Motorola Credit Downgraded To Junk Status

Motorola had its credit rating lowered to junk status by Standard & Poor's due to continued declining handset sales and a projected slowdown in handset purchases worldwide.

S&P said the company's rating was cut two levels to BB+, one notch below investment grade. Additionally, Moody's Investors Service said last week it may downgrade Motorola's debt two levels above noninvestment grade.

"Revenues and profits in the first part of the year will be challenged by a narrower, somewhat-dated product portfolio," S&P's Bruce Hyman said in a statement. "Standard and Poor's also expects about 10% fewer handsets to be sold worldwide in 2009 at lower average prices than in 2008."

Motorola's handset division has been reeling over the last few years, as it has lost nearly $2.8 billion since the start of 2007. The staggering losses are a major reason why the company wants to spin off the handset division into its own separate publicly traded company, although those plans have been delayed for at least a year.

The company has been desperately searching for another hit like the ultra-thin Razr, which earned Motorola the top spot in the United States for many years. The Razr is still widely used, but it's often given away for free and is not a high-margin product for Motorola. The company was recently displaced by Samsung as the top United States cell phone manufacturer, and the iPhone 3G recently surpassed the Razr as the most-sold handset.

Additionally, Motorola hasn't been able to grab a large foothold in the rapidly growing smartphone market. While it does offer devices like the Moto Q, it hasn't been able to wrestle market share from the likes of Nokia, Research In Motion, and Apple.

In August, the company named Sanjay Jha as the new mobile phone chief to help lead a turnaround. Jha is in the middle of a large restructuring effort that will cut about 3,000 jobs in an effort to save $800 million annually.

Smartphones will play a large role in Motorola's future, Jha said. The company will be streamlining its portfolio of mobile phones, and it will only be using a homegrown operating system for entry-level phones, Google's Android platform for mid-level devices, and Microsoft's Windows Mobile for high-end smartphones.

Many are awaiting the company's first Android-powered device, and it is expected to have tight integration with social networking. But Jha said a Motorola Android smartphone won't hit the shelves until at least the fourth quarter of 2009.