Did Google make a mistake by buying Motorola Mobility for nearly 12.5 billion dollars? Well, Standard and Poor’s likes to think so. In case you don’t know who S&P is, they are the US’s most notable credit rating agency. Their “biggest” announcement came when they downgraded the US’s debt from AAA to AA+. Shortly after Google acquired Motorola Mobility, S&P downgraded Google’s stock from a “Buy” to a “Sell.”
Standard and Poor’s looked at two things — the reputation of Motorola, and the reputation of Google — then they added them together and subtracted the difference of the two. They found that instead of helping Google, Motorola actually hurt their business.
Motorola hasn’t been in the smart phone market for a long time. They had a huge break when they introduced the flip phone, but other than that, they kind of stalled out a bit. Motorola doesn’t really hold any real weight in the smart phone market. Both Nokia and Motorola have been forgotten about. The last time I owned a Nokia phone or even heard of one was in 2005. So for Motorola, this was a great move to leave Nokia stranded in the deep waters and get out of the “forgotten club,” especially when they showed a $56 million net LOSS last year. But for Google, this looked like a losing deal. S&P had a legitimate reason to believe that this new purchase is actually going to stunt Google’s growth and possibly damage their income. Now, Google has a company that is losing $56+ million dollars a year.
Google claims that the reason they purchased Motorola Mobility was to keep from getting sued by Microsoft and Apple. Since Motorola owns about 17,000 patents and has about 7,000 more pending patents, this would be a very good acquisition of patents, and if that’s the case, then Google has a very good chance at making this purchase a gold mine.
In the mean time, hardware manufacturers are starting to see a huge decline in their services. They claim that the world is very quickly moving towards a software world instead of a hardware world. And it is true, most phones are created equal nowdays; the only thing that sets them apart is the operating system and how friendly the system is. S&P looked at the cell phone trend, and they too realized that the phone companies like Motorola and Nokia are losing money because they make hardware instead of software.
After studying the cell phone and hardware trends, S&P lowered the Google price target down from $700 to $500. Following this price target – on August 16, Google shares fell 3.3%, and if you know anything about that percentage, then you’ll know that the 3.3% drop brought Google down to $539, at a good in-between.
So, if this trend of software taking over hardware continues to grow, then Google purchased a company that is quickly going under. If they want to keep their new Motorola company afloat, they need to come up with a very good cell phone that will bring up the hardware sales. If they can manage to do that, and incorporate their OS with their new hardware, then we can expect to see Google’s share’s spike up dramatically. But, if they don’t pick up their ball game within a couple of years, they could be holding onto a company that is just slowing them down. As far as Google going under, that’s extremely unlikely: they are still the number one search engine and web advertisement company, and they have a very solid foundation with their Android OS.