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Influential credit rating agency downgrades Sony to “junk”

“This wasn't an easy decision.”

Influential credit rating agency Fitch has downgraded Sony to “junk” status.

It downgraded both Sony and Panasonic three notches to BB- from BBB-, the Financial Times reports. This means Fitch has stripped both companies of investment-grade ratings. It is the first major agency to do so.

Sony boss Kaz Hirai. He has a tough job.

“This wasn't an easy decision,” said Matt Jamieson, head of corporate research. “But their reputations have been hit so much that it'll take a long while to crawl back.”

Sony's high-profile financial troubles are blamed primarily on the ailing TV business and the strong yen. The three months to September was Sony's seventh consecutive quarterly net loss.

Staying positive, Fitch said if Sony can sort out its problem areas, such as the TV business, then further downgrades may be avoided. A BB rating indicates a company is vulnerable to defaulting on debt over time, but have sufficient flexibility for now to keep servicing that debt. Sony has a solid buffer of cash, Fitch said, and some profitable, cash-generating units.

“I don't think the banks will push either of these companies to the wall,” Damian Thong, an equity analyst at Macquarie Securities in Tokyo, told the paper. “But they do need to convince people that tough restructuring moves will be done in good time, while minimising unnecessary damage to healthy businesses.”

Sony, under Kaz Hirai, has embarked on heavy cost-cutting measures to try and combat crippling operating costs, and thousands will be let go by April 2013. The giant electronics firm has in recent years seen its dominance eroded and brand power diminished as the likes of Samsung and LG Electronics have risen.

But how's PlayStation doing in all this? PlayStation sales are slouching, particularly handheld, but Sony's more streamlined business appears to be paying off. Last year during the months July, August and September, Sony sold a combined 4.9 million PS2 and PS3 consoles. This year that number was 3.5 million.

Last year during those months, Sony sold 1.7 million PSP and Vita handhelds. This year that number was a slightly lower 1.6 million. In its recent financial report Sony lowered its expectations for PSP and Vita by 2 million, down to 10 million for the full year. The PS2 and PS3 full-year total remains the same at 16 million.

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Wesley Yin-Poole avatar

Wesley Yin-Poole

Deputy Editorial Director

Wesley is deputy editorial director of ReedPop. He likes news, interviews, and more news. He also likes Street Fighter more than anyone can get him to shut up about it.

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