Cementing rampant speculation, Google LLC late Wednesday said it signed a $1.1 billion “cooperation agreement” with Taiwanese smartphone maker HTC Corp.

Under the deal, the main subsidiary of Alphabet Inc. will acquire a team of HTC employees, many of whom worked on Google’s Pixel smartphone. It also picked up non-exclusive licenses to some of HTC’s intellectual property that could help Google on its hardware efforts.

“With this agreement, a team of HTC talent will join Google as part of the hardware organization,” Rick Osterloh, Google’s senior vice president of hardware and a former Motorola Mobility executive, said in a blog post. “These future fellow Googlers are amazing folks we’ve already been working with closely on the Pixel smartphone line, and we’re excited to see what we can do together as one team.”

It wasn’t entirely clear how much of HTC Google picked up, since HTC itself said it will continue making smartphones, but Wired reported that 2,000 HTC employees will be joining. Google apparently is not buying any manufacturing assets, let alone a stake in HTC. The agreement does require regulatory approvals, and it’s expected to close in early 2018.

For its part, HTC said the deal “supports HTC’s continued branded smartphone strategy, enabling a more streamlined product portfolio, greater operational efficiency and financial flexibility.” It said it will “continue to have best-in-class engineering talent, which is currently working on the next flagship phone.” And it added that it will continue to build a virtual reality ecosystem for its VIVE business and keep investing in new technologies such as the Internet of Things, augmented reality and artificial intelligence.

But if the move isn’t quite the acquisition some had expected, it still comes as little surprise at this point, since the struggling company had issued a trading halt on its stock effective Thursday in Taiwan and scheduled a major announcement to shareholders, fueling rumors that Google was looking to acquire all or part of the company.

The deal is a strong signal that Google is getting far more serious about hardware devices ranging from smartphones to home smart speakers to virtual reality headsets, all of which it has introduced in the past year. On Oct. 4, it’s expected to introduce new models of all those devices.

“The bottom line is this is about the next platform wars: AI & AR,” Ben Schachter, an analyst with Macquarie Research, wrote in a note to clients. “Given AAPL’s success with hardware and Services integration, and key partners like Samsung pursuing its own AI solutions, GOOG sees that it needs to compete across a broader spectrum of the ecosystem.”

Despite the apparent success of its U11 smartphone, HTC has been operating at a loss in recent quarters, which explains why the company may be looking for outside help. HTC and Google have already had a close relationship over the last year, as HTC manufactured Google’s flagship Pixel and Pixel XL smartphones. HTC is also producing the upcoming Pixel 2 smartphone, although it appears that LG Corp. may be the manufacturer for the Pixel 2 XL.

Acquiring the HTC team and IP assets could give the search giant greater control over the Android market, possibly allowing it to steer hardware development that could take advantage of new features that it wants to roll out. Although Google made a seemingly half-hearted run at this when it bought Motorola in 2012, that was apparently mostly to obtain Motorola’s patents, and Google sold the operation in 2014 to Lenovo.

Today, however, the situation is different. Mobile devices are clearly driving much of the tech industry, and in particular smartphones and home smart speakers have the potential to become hubs for commerce and advertising. That requires Google to make sure it has the devices to remain central to consumers’ lives as traditional typed searches, the source of its massive ad business, could become less important.

“Google is already designing and selling phones – they’ve just been outsourcing the manufacturing to HTC, and this year LG,” Jan Dawson, chief analyst at Jackdaw Research, told SiliconANGLE in an email. “Bringing the HTC component in house gives them more control over both the details of the designs and the manufacturing process, which should allow Google to develop deeper integration and further optimize its devices in future years.”

That said, Dawson noted, “there are some big questions about what exactly Google will be buying from HTC, and what HTC will be left with, but it’s very clear at this point that Google is finally serious about first-party hardware, and buying some technology and other assets from HTC is a great way to move that effort forward.”

Others are doubtful Google has the commitment and mindset to pull off a full-fledged hardware play.

“Google has made numerous missteps  in hardware between Motorola and Nest, so I am skeptical at any new attempt,” said Patrick Moorhead, president and principal analyst at Moor Insights & Strategy. “In order of priorities, Google is cloud services first, software second and hardware a distant third. Therefore, I would have to hear details on exactly what Google would do different this time to ensure success.”

Aside from HTC’s place in the smartphone market, the company is also a major player in the growing virtual reality industry with the HTC Vive VR headset. Although Google has carved out a space in mobile VR with Google Cardboard and Google Daydream, the company has yet to make a serious effort with high-end personal computer-based virtual reality, which is already seeing some adoption in the enterprise by companies like BMW. In 2016, HTC spun off its Vive division into a separate, wholly owned company, but it appears that was not the focus of Google’s interest.

With reporting from Robert Hof

Photo: HTC