25/06/2003 13:28
Sony's troubles deepened on Wednesday when Moody's cut the Japanese consumer electronics and games maker's credit rating, citing concern over how long Sony would take to generate strong profits and cash flow again.
Moody's Investors Service, the credit rating agency, cut Sony's long-term debt rating to A1, with a negative outlook, from Aa3 following a review that began on May 1.
This is the first time in at least 17 years that Moody's has downgraded Sony.
The downgrade means Sony is trailing rival Matsushita Electric Industrial, the company behind the Panasonic brand, which still has an Aa3 rating.
Moddy's decision to downgrade reflects growing unease about Sony's ability to recover. The company surprised investors in April by posting a loss in the final quarter of last fiscal year and missing its full-year profit forecast.
Since then the company has tried to reassure investors by announcing a new restructuring just as its last four-year restructuring came to an end, and unveiling new product prototypes. The group is withdrawing from non-core businesses and increasing investment in semiconductors.
Strong competition and deflationary pressure have hit Sony's core business of electronics products over the past few years. Sony has been able to maintain a price premium because of its strong branding but that is now changing as electronics move from analogue to digital, Moody's warned.
"A horizontal business model enabled by digitisation of audiovisual (AV) products, where value added shifts from assembling finished goods to (software and) content and key components, has caused prices for AV products to erode so fast that even Sony's branding does not allow it to continue enjoying profitability over an extensive period of time seen during the era of analogue products," Moody's said.
Sony has a line-up of products, from mobile phones to digital televisions, that would take advantage of the broadband era, but broadband networks have not materialised to the extent imagined, another reason for lower profits in Sony's electronics products.
Moody's said Sony's new A1 rating had a negative outlook because Sony's strategy of focusing on key devices, such as semiconductors, and restructuring might not make a significant impact on profits for some time.
"These measures will exert some impact, but it may take longer than expected for them to significantly improve profitability because the broadband network environment and the implementation of Sony's new focus on key devices may not completely materialize in the short term," Moody's said.
The rating cut affects Sony's long-term unsecured senior debt. The company's Prime-1 short-term rating is unchanged.
Moody's Investors Service, the credit rating agency, cut Sony's long-term debt rating to A1, with a negative outlook, from Aa3 following a review that began on May 1.
This is the first time in at least 17 years that Moody's has downgraded Sony.
The downgrade means Sony is trailing rival Matsushita Electric Industrial, the company behind the Panasonic brand, which still has an Aa3 rating.
Moddy's decision to downgrade reflects growing unease about Sony's ability to recover. The company surprised investors in April by posting a loss in the final quarter of last fiscal year and missing its full-year profit forecast.
Since then the company has tried to reassure investors by announcing a new restructuring just as its last four-year restructuring came to an end, and unveiling new product prototypes. The group is withdrawing from non-core businesses and increasing investment in semiconductors.
Strong competition and deflationary pressure have hit Sony's core business of electronics products over the past few years. Sony has been able to maintain a price premium because of its strong branding but that is now changing as electronics move from analogue to digital, Moody's warned.
"A horizontal business model enabled by digitisation of audiovisual (AV) products, where value added shifts from assembling finished goods to (software and) content and key components, has caused prices for AV products to erode so fast that even Sony's branding does not allow it to continue enjoying profitability over an extensive period of time seen during the era of analogue products," Moody's said.
Sony has a line-up of products, from mobile phones to digital televisions, that would take advantage of the broadband era, but broadband networks have not materialised to the extent imagined, another reason for lower profits in Sony's electronics products.
Moody's said Sony's new A1 rating had a negative outlook because Sony's strategy of focusing on key devices, such as semiconductors, and restructuring might not make a significant impact on profits for some time.
"These measures will exert some impact, but it may take longer than expected for them to significantly improve profitability because the broadband network environment and the implementation of Sony's new focus on key devices may not completely materialize in the short term," Moody's said.
The rating cut affects Sony's long-term unsecured senior debt. The company's Prime-1 short-term rating is unchanged.
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