Google and Motorola: Destroying Larry's Fuzzy Math

Right here, right now, even the most ardent Google (NASDAQ:GOOG) bull should be questioning the wisdom of the company's acquisition of Motorola Mobility.

The $64,000 question is this: Do Motorola's patents hold enough long-term strategic and financial value to make it worth the drag on growth?

Let's look at the numbers.

First off, let's throw out the 45% revenue growth that Larry Page bragged about on the call. They got that number because Motorola was included in this year's results and not last year's.

The core Google business grew by 19%.

And the Motorola unit? Revenue there fell by a whopping 21%.

So if we compare Google's consolidated results on an apples-to-apples basis, revenue growth was actually 9%, not 45%.

Fuzzy math? I vote YES.

The big drag was Motorola's mobile business, where revenues dropped by 26%.

I'm not gonna lie: The more Google went up, the more I liked it. I never bought it, but I was definitely moving in that direction.

But we should have seen this mess coming. After all, it's been obvious for quite some time that the Samsung (PINK:SSNLF) Galaxy and Apple (Nasdaq:AAPL) iPhone juggernauts have been completely dominating the smartphone industry. (See this article from January: Motorola Results Point to Apple, Samsung Dominance.)

Furthermore, Motorola has a dumbphone (as in, anything that isn't a smartphone) business. According to Gartner, global smartphone industry unit sales grew by 43% in Q2 of 2012. But sales of non-smartphones fell by 17%.

So the smartphone industry's growing big, yet Motorola is seeing declining revenues that drag down Google's overall growth rate.

Now, I've heard the argument that Motorola brought Google some much-needed hardware-design expertise. Well excuse my language, but that's a bunch of malarkey.

Judging by products like the original Nexus One smartphone (which was released back in 2010) and the Nexus 7 tablet, Google is quite capable in this regard. And in any case, it has enough money and prestige to recruit all the hardware talent it could ever need.

Now if Motorola was to release a groundbreaking product on the scale of its iconic StarTAC and RAZR products, that would be one thing. But it hasn't. Motorola's still trying to shake money out of the RAZR line, even though it no longer stands out because ultra-thin phones are so common.

So back to this patent thing.

Common sense tells me that the sole reason for the Motorola deal was the patents. The hardware expertise argument is nonsense. Acquisitions for talent are common in technology, but not on this scale, especially since Motorola has so many legacy businesses. As I've shown, Motorola's declining revenues are dragging down Google's growth rate by a significant margin.

The problem comes in that eliminating this drag means dropping a neutron bomb on Motorola and shutting it down so investors can focus on the faster-growing standalone Google.

It's the most shareholder-friendly scenario, but it would also be a political and PR nightmare, and therefore unlikely.

So what's this patent stuff really worth? It better be more than $18 billion, because that's how much value Google's lost since yesterday afternoon, and who knows what the damage could be in the future.