pixelbook laptop, headphones, a pen, and various speaker and home assistants are displayed together.

Image source: Google.

Owning the division of HTC outright (versus the previous licensing agreement where HTC made the phones and Google earned royalties on sales) gives Google more control over its new lineup of hardware. The smartphone market is crowded, though, so why does Google want in? As the advertising for the new Pixel devices would suggest, the company thinks smart-device hardware and software can be more closely aligned to deliver a better user experience.

With the phone-making segment now under its control, it would seem that custom designing chips and other parts that go into them is the aim with the hiring of Bruno and others. The new Pixels, especially the Pixel 2 phones, have been met with solid reviews since their release because of how well the device mates to the software running it. If successive generations can be refined even more with better hardware, that could have serious implications for the phone and smart-device industry.

What it means for Alphabet shareholders

It seems clear that Google’s thinking is there is room for another option in the smartphone market. And why not? The vast majority of smartphones in the world already run on Alphabet’s Android operating system, so if standout hardware can be produced to better showcase what the software is capable of, there is a lot to be gained.

IDC's smartphone OS market share chart showing Android as the far-and-away leader.

Image source: IDC.

For a company that still relies heavily on advertising revenue, bolstering a new device-making segment with proven talent looks like a low risk/high reward proposition. The battle for the technology platform — devices like home assistants, tablets, and smartphones, as well as the software that runs all of them — is under way, and Google looks well-positioned to carve out some more market share for itself with its recent spoils.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Nicholas Rossolillo owns shares of Alphabet (C shares) and Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool owns shares of Qualcomm and has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy .


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