Alphabet Inc (GOOGL) Takes the Ambitious Gamble on Hardware with New $1.1 Billion ITC Deal; Top Analyst Sounds Off

Baird applauds Google's play into the smartphone market, finding the deal "well-thought-out."


Alphabet Inc (NASDAQ:GOOGL) revealed yesterday that in a $1.1 billion cash deal the tech titan would be taking on Taiwan’s HTC “powered by HTC” R&D division- the brains behind the company’s domestic Pixel smartphones. In opening the door to HTC’s intellectual property, with the agreement anticipated to finalize by the start of next year, this “big bet on hardware” marks the titan’s second time up to bat.

For context, back in 2012, the titan first bought Motorola Mobility with $12.5 billion only to sell to China’s Lenovo for under $3 billion in 2014, unable to stand under Apple’s iPhone heat. However, three years after this strike out could be different, with Google’s eyes on the prize “as it seeks to gain greater control over smart devices that utilize the company’s broad range of software and services capabilities,” notes top analyst Colin Sebastian at Baird.

Praising that the “HTC deal appears to make strategic sense,” on the heels of yesterday’s news that further “spotlights [the titan’s] hardware ambitions,” the analyst reiterates an Outperform rating on GOOGL stock with a $1,100 price target, which implies a just under 17% increase from current levels.

Sebastian highlights, “With Google now in the hardware business for the ‘long run,’ we believe this is a well-thought-out deal, as it allows Google to obtain key talent behind Pixel phones, while avoiding HTC’s less-desirable overhead, manufacturing, and technology assets. More broadly, we see potential benefits also including reduced Android fragmentation, keeping Android on stronger competitive footing, and maintaining a higher-quality threshold for Android devices.”

“Huge opportunities” of like Voice, augmented reality (AR), virtual reality (VR), and the ‘Internet of Things’ (IoT) make having upgraded hardware functions well worth it, says the analyst, who anticipates that “Over time, centralizing the company’s hardware unit should help Google better integrate proprietary technology and services in areas” just like these, as well as Google Assistant, and home automation.

Overall, this tech titan is in solid standing, as the analyst surmises: “We continue to see Google as well positioned to produce competitive consumer devices with top-tier capabilities in voice recognition AI/machine learning.”

Colin Sebastian has a very good TipRanks score with a 77% success rate and a high ranking of #13 out of 4,658 analysts. Sebastian realizes 25.9% in his annual returns. When recommending GOOGL, Sebastian yields 17.2% in average profits on the stock.

Does Wall Street agree with Sebastian’s bullish perspective? It would seem the answer chimes in favor of the tech titan, as TipRanks analytics exhibit GOOGL as a Strong Buy. Based on 32 analysts polled by TipRanks in the last 3 months, 29 rate a Buy on Alphabet stock while 3 maintain a Hold. The 12-month average price target stands at $1,100.57, marking a nearly 17% upside from where the stock is currently trading.