Google's Pixel 2 Faces More Problems. Who Dropped the Ball?

When Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) Google launched its new Pixel 2 and Pixel 2 XL phones in October, the devices looked like potential challengers to Apple's (NASDAQ: AAPL) iPhone 8 and Samsung's (NASDAQOTH: SSNLF) Galaxy S8.

However, a long list of hardware issues immediately tarnished the Pixel 2's launch. The OLED screen on the larger Pixel 2 XL suffered from burn-in problems, some displays had dull colors and a blue shift, other units made clicking sounds whenever the NFC chip was accessed, and some models had audio recording issues. The smaller Pixel 2 didn't have the display and audio problems, but it also had the NFC issues, and critics noted that the antenna was placed on the weakest part of the device, making it easier to bend.

Many industry watchers blamed those issues on Google's "limited" hardware experience and a rushed launch to challenge Apple and Samsung's high-end devices. But Google had experience with hardware before (with its doomed Motorola deal), while the Pixel 2 was manufactured by HTC and the XL by LG. HTC previously made the first Android phone back in 2008, as well as Google's Nexus One phone and Nexus 9 tablet. LG previously made Google's Nexus 4, 5, and 5x smartphones.

In fact, Google was so confident in HTC's hardware that it recently bought HTC's Pixel 2 unit, which has 2,000 employees, for $1.1 billion. So do the Pixel 2's current issues suggest that Google made a mistake with that deal, or did Google drop the ball on its own?

So who dropped the ball?

Google developed, designed, and marketed the Pixel 2. HTC and LG simply handled the manufacturing process. This means that Google decided which components were used in the Pixel 2, as well as its physical design.

Google didn't choose cheap parts for these flagship devices. It chose Qualcomm's (NASDAQ: QCOM) top-tier Snapdragon 835 SoC, the same chipset used in most versions of Samsung's Galaxy S8, to power both devices. Both devices had 4GB of RAM, high-end cameras, and OLED screens.

But that's where things get messy. HTC's smaller Pixel 2, like Apple's latest iPhones, use Samsung's industry-standard OLED screens. The Pixel 2 XL, being an LG device, uses LG's own OLED screens. Unfortunately, the Pixel 2 XL's launch issues confirmed that it was much smarter to stick with Samsung's screens.

The NFC and audio issues are trickier to track down, but Google plans to launch software updates to address both issues. If those patches fail, Google might need to recall some devices in the near future. Based on these facts, it seems like LG made the biggest mistake, but Google also failed on the quality control front before launching both devices.

So should Google have bought HTC's mobile unit?

HTC arguably shoulders less of the blame. It also isn't likely a company-specific issue, since none of HTC's current-gen phones have problems like the Pixel 2's.

But the real question is whether or not Google is actually capable of evolving into a hardware maker like Apple. Google's short-lived attempt at smartphones with Motorola produced moderately successful low-end and mid-range phones like the Moto G and Moto E for emerging markets, but the two generations of the higher-end Moto X (in 2013 and 2014) flopped in the premium market, which is dominated by Apple and Samsung.

It's unclear why Google thinks things could be different this time around. Google clearly wants to produce high-end flagship devices that showcase stock Android instead of Samsung's version of Android, which showcases Samsung's own apps instead of Google's.

Yet previous attempts with the Nexus devices only excited hardcore tech enthusiasts instead of mainstream consumers, who generally preferred Samsung's devices. In fact, nine of the ten most popular Android devices in the United States are still made by Samsung, according to App Brain. In China, that market is dominated by domestic players like Huawei, Xiaomi, Vivo, and Oppo. Google might have more success in emerging markets, but making lower-end first party devices directly conflicts with its Android One initiative.

The bottom line

In the past, Google leveraged its brand strength to convince OEMs to make Google-branded devices like Nexus phones and tablets. But with its new "Made by Google" Pixel devices, Google is moving out of its comfort zone and taking a more hands-on approach with the development.

The Pixel 2's issues suggest that's not an easy process, and Google -- which should bear the responsibility for dropping the ball -- has a lot to learn. Google might salvage the Pixel 2's reputation with updates or recalls, but the brand has been tarnished, and it's doubtful that bringing 2,000 HTC employees on board can fix the problem.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Leo Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool owns shares of Qualcomm and has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.