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Motorola May Be a Mistake for Google: Analyst

Friday, 20 Jul 2012 | 1:55 PM ET
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Google reported better-than-expectedearnings on Thursday.

“We were bracing for the worst and we didn’t get it,” Gene Munster, senior analyst at Piper Jaffray, told CNBC’s “Squawk Box.” This signaled continued strength in advertising, which sent Google shares up in extended-hours trading. But the Internet giant left one question unanswered: What is Google’s plan for Motorola?

“We’re looking for some parameters in terms of how much they [Google] are going to invest in Motorola,” Munster said. He explained that this is an important question for investors because Motorola is a big company that hires nearly two times as many employees as Google.

After speaking with people close to the company, Munster said that Google will likely start investing aggressively in Motorola in 2013. As a result, this will lead to “a pare back in the number of phones they have,” Munster explained. But in cutting down the number of phones, Google will adopt a similar strategy to Apple.

“They are going to be investing aggressively in the phones that they keep,” Munster said. “They are going to try to replicate what Apple is doing.” Piper Jaffray recently reported that it expects Google to start investing on the product side of Motorola and then move into marketing to support new device launches.

What impact will this have on Google’s stock?

Time to 'Click' Google's Uptick?
Gene Munster, Piper Jaffray analyst, breaks down the better-than-expected Q2 numbers on the tech giant and explains why he has a "buy" rating on the stock and a price target of $730 per share.

Munster is anticipating a stock decrease as Google invests more heavily in mobile. “The net effect of all this is it is probably going to have a negative 2 to 4 percent impact on 2013 earnings as they really start to ramp up that spend,” he said.

While some may argue that this is money well spent for long-term growth, Munster doubts Google’s ability to beat the competition in mobile.

“I think that market is going to be very difficult for them,” Munster said. “I understand strategically what they are trying to do, but in our opinion the best thing to do is focus on working with hardware partners like they’ve been doing.”

In addition to Apple’s smartphone and Google’s Android, Microsoft is also planning to introduce a “Windows phone” of its own.

Munster does not view Microsoft’s phone as a threat. While acknowledging that Microsoft has an advantage in the tablet market with its Office software, Munster said that it will be hard for Microsoft to change the momentum of Apple and Android in the phone market.

Although Munster lacks confidence in Google’s mobile strategy, he forecasted growth over the next few years as the company continues to dominate the Internet. Munster told investors to expect continued strength in paid clicks as well as a 20 percent revenue upside in the next few years.

—By CNBC.com’s Madeline Laskoski

Additional News: Google Revamping Search to Filter Out ‘Spam’ Sites

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Disclosures:

Gene Munster does not personally own stock in Google or Motorola.

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