Google's decision to cut 20% of the workers from its Motorola Mobility unit re-ignited fears that Google was primarily after the 17,000 patents Motorola held when it was acquired in May.
"Everyone at Motorola is asking [if Google just wants its patents] and fearing the answer," said Jeff Kagan, an independent analyst. The 4,000 job cutsGoogle announced are "an earthquake up and down the hallways of Motorola Mobility. Google has never laid off workers like this before so this is also an unsettling feeling in the hallways of Google."
Indeed, a rich store of patents has become a kind of insurance policy for smartphone and tablet makers, as the recent buying up of patents by various parties and the Samsung-Apple court battle shows, analysts said.
Motorola previously announced its intention to cut back on the number of phone models it makes (there were 27 announced in 2011) to achieve greater efficiencies in a crowded smartphone market. The view was reiterated in a statement Motorola filed Monday with the Securities and Exchange Commission.
That SEC document states that the job cuts and other moves are "designed to return Motorola's mobile devices to profitability after it lost money in 14 of the last 16 quarters." Motorola will "simplify" its mobile product portfolio, shifting from feature phones to "more innovative and profitable devices," the statement said.
One source close to Google, who spoke on condition of not being identified, said the $12.5 billion that Google invested in Motorola is a long-term bet and a commitment to Motorola and to its smartphones and tablets. Reports that Motorola has created an Advanced Technology and Projects division with elite researchers bolsters the view that Google will have a continued interest in Motorola.
In addition to cutting 4,000 of about 20,000 workers, Motorola will close down or consolidate about one-third of its 90 facilities, the filing said.
The market seemed to like the job cuts and other moves. Google's stock price climbed 2.4% to $657.39 on the Nasdaq at mid-day Monday.
Nonetheless, some analysts said that Google's primary interest in Motorola could be for the patents, some of which date to the very creation of radio communications and therefore could form a broad basis for Google to defend itself in patent disputes from Apple or others. Also, Google launched its own branded tablet in July, the Nexus 7, that is manufactured by Asustek, while Motorola makes its own Android tablets.
"If Google just wants the patents, which is of course possible, then it's just a matter of time before they let more workers go," Kagan said. But he also said that Motorola workers understand their product and if Google wants to continue such products, "it would make little sense to let the workers go."
Kagan added: "Either way, this is not the end. I see Google cutting more [Motorola jobs] as time goes by."
Carolina Milanesi, an analyst at Gartner, said Monday's job cuts don't necessarily point to Google dropping workers and just keeping the patents. "We will have to wait and see about that," she said.
Certainly, she added, the job cuts would suggest a narrowing of Motorola's focus, and fewer devices with broader appeal and more importantly devices that will deliver the Google experience."
More than the hardware itself, Milanesi said Google is "about the ecosystem and enhancing the overall experience around Google services ... Making money out of the hardware is a game that only very few can succeed at nowadays."
With Samsung and Apple controlling more than half of the smartphone market, there is going to be more and more consolidation that puts pressure on Motorola and others to adjust,analysts noted.
Jack Gold, an analyst at J. Gold Associates, said that while Google always wanted the Motorola patents, it also wanted the company's workers because of their phone expertise and engineering capabilities.
"Since Motorola's market share is falling, especially overseas, it's likely that this type of reduction would have happened regardless if Google was in charge," Gold said.
"I don't think this is the end of Motorola, but I do expect a scaled-back presence with fewer phone models and a heavy concentration on the higher end of the market," Gold said. " Just like Nokia and RIM, Motorola is being forced to concentrate on its core growth areas and not compete at the low end where it can't win."