Ericsson’s Debt Rating Cut by Moody’s on Profitability Concern

Ericsson AB, the world’s largest maker of wireless equipment, had its debt rating cut by Moody’s Investors Service, which cited concerns about the manufacturer’s profitability.

The senior unsecured rating was lowered by one step to Baa1, the third-lowest investment grade, Moody’s said in a statement today. The outlook is stable. The change puts Ericsson’s rating in line with the BBB+ by Standard and Poor’s and Fitch Ratings.

“We are downgrading Ericsson’s ratings because of the stabilization in the company’s profitability on weaker levels than experienced in the past and our expectations of an only partial recovery in the next 12 to 18 months, given the still intense competition across the communication equipment industry,” Moody’s anlayst Roberto Pozzi said in the release.

Ericsson last month reported first-quarter sales that missed analysts’ estimates as it focused on more lucrative contracts to boost profitability. Revenue fell about 9 percent to 47.5 billion kronor ($7.3 billion), while analysts had predicted 50.8 billion kronor. Gross margin, a key measure of profitability, widened to 36.5 percent of sales from 32 percent a year earlier.

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