Sony's Credit Rating Slashed To 'Junk' Status

Credit rating agency Fitch has slashed Sony's credit rating from BBB- to BB-, relegating it to 'junk' status — a term used to describe operating below investment grade ratings, or a company at risk of default. "This wasn’t an easy decision,” said Matt Jamieson, the Seoul-based head of Fitch's corporate research. "But their reputations have been hit so much that it’ll take a long while to crawl back."

Sony has suffered massive losses as of late, not just in its game division, but across all of its product line, particularly with Televisions, with Samsung dominating 25% of the market compared to Sony's 7%.

According to Fitch, recovery is possible, but it will be a timely process.

"Meaningful recovery will be slow, given the company’s loss of technology leadership in key products, high competition, weak economic conditions in developed markets and the strong yen," said Fitch, in a statement explaining the decision.

According to Steve Durose, Fitch's head of technology ratings for Asia-Pacific, that recovery will is dependent on Sony's ability to "curb loss-making segments and rediscover the kind of technological leadership, which historically enabled them to develop must-have products".

Sony's has been struggling to gain footholds in multiple different markets. Sony's home entertainment division is seen as a massive weakness for the company, a weakness that will hopefully be offset by it's relatively stable music and movie divisions.

Sony, Panasonic Credit Rating Cut to Speculative Grade [Bloomberg]

Thanks Neogaf


Comments

    What does it mean for next-gen consoles if Sony goes belly-up?

    Can Sony sell off its current state of R&D and prototypes, etc, to another company to produce a PS4 or will it just disappear?

    What about DLC owners and PSN+ subscribers, etc? Hopefully we don't find out the hard way the downside of not truly owning our digital goods.

    Last edited 23/11/12 10:55 am

      Doesn't necessarily impact the gaming section. It's a massive conglomerate with fingers in a lot of pies, from films to music to scanners. The gaming part is actually one of the few areas doing reasonably well.

        Article says all departments are losing money.

          could you quote it? I can't bother reading the whole article

            It's 227 words long. The entire article.

            Second paragraph: "Sony has suffered massive losses as of late, not just in its game division, but across all of its product line, particularly with Televisions, with Samsung dominating 25% of the market compared to Sony’s 7%."

      I think the PlayStation brand still has more than enough value, enough customers and enough IP that even of the wider Sony organization collapsed, somebody would buy the gaming side of it out of the wreckage. Whether that was to continue as a hardware manufacturer or just to get hold of the IP and 1st party development studios would depend on who picked it up, I guess.

        You think or you know... that's a lot of difference there with all due respect. People thought Sony was doing great. People thought Sony was a powerhouse company. People thought Sony was practically indestructable.

        Then this?

        So what do we KNOW?

    I have no idea what BBB- and BB- really "mean" in the grand scheme of things, but calling Sony junk seems a bit harsh. It kind of feels like a very binary choice, like BBB- is an 8/10 videogame, which is ok, but BB- is a 7/10 which is utter shit.

      "...‘junk’ status — a term used to describe operating below investment grade ratings, or a company at risk of default."

      In the Bloomberg article it clarifies further,

      "...Fitch said in separate statements today [Nov 22, 2012]. Both companies had their short-term ratings reduced to B from F3."

      "Sony was downgraded to the lowest investment grade on Nov. 9 by Moody’s Investors Service..."

      The BB- refers to it's Long Term Credit Rating, in this case "more prone to changes in the economy". BB is the highest "non-investment grade" (Moody's seem to have been harsher in their judgement). A rating of BB- is equivalent to a 10/22 on the Fitch scale - that's a 4.5/10, which sounds like the sort of game you'd want to approach with caution; it's going to have some problems.

      The F3 sort-term rating means "fair quality grade with adequate capacity of obligor to meet its financial commitment but near term adverse conditions could impact the obligor's commitments". It's about a 5.5/10 on the short-term scale, but feels a bit more promising.

        See, that really didn't help man. :P

        I'm just interested that they've flipped from BBB- to BB- and suddenly it's cataclysmic.

        Maybe I just never noticed Sony was having issues because I don't actually care.

          Ok, so BBB- is considered an "investment grade" - that is, this company is a safe investment. Anything below BB+ is considered "non-investment grade" - investors are advised that this is not a safe investment. I was wrong on the short-term rating as well. They were downgraded fromF3 to B, which is "obligor has minimal capacity to meet its commitment".

          Sony is losing money hand over fist - debt of approx 1.25 trillion yen (up from 1.15 tr in March) and estimated cash and deposits of 420 billion yen (down from 720 bn in the same period). Any market instability in the near future will probably end them.

      Also means it harder to get loans, or having to pay higher interest rates on any loans they get in the future.

