Googlewill lose more than its search-engine business if it pulls out of China, Cramer said Wednesday. The company will also forfeit the chance to sell Android, its mobile phone operating system, to a potential 380 million Chinese customers.
The American search-engine giant has threatened to shutter its China offices after a number of recent hacker attacks and disagreements over Internet censorship with the Chinese government. But Google is a distant number two behind the country’s homegrown favorite, Baidu.com , which is why Cramer is less concerned about losing the search business and more focused on the growth in smartphones.
It is for this reason that Cramer has lowered his price target on GOOG to $700 from $750.
Google may turn its back on the near half billion dollars in revenue that comes from the Chinese search market, but it most likely can’t afford to pass up the country’s mass adoption of smartphones. Cramer wasn’t by any means making light of GOOG’s footprint in the Middle Kingdom, not when even the slightest bad news can cost this kind of growth stock its favored status on Wall Street. But Android and China are important for what are called “the out years,” or the earnings coming in 2012, 2013 and 2014, and those are now at risk.
“So we can’t stay as bullish as we were,” Cramer said.
Still, he put the odds of Google pulling out at about 50%, saying he doubted that the Chinese Communist Party would force the company to shut down its operations. If Cramer’s right, then GOOG should go right back to $625, and possibly even higher. And this doesn’t even take into account what he said should be a “sizzling quarter.”
Investors might also keep in mind that Google’s loss is Apple’s gain. If Android loses its position in China that just leaves more room for the iPhone to step in. Cramer recommended buying AAPL at this level on the possibility that the company’s handset could do much better than expected in that country.
Lastly, Cramer recommended ArcSight as a play on the hacker attacks that Google suffered. The company detects and tracks these hackers, and GOOG’s misfortunate could spark some new sales. He thinks the bump should push this near $26 stock another $5 higher.
Cramer’s charitable trust owns Apple.
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