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SAN FRANCISCO (Reuters) - Shares of Google Inc fell nearly 4 percent on Monday, after Motorola Mobility Holdings Inc's warning of worse-than-expected financial results raised concerns about Google's pending acquisition of the smartphone maker.
The $12.5 billion acquisition of Motorola, the largest in Google's history, is expected to close early this year.
Motorola's weak results "may suggest further deterioration in the business since the acquisition was announced, and they highlight the uphill battle for Motorola" in the competitive smartphone market, JP Morgan analyst Doug Anmuth wrote in a note to investors on Sunday.
The weak financial results could also serve as a reminder to investors about the operational challenges that Google will face as it enters the hardware market, and of "clouded optics surrounding an overall slower growth, lower margin Google once the deal closes," Anmuth wrote.
Google, the world's dominant Internet search engine, has become the No. 1 provider of smartphone software with its freely distributed Android operating System used by handset vendors including Samsung, HTC and Motorola.
By acquiring Motorola, Google will be able to develop its own line of smartphones with tightly integrated hardware and software, as it competes against iPhone-maker Apple Inc.
The acquisition of Motorola, which Google says will be run as a stand-alone business, will also give Google access to one of the largest patent libraries in the wireless industry.
On Friday, Motorola Mobility said its fourth-quarter financial results would miss Wall Street expectations due to tough competition and higher legal costs associated with intellectual property litigation.
Motorola said that fourth-quarter sales would total $3.4 billion, below analysts expectations of $3.88 billion, according to Thomson Reuters I/B/E/S. Motorola said it expects to report "modest profitability on a non-GAAP basis in the quarter. "Friday evening's pre-announcement underscored that for investors. Google has become a complex hardware/software media/tech global behemoth," Stifel Nicolaus analyst Jordan Rohan wrote in a note to investors on Monday.
"Over time, we believe this complexity will pressure Google's multiple, at least when compared with the multiple of companies with similar 20 percent plus growth in earnings," he wrote.
Shares of Google were down 3.8 percent at $625.38 in mid-day trading on Monday.
Last week, Google's stock reached a four-year high, breaching the $650 level for the first time since January 2008.
Reporting by Alexei Oreskovic. Editing by Gunna Dickson