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S&P downgrades Google following its acquisition of Motorola

First off rating agencies have lots o"splaining" to do with their rating activities.  No so many years ago, several rated all the Icelandic banks AAA -- based on the idea that they were TBTF and therefore had an implicit government guarantee.  Never mind that with a population of 230,000 Iceland's banks were dwarfing the local economy.

Then there was the rating of CDO/CLO and other bastardized complex financial structures, taking a bunch of BB rated debt instruments and magically creating AAA rated paper.

The downgrading of America was a "political" decision, in view of the intractable nature of the discussions in Washington, and the dogmatism shown by the republicans.  S&P's rating decision (America is still AA+ rated -- which is not so bad) is a true reflection of a government's spending decision and its inability to find realistic solutions to the problem.

The latest downgrade of Google that decided to acquire Motorola Mobile on Monday is sheer insanity.  First, Google has been looking at the handset business for some time -- its Android operating system is now the most popular smart phone OS, for every sale of Iphone there is two sales of Android powered phones.  The reality is that Google is more than a search company, its a data company.  Personally, I suspect that within 10 years the "telephone" aspect of most smart phone will be nearly eliminated (think skype) with data accounting for 90% of traffic and revenues.  The fact that Google is sitting on nearly $30 billion in cash (and short term instruments) tells you all you need to know on this acquisition:


  1. Google is looking at growing its data business, and handset complete the loop to the customer
  2. Google is using less than 30% of its cash at hand (should they go for an all cash offer)
  3. Culture clash is certain to occur, but then Google probably wants to keep hardware and software divisions in separate silos.
  4. Google's management has been looking for a "big project" for years.
  5. Real shame here is that Google could have bought Research in Motion for the same amount of cash (although competition issue would have been more serious)


Sure there are issues with keeping the OS development away from Google/Motorola phones will be difficult, but one of the many negative aspects of Android phones is that each manufacturer "damages the brand" with its overlay and tweaks that hamper the OS's strength.  Having a pure Google OS user will "force" other android phone makers to keep the OS as clean as possible.

BTW some disgree with my view -- a particularly well written comment here that basically takes the view that Google should have purchase Nortel's patents and not Motorola...

I really don't get the downgrading here!

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