Ericsson bites back

NEWS Ericsson claims Globalstar has failed to meet minimum purchasing requirements for phones under two contracts, one for the purchase of fixed phones, the other for mobiles. Globalstar counter-claims that it has paid for all phones that it ordered and received from Ericsson, and furthermore that Ericsson no longer makes the kind of terminals it requires. This follows news that Standard & Poor (S&P) has lowered Ericsson's corporate credit and senior unsecured debt ratings on to single-A-minus from single-A. The short-term ratings on Ericsson and "guaranteed related entities" were lowered to A-2 from A-1. In a further blow to the hardware manufacturer, S&P considers "it will be difficult" for Ericsson to reach neutral free cash flow during the 2001 tax year - Ericsson recently announced an intention to borrow around $1.4bn from the international bond markets. Duncan Warwick-Champion, Standard & Poor Director, Telecom ratings, said: "Ericsson has been under pressure for some time - this rating change not only shows that this is still the case, but it will be very difficult for the company to raise cash in Europe now. It will certainly provide a hindrance for the bond issue." S&P has also voiced concern over the lack of "aggressive" control of Ericsson's mobile handset unit, which had operating losses of around £39m in Q1 2001. S&P believes that it is "highly unlikely" the unit will have become profitable again before the start of the planned joint-venture with Sony in October 2001. Ericsson recently outsourced all handset build to management company Flextronics in an effort to cut costs - fortunately Sony uses the same company for manufacturing purposes.