It Makes Sense For Google To Own Motorola's Hardware Business To Build Super Cheap Tablets (GOOG, MMI)

There was some speculation that Google was buying Motorola for its software patents and would spin off the hardware business as soon as possible. 

Google Chairman Eric Schmidt poured cold water on that idea. Google wants Motorola's hardware business. 

There's only one way that makes sense: if Google makes cheap tablets to compete with the iPad on price.

The success of the HP TouchPad fire sale and customer surveys show that there is pent-up consumer demand for a cheap tablet. And given the superiority of iPad hardware, the only way for Android to compete is to undercut on price. 

Is that possible? Well, iSuppli estimates the 16GB TouchPad's bill of materials at $296. The biggest cost items in a tablet are the touchscreen and memory chips, which could both be knocked down a peg for an explicitly low-cost tablet. Google could buy huge inventory upfront to bring down unit costs even further. 

And of course, it could sell a tablet at a loss or just breakeven. 

Could that bring a tablet to $300? $249? $200?

Here's why it makes sense for Google to potentially spend billions of dollars on this: Apple is right, we're moving to a post-PC world. Smartphones and tablets are the future of computing. And in that world, there is a race on to be the platform of the future, with network effects accruing to the biggest platform, just like in the PC wars of the 1980s.

On smartphones Google is winning that race, narrowly. By taking a disruptive approach, distributing Android for free, it has gotten manufacturers and carriers aboard and can flood the market with devices. Despite the iPhone's stunning success, Android is edging past it.

But this strategy doesn't work for tablets, where carriers offer few subsidies and Apple's manufacturing and design superiority means it can offer the best tablets at a price others can't match. Tablets are Apple's ace in the hole in the post-PC platform race. 

Google isn't going to beat Apple on design, so it needs to beat it on price, like PC manufacturers did in the 1980s. But Apple having become a manufacturing behemoth, that probably means selling tablets are breakeven or at a loss. Samsung and Motorola can't afford to do that, because they are commodity manufacturers with razor-thin margins. Google can. 

What's more, there's no time to waste. Apple knows what's at stake and has priced the iPad very aggressively. If and when Apple lowers the price on the iPad, all that pent-up consumer demand of people who want a tablet but can't bring themselves to spend $500, will go away and take away an opportunity to grab a big slice of marketshare right out of the gate.

If anything, that's what we suspect is behind the Motorola buy.

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Panetta Muzzles Communications With Super Committee

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Washington: Defense Secretary Leon Panetta has moved to gag communications between the Pentagon and Congress on the highly sensitive issue of the congressional Super Committee.

In an Aug. 18 memo to all senior officials, Panetta ordered them to "coordinate any contact with the 'Super Committee' through his assistant secretary for legislative affairs, Elizabeth King.

We sent a copy of the memo to the House and Senate Armed Services committees, and some other congressional sources, for comment. It being mid-August on a Friday we were happy to hear from the HASC's spokesman.

"The Committee certainly understands why Secretary Panetta would want to have visibility on such a vital issue. However, every senior member of our Armed Forces, including the chiefs of staff for every service; swear to support Congress' oversight role with their unvarnished professional opinion as part of the Senate confirmation process. A memo from the Secretary of Defense is not sufficient to relieve them of that obligation," spokesman Claude Chafin said in an email.

The secretary's spokesman rejected the idea that this memo constituted any kind of gag. "It's simply wrong to suggest that the Secretary is restricting communication with Congress on budget matters. The point of this memorandum is solely to ensure that the Department adopts an orderly approach to our engagement with Congress on these important issues. That's called sound management, and we look forward to discussing future national security funding with the Hill," George Little said in a very promptly returned email.

While we understand the desire to "manage" the process, when you order people to stop talking to someone else, that's a gag order. Of course, the Pentagon isn't a democracy, but unvarnished advice and information must flow between the Congress and the military for both to work effectively. And restricting who can communicate is pretty likely to mean the advice won't be unvarnished.

This post originally appeared on AOL Defense.

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Biden Says Debt Super Committee Faces “Very, Very Difficult” Odds, As Talks Begin

The "Super Committee" of congressional lawmakers tasked with finding $1.5 trillion in savings from the federal deficit has begun informal conference calls and staff meetings according to one member, as Vice President Joe Biden expressed skepticism that the group will be successful.

Rep. Frank Upton (R-MI), selected selected by Speaker of the House John Boehner to serve on the committee, told WNDU in South Bend, IN, that members have spoken by conference call to discuss their plans for the committee.

"We've had a good number of discussions already. Our staffs are working together, and there's a lot of documentation that we can look at already," he said. "We really do feel like folks across the country are pulling for us to get it together. Now is our chance to focus on a long term result."

Meanwhile, while traveling to Japan, Vice President Joe Biden said lawmakers on the committee face “very, very difficult” odds, but maintained that the 12-member panel must strive to reach the required cuts by the November 23rd deadline.

They have “a shot of getting a deal that would be viewed by Wall Street, be viewed by everyone, be viewed by the international community as a significant alteration of a trajectory of long-term debt," he was quoted as saying by Bloomberg. 

If the deal is not reached by the deadline, significant cuts to both Medicare and defense spending would take effect — cuts Secretary of Defense Leon Panetta called "dangerous" to national security.

"We still may end up with the trigger being pulled,” Biden added aboard Air Force Two.

According to administration officials, President Barack Obama is preparing to push the "Super Committee" to take up job creation legislation as part of its mandate to cut the federal deficit.

The committee was created as part of the deal to raise the debt ceiling, and its recommendations must be voted on by up-or-down vote in both chambers of Congress by December 23rd.

[h/ts POLITICO, The Hill]

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