Moody’s downgrades Ericsson debt

Less than a week after Ericsson completed a successful $3.2 billion security rights issue, Moody’s Investors Service downgraded the company’s long-term debt ratings to “Ba2” from “Ba1” with a negative outlook.

Moody’s said its downgrade primarily reflects the many announcements from wireless carriers to scale back or even withdraw their investments from next-generation W-CDMA networks.

“The sheer rate of decline in orders and revenues makes it very challenging for Ericsson to devise and implement cost-saving plans sufficient to fully compensate for the projected revenue shortfalls,” Moody’s said in a press release.

In addition, Moody’s is concerned about the possibility that Ericsson may have to invest more capital into Sony Ericsson as well as the deterioration of Ericsson’s receivables portfolio.

Ericsson said its was surprised by Moody’s rating given that the company’s recent rights issuance was oversubscribed. Ericsson, the world’s largest wireless infrastructure provider, also believes the Sony Ericsson venture has enough money and it doesn’t anticipate injecting more capital in the near term.

“We believe we have sufficient liquidity to carry us through this uncertain market situation,” the company said in a prepared statement. “Our cost-cutting actions remain on track for returning to profit sometime next year.”

It’s possible Standard & Poor’s, which rates Ericsson’s debt at “BB+”, may also downgrade the vendor after the company’s release of third-quarter results in October. A disappointing fourth-quarter projecting is likely.

“Ericsson just has no idea when things are going to turn around,” said one analyst who declined to be identified.