Google to pay $1.1 billion for HTC’s pixel development division

Alphabet Inc. (NASDAQ :GOOGL) announced on Thursday that it would pay HTC Corp $1.1 billion cash for its division that helps the pixel smartphones in the U.S.

Under the agreement, Google will receive approximately up to 2,000 workers from HTC’s Taiwan firm. Google will also acquire a non-exclusive licenses for HTC’s intellectual property.

In this deal, Google is not acquiring any HTC assets, but gaining its workforce to expand upon Google’s smartphone technology. The agreement comes after Apple’s announcement of the iPhone 8 and iPhone X and the competition between the two for the dominant smartphone.

The deal comes as Google is expected to have a product showcasing on October 4. It is expected for Google to showcase its Chromebook and two new Pixel phones.

Google and HTC have previously worked in the past together already. Together, the two tech companies released the first Android smartphone, the HTC dream or T-Mobile G1, the Nexus One, the Nexus 9 tablet, and the first pixel smartphone.

The pixel smartphone was only recently launched last year, and according to research firm IDC, the pixel smartphones only 1 percent of global market share with only an estimated 2.8 million shipments.

Google previously worked with Motorola and hired its executive, Rick Osterloh, to run the hardware division, and then entered into a deal to purchase Motorola Mobility for $12.5 billion. Few years after the acquisition, Google sold the division to China’s Lenovo group for less than $3 billion, as the division failed to produce products that can compete against Apple, according to Reuters.

Some analysts’ are questioning Google’s decision in acquiring HTC’s division as most are saying that HTC is outdated and cannot compete against the current standards of other tech companies.

“HTC is past its prime in terms of being a leading hardware design house, mainly because of how much it has had to scale back over the years because of declining revenues,” said Ryan Reith, an analyst at IDC, “Unless Google really wants to control hardware for its other businesses like Home and Chromebooks in addition to smartphones, then I don’t see this as being a bet that pays off.”

In the agreement, HTC will still be working on its products and with Google it can heavily cut down on expenses.

HTC CFO Peter Shen says that, “This will be a sizeable reduction in our R&D expenses. Overall it should be in the ballpark of a 30-40 percent reduction in operating expenses.”

HTC shares have been on a straight decline in the past 6 years, since HTC hit its all time high, and is hoping that with Google it can turnaround the company. Both companies need to be able to keep up with its competitors, especially HTC as competition in Asia is fierce.

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