Google Buys HTC Division That Designed Its Pixel Smartphones

Essentially, Google is set to acquire the HTC "Powered by HTC" R&D division, responsible for designing Google's Pixel smartphones, while also getting access to HTC intellectual property for $1.1 billion in cash. The deal is expected to close in early 2018.

Well-Thought-Out Deal

Commenting on the deal, Baird said it is a well-thought-out deal, as it allows Google to obtain the key talent behind Pixel phones, while avoiding HTC's less-desirable overhead, manufacturing and technology assets. The firm sees the reduced Android fragmentation and maintenance of higher-quality threshold for Android devices as some of the potential benefits of the deal.

The firm also expects the HTC R&D assets to help other areas of Google hardware product line, including Chrome/Pixelbooks, Google Home/Assistant, and Daydream AR/VR. The only surprise for the firm is that the deal didn't include HTC's VR business.

AR, VR, IoT: The Impetus Behind Hardware Thrust

Analyst Colin Sebastian believes centralizing Google's hardware unit will help it better integrate proprietary technology and services in areas such as Voice, Google Assistant, Augmented Reality, home automation and other Internet of Things.

The analyst also thinks the addition of significant hardware capabilities will help the company utilize its own chips in Pixel and other devices. This, according to the analyst, is important, as smart hardware devices will increasingly rely on voice, visual and gesture inputs that require greater artificial intelligence and machine learning capabilities.

Spotlight On Oct. 4 Event

Baird expects Google to announce second generation enhancements to its family of hardware, including Pixel 2 smartphones, mini-Google Home, Chromebooks, among others at its Oct. 4 launch event.

As such, the firm maintained its Outperform rating and $1,100 price target for the shares of Google, as the $1.1 billion deal value represents less than 2 percent of its cash balance.