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Moody’s has cut its rating on Ericsson’s debt to junk status due to the Swedish telecoms equipment maker’s deteriorating outlook.

The credit rating agency has trimmed the company’s long-term rating to Ba1, a speculative grade, from Baa3. It kept its view of Ericsson’s outlook at stable due to its solid liquidity and shareholder support.

Ericsson, under recently anointed chief executive Borje Ekholm, has unveiled cost-cutting measures and a plan to exit businesses now deemed to be struggling including its loss-making media business. Mr Ekholm has publicly declared that it is not his intention to cut R&D spend despite Ericsson’s struggles in the wider telecoms equipment market.

Yet Moody’s is not convinced that will be enough to protect Ericsson’s position. “A strategy premised primarily on cost-cutting is not sustainable over the long run and could also hamper the company’s competitiveness including its ability to innovate and maintain its historical technological leadership position,” said Alejandro Núñez, a senior analyst.

Ericsson shares dipped 2 per cent in Stockholm.

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