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Google Could Have Made A Profit From Motorola Mobility

As we know, Google has sold off the handset making part of Motorola Mobility. And the headlines are that Google must have made a massive loss on this whole adventure. It depends upon who you read, that loss might have been $9 billion, $7 billion or even $5.5 billion. But the truth is rather more complex than that and it's entirely possible that Google has actually made a profit from the whole deal. Not certain, only possible, because of the tax losses that existed within Motorola at the time it was bought:

"The tax benefits of the deal make what was a good deal into a great deal," said Robert Willens, a New York accounting and tax expert. He estimated that through the acquisition, Google can expect to reap $700m a year in tax deductions from future profits each year through 2019. Google also will be able to immediately reduce its taxes by $1bn due to Motorola Mobility's US net operating loss, and by a further $700m due to its foreign operating loss, he said.

Let's just run through all of the numbers from the top.

The purchase price of Motorola Mobility was $12.5 billion. That's what Google actually shelled out. They then got back $2.3 billion by selling the set top arm to Arris for $2.3 billion. They've then just got $2.9 billion from Lenovo for the handset making part.

At this point we could say that Google has therefore lost, roughly, $7 billion. However, Motorola also had $3 billion of cash in it at the time of purchase: that's certainly not moving over to Lenovo. So a $4 billion loss now.

And then we've got those tax losses. A law change in 2009 does mean that Google can use them to offset its own US taxes to there's that $700 million a year right there. And sure, we might think that they could only do that for the two years or so they owned the company.

However, it's possible that Google didn't in fact sell the entire Motorola handset operation to Lenovo. They retained the patents and also the high end research part responsible for Project ARA and the like. This would mean that they could quite well have retained those tax losses.

Then to make things even more complicated Motorola of course made losses while Google owned it. All of which leads to something of a fog, a cloud of doubt, over what really happened here.

But it's certainly possible that those tax losses meant that Google didn't actually lose any cash at all on the whole deal: and that they got that patent stash for free.

Maybe: and the accounting is never likely to become public knowledge. However, there is one further point we can make. If a company makes a disposal of a subsidiary that leaves the company with a material loss it is supposed to tell us all that via a release to the SEC. There has been no such release: so we might assume that there hasn't been a large loss.