Fitch: No change for Ericsson

Fitch Ratings said it sees no change to Telefonaktiebolaget LM Ericsson's long-term issuer default rating of BBB+ with stable outlook, following the company's trading statement wherein management advised that third quarter earnings results will be somewhat below market expectations.

The announcement has come as a shock, Fitch said. It does not, however, change Fitch's medium-term view of the fundamentals of Ericsson's infrastructure business, which is what Fitch believes bond investors should be focused on, the agency said.

The margin compression coming from an increased share of network rollouts, while impacting near-term earnings, should lead to long-term operator relationships, with the potential for follow-on expansion and upgrade business, Fitch said. This in turn should, at a minimum, stabilize margins and ultimately lead to margin expansion, the agency said.

Ongoing free cash flow constraints do, however, slow momentum in the rating, Fitch said.

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