Moody’s today announced that it has downgraded the long-term credit rating of Ericsson from Ba1 to Ba2, removing the Credit Watch status, but leaving the Outlook Negative.
Our short-term rating was not under review and is not affected by this action. Moody’s decision primarily reflects their view of the wireless infrastructure market. We reiterate our view that in the short-term the market is indeed characterised by great uncertainty and the third quarter development so far does not indicate any improvement, but we remain firmly optimistic in the longer perspective.
Considering the success of our rights offering, Moody’s decision was unexpected. We believe we have sufficient liquidity to carry us through this uncertain market situation. Our cost cutting actions remain on track for returning to profit sometime next year. The incremental financial impact of Moody’s decision amounts to an increase in financing costs of approximately SEK 55 million annually.Written by Ericsson PR for PMN Mobile Industry Intelligence.
Nokia’s warning of continuing gloom in the infrastructure market was bound to stir up further negative sentiment for Ericsson, which relies on the infrastructure business for most of its revenue. PMN reiterates its earlier position that operator spending growth is certain to return once picture messaging becomes established in Western Europe, driving demand for data capacity. However, this could be 12 – 18 months away and, even with its rights issue safely completely, Ericsson may struggle unless it can show growth in other areas, such as handsets and software services.
Originally published by PMN Mobile Industry Intelligence, the subscription-based analysis and insight platform founded by Marek Pawlowski.