Sony Japan credit rating slashed to ‘junk’ due to ‘loss of technology leadership’

By Dave Cook, Thursday, 22 November 2012 11:37 GMT

Sony’s recent financials highlighted the poor performance of PS Vita and overall losses of 15.5 billion yen/$198 million. Today credit firm Fitch has cut the Japanese company’s credit rating due to its “loss of technology leadership in key products and the strong yen”, and issued a warning that aggressive restructuring would be needed to reverse its fortune. Get the report below.

The Financial Times reports from Tokyo that credit rating agency Fitch has slashed Sony’s credit rating down by three notches from ‘BBB-‘ to ‘BB-‘, citing the company’s lack of influence over the technology market, lack of strong products, the strong Yen, and fierce competition posed by Apple and Samsung.

Reuters suggests that the move came after Sony announced the sale of convertible bonds to raise 150 billion yen ($1.82 billion) to help fund its acquisition of cloud gaming service GaiKai.

Fitch’s official statement on the matter said that the firm, “Believes that continuing weakness in the home entertainment and sound and mobile products and communications segments will offset the relatively stable music and pictures segments and improvement in the devices segment which makes semiconductors and components.”

Head of corporate research at Fitch Matt Jamieson said of his firm’s re-appraisal of Sony, “This wasn’t an easy decision. But their reputations have been hit so much that it’ll take a long while to crawl back.”

The report highlights that Sony posted its seventh consecutive quarterly net loss in the three months to September, but speaking with Reuters, Masahi Oda, chief investment officer at Sumitomo Mitsui Trust Bank downplayed Fitch’s move and surrounding concerns.

He stated, “Both Sony and Panasonic are struggling to generate operating profits, but each is restructuring and I don’t envision the current situation continuing. A collapse of their core business would be a problem, but we are not at the point yet, and to me Fitch looks too negative.”

Despite claims of negativity, Reuters has added that Sony shares dropped by 4.4% in Frankfurt on Thursday, and that shares were worth 834 Yen at close of trading, falling close to the company’s 32-year low of 793 Yen which occured on November 15th. Overall Sony’s stock is down 40% for the year so far.

Fitch’s report states that Sony has been one of the worst seven performers on the Nikkei 225 stock exchange, after posting its seventh consecutive quarterly loss earlier this month. However, Fitch’s head of Asia Pacific technology, media and telecoms ratings Steve Durose suggested that the slowly weakening Yen could see the trend reversed.

Durose added that Sony’s inability to invest in new avenues will hamper its ability to create new “must-have products” that would see it competitive once again. The report projected Sony’s average capital spend over the next couple of years at $2.5bn, then compared it to those of Samsung Electronics and LG Electronics at $22bn and $5.5bn respectively.

Speaking of Sony and another victim of today’s credit-slashing Panasonic, Durose added, “Without a radical change to the structure of their businesses it is difficult to see profitability improving enough for them to regain investment-grade ratings.”

The FT report concludes, “BB ratings indicate that companies are vulnerable to defaulting on debt over time, but have sufficient flexibility for now to keep servicing that debt,” suggesting that Sony still has breathing room to try and reduce risk for the time being.

What do you make of Sony’s performance as of late? Is it in need of a shake-up, or will the next-gen see fortunes reversed? Let us know below.

Thanks NeoGAF.

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