Motorola credit rating downgraded, debt rating too?

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Standards & Poor (S&P) have lowered Motorola’s long-term credit rating to junk status, making it one level below investment grade, as the company continues to decline. As well, Moody’s Investors Service is also considering downgrading the company’s debt rating to two levels above non-investment grade.

These downgrades in Motorola’s credit and debt rating come as the handset division continues to face serious trouble after two years; and it doesn’t look any better soon with co-CEO Sanjay Jha telling investors that the division won’t get back on track until early 2010. It is so bad that Motorola was forced to delay the planned spinoff of the division and a planned restructure in hope that it can actually create a product that would get some hype.

The main problem is that it has not been creating a hit phone since the RAZR was introduced in 2004. While it creates other phones, those did not live up to the RAZR name. Even the RAZR successors had a difficult time to create a similar hype compared to the ultra-thin phone. According to CNET, the company has also missed the “paradigm shift” in the market, where customers like “sophisticated smartphones” and not traditional feature-based phones.

And this could be true, with the iPhone taking over RAZR’s place as the most popular phone in the US market for Q3 of 2008, according to the NPD Group.

While it has not ignored the smartphone market (all powered by Windows Mobile), all have not faired well with competitors from Apple, Nokia (which is the leader in the worldwide market) and Research in Mobile (RIM)’s BlackBerry smartphone.

The company also said that it had lowered expectations of all handset sales for Q4 of 2008 and the entire year of 2009 because of the worsening economic climate. But it isn’t alone; Nokia was forced to lower expectations twice in November, while RIM announced that its Q3 sales would be lower than expected due to the economy.