It’s been a long time coming, but Motorola’s struggling mobile phone manufacturing business has finally caught up with its finances. Citing Motorola’s “operational challenges” that are not expected to fix themselves in the intermediate term, the Standards & Poor’s (S&P) Ratings Services has cut its long-term credit rating on Motorola to junk status.
Motorola’s credit rating rating dropped ‘BB+’ from ‘BBB,’ reflecting the S&P’s expectation that Motorola’s handset business would lead to higher debt-to-earnings ratios, lower profit, and diminish free cash flow. The S&P gave Motorola a recovery rating of ‘3,’ indicating the credit rating company’s confidence of meaningful debt recovery (50-70%) should Motorola default on payments. The debt downgrade comes amidst a slowdown in mobile phone sales that is likely to result in profit losses for the coming quarters.
Moody’s Investors Services previously announced that it had placed Motorola under review for a possible rating downgrade. Moody’s currently has Motorola just two notches above junk status, mirroring Motorola’s previous S&P rating.
The overall cellphone market is expected to decline next year, which will likely only make it harder for Motorola to compete.
[Via: WSJ]