With Google already having lost out on Nortel's 6,000-strong patent portfolio, the company is entering yet another race to boost its intellectual property. [ 1 ] Google recently held talks about buying InterDigital, a U.S. wireless chip technology firm [ 2 ] that owns and licenses about 8,800 patents that are mainly focused on the mobile handset space. This makes it an attractive target for Google as well as Google's competitors such as Apple , Microsoft , Research in Motion and EMC .
We currently hold a $596 price estimate for Google's stock , which is around 5% ahead of the current market price.
InterDigital is Crucial for Google's Lagging Patent Portfolio
The Android OS has swept across the global smartphone market, and Gartner projects its market share will reach around 50% by 2012. [ 3 ] However, the success has come at a price, mainly in the form of expensive patent lawsuits against Google. [ 4 ]
Although Google indicates that these lawsuits act as a threat to innovation, Google is really looking to acquire more patents to give itself for strategic fire power since it currently has just about 730 U.S. patents to its name compared to Apple's 4,000 and Microsoft's 18,000. [ 5 ] [ 6 ]
Given Android's threat to other incumbent smartphone players such as Apple, RIM and Sony, it can bet that Google's competitors will also want a crack at acquiring InterDigital's patents " at the very least just to keep them out of Google's hands " much like the consortium did with Nortel. In its attempts to acquire more patents, Google needs to build a "moat" of its own patents to avoid these litigation battles in future.
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What Does InterDigital Mean for Google's Stock?
Consistent with our previous note on Google's rivals scooping up Nortel , a weak patent portfolio could adversely impact profit margins for Google. The margin decline could mainly happen due to higher licensing fees and royalty based costs for patents that Android uses but does not own. Additionally, expensive patent lawsuits would only serve to distract the company from its daily operations and can hamper Google's innovation-led practices and product development.
See our complete analysis for Google stock
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