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Fitch: Sony Ericsson sale to Sony positive for Ericsson
Fitch Ratings said that the potential sale of Telefonaktiebolaget LM Ericsson's (Ericsson; BBB+/stable) joint venture, Sony Ericsson, to Sony Corp. (BBB/stable) would be positive for Ericsson, as a sale of the joint venture would alleviate fears of additional funding obligations by Ericsson.
Ericsson accounts for the joint venture using equity accounting, so its cash flow statement is unaffected directly by the joint venture's cash burn. However, Ericsson has given guarantees for the joint venture of SEK 2.1 billion, up from SEK 1.1 billion in first-quarter 2011.
The danger for Ericsson is that the joint venture continues to lose market share in the global handset market, leading to a further depletion of cash balances and increased debt funding requirements, which Ericsson might have to guarantee. The potential sale of the joint venture could alleviate these fears, Fitch said.
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