Considering the volume of the debate over the merits of Apple's (AAPL) iPhone 5 versus Samsung's Galaxy S III, Google (GOOG) — search engine king and Android maker — has been something of an afterthought. Even with a torrid run over the last few months, Google's stock still dramatically trails Apple's, YTD. With the hardware space seemingly spoken for and the Android operating system not a revenue generator, it seems Google is locked out of a market it helped create.
Not for long, says Dan Martino, a portfolio manager at T. Rowe Price. Martino thinks Google's acquisition of Motorola last year was about more than just the patent fight and the company may be ready to jump into the hardware space with a Google-branded phone.
"They want to move more aggressively into handsets and tablets," Martino says in the attached video. By Christmas of next year, Martino thinks Google will have a hardware product under the Motorola brand that the consumer will be excited about.
For Google shareholders, the first question is why, for the love of all that are flip-phones, would the company want to jump in the low-margin knife fight that is hardware manufacturing. Samsung makes money through massive scale and experience. Apple makes money through cheap production costs and the cash-flow monster that is iTunes and the rest of the ecosystem. Google has none of those things. What it does have is a dark history of failed or profitless initiatives designed to end its financial reliance on search.
None of which even addresses the fact that Samsung is using Android software — and it's highly unlikely that Samsung will be happy about competing with the company making its operating system. Martino says a little relationship elegance on Google's end will keep Samsung from bolting. Whether Samsung likes it or not, he believes there are performance issues with the Galaxy S III that give Google enough of an opening to elbow its way into the handheld space.
Martino envisions a less buggy phone that is more tightly tied to the nascent Android ecosystem. Google has enormous amounts of cash, meaning they don't need to make much money on hardware, just enough to stay alive.
Microsoft (MSFT) has been spouting the same stuff for years. If Google can effectively pull off a move from software into hardware, it'll be a management trick for the ages. Judging by the price of Google's stock lately, Wall Street thinks they have a chance.