Search engine giant Google’s decision to acquire Motorola Mobility for $ 12.5 billion has invited adverse reactions from an unlikely quarter – credit rating agency Standard & Poor. S&P’s equity analysts downgraded Google’s stock rating from ‘buy’ to ‘sell’ on Tuesday as a consequence of Google’s decision to buy the mobile phone company.
David Drummond, chief legal counsel for Google, had said that buying Motorola Mobility and its patents could protect Android from intellectual-property lawsuits. Apple, Oracle, and others have sued either Google or its partners in recent months in an attempt to slow down their competitors and extract licensing fees.
Scott Kessler, S&P equity analyst scorned the idea that Motorola’s patent portfolio will ease Google’s patent troubles. He said that Google was paying a ‘premium price’ for a company that does not guarantee to protect the Android ecosystem
Google Inc. is a multinational Internet search technologies corporation. Google hosts and develops numerous Internet-based services and products, and generates profit primarily from advertising. Whereas, Motorola is a manufacturer of wireless telephone handsets, and also designs and sells wireless network infrastructure equipment such as cellular transmission base stations and signal amplifiers.
On S&P’s decision to downgrade Google, Kessler said, “After further consideration of GOOG’s plans announced yesterday to purchase Motorola Mobility (MMI 38), we see greater risk to the company and stock. We expect the transaction to be consummated next year, but later than early ’12, which GOOG indicated. Moreover, despite MMI’s extensive and valuable patent portfolio, we are not sure it will protect Android from IP issues. We also believe the purchase of MMI would negatively impact GOOG’s growth, margins and balance sheet. Based on the revised DCF analysis, we are cutting our 12 month target price to $500 from $ 700.
You can view a video of S&P’s Scott Kessler commenting on the Google downgrade:
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Further, the ratings service says the transaction will hurt Google’s growth, margins and balance sheet.
Google shares fell along with the overall market Tuesday, slipping $18.23, or 3.3 percent, to finish trading at $539.
Google’s decision to purchase Motorola was unexpected and has lad many to speculate over the company’s real intentions. The reason which Google itself forwarded was that it hoped to supercharge the Android ecosystem with Motorola’s patent profile.
Mashable’s Christina Warren argues that the Google-Motorola deal is not just about mobile, Google is keen on marrying its software with the Motorola hardware.
Tavis McCourt, analyst Morgan Keegan Equity Research believes that Google acquired Motorola for its handset business rather than its portfolio of patents. “If this deal was just about patents, Google would have bought InterDigital, a licensing company that owns some 8,000 wireless patents and has another 10,000 patent applications being processed and does not come with the baggage of Motorola’s handset business,” he said.
Earlier S&P downgraded United States’ credit rating from AAA to AA+, the first in the history of the country. Google really does not have to bother about credit ratings because it does not borrow money all that much. However, it does borrow a bit and S&P rates its debt at AA, a notch below the US.
On Tuesday, along with the overall market, Google shares fell, slipping $18.23 or 3.3 per cent and traded at $ 539 at close.