    Sony needs to get back to being the best. It's no longer the clear leader in quality and technology. They're just expensive. Come back Sony!

    I want to comment, but I'll only sound like a troll/Nintendo fanboy.

    EDIT: I'm glad I didn't post immediately. On reflection, hardware is where Sony are losing money hand over fist. Apparently Kaz Hirai's plan is to focus on "mobile devices, games and digital imaging" to revive Sony. It would seem that Sony will likely go the way of SEGA - drop hardware and become 3rd party developers for Microsoft, Nintendo, et al. @hyperthx I think you may be right with the idea of a Vita Phone as perhaps the last piece of gaming hardware they produce.

    Last edited 23/11/12 11:45 am

    They need to focus on their core products, and loose all the loose ends... though getting Japanese business men to swallow their pride and honour is an uphill battle!

    Last edited 24/11/12 9:46 am

      It's their core products like TVs that are making the losses. derp.

        Well, business logic says then, that TV's are no longer their core product. Fool.

    And they really need to make an Sony Vita phone ;)

    I think most knowledgeable people have commented that the business swings haven't been insurmountable - it's only when you add in the natural disasters and massively strong yen that it becomes a nightmare.

    They're not going to become a software-for-Xbox company at all. They'll likely sell off non-entertainment arms. live TVs and hifis, and push the PS4 hard. If the yen recovers, and the PS4 isn't rediculously priced, they'll be fine.

    In gardening terms, time for a harsh pruning so the bush can flower again.

      I don't really know if their gaming division is so profitable that they're going to drop their other electronics divisions and drive the PS3. For the last few years all I've been hearing is that the PS3 is being propped up by their other areas.

        PS4 + PS+ (and to a lesser extent, PSV + PS+) will be a real value proposition, and should help secure market share. That's what people are saying, anyway.

        It'll all hinge on the cost of the console itself, which is in part decided by manufacturing in Japan vs SE Asia, and the yen.

          If Sony's really on the precipice of financial disaster and banking on the Vita to save them, then it's probably already too late for the shareholders to get out of this with intact buttholes.

          We're still at least 12 months away from a PS4 launch in my estimation, but I personally will be amazed if we see them in stores before July 2014.

          Last edited 23/11/12 12:44 pm

    There was a time when purchasing electronics Sony was a top choice. The problem now most of their products are not even considered. Most of their products would struggle to be in the top 3 to 5 options. The Playstation seems to be their only viable brand and that is struggling to pull profits. Where do they make the money to get them out of the huge hole.? Sell the PS4, launch another console at a loss per unit, like the PS3??

      Might not have to sell the PS4 at as much of a loss. I think 2 reasons the PS3 was so expensive was because blu-ray diodes were so expensive back then and the PS2 emulation hardware, the Emotion Engine, added to the console's cost.

      Sony used to be considered a premium electronics brand. I think they became too arrogant and complacent about their competition and now they are suffering the consequences.

    Sony still be makes quality gear, the competition is just harder now.

    Fanboys aside, what would this mean for all those Sony-exclusive game developers and IPs if Sony dropped out of the games race?
    Will we ever see another Croc title?

      I imagine it would work the same way as the book publishing world. If a publisher goes under, rights go back to the author, and they can try to find a new taker elsewhere (a very long shot). I imagine developers would get back control of their IPs.

      Totally uneducated conjecture here.

        I actually think they get sold off in a kind of liquidation type sale.
        When Acclaim went under the IP's were picked up by a number of different development/distribution houses.

          Ah, right. So, completely different then. :)

      The thought of Uncharted on an Xbox is making me excited! Then I feel guilty about rooting for Sony's demise. But there really doesn't seem to be much hope for Sony, they've resisted too mhuch change, and their competitors are not going to wait around for them to catch up.

    I still see Sony as a innovator rather than a brand copying others and making it cheaper for the consumers to copy. I can't really remember the last time Samsung has made anything innovative and new.

    Yeah, but while Samsung are making a profit, Sony is blowing trillions. Innovative apart from Bluray what was their last innovation, the disc men and its dead!!!

    Pretty sure the only areas of Sony that make money are:

    - Cameras (or at least camera tech)
    - Gaming
    - Insurance (yes, Sony sells insurance)

      Pretty sure they don't...
      Sony has suffered massive losses as of late, not just in its game division, but across all of its product line, particularly with Televisions, with Samsung dominating 25% of the market compared to Sony’s 7%.

        “Overall earnings will stay weak due largely to prolonged operating losses in TVs and mobile phones, as well as significant declines in earnings from digital imaging products and games,” - Moody's

        They're product lines other than TVs and mobiles are profiting but have lower sales, but definitely not in loss. derp.

          I think the problem is that the PS3 and Sony's gaming division has not made a net profit. Yes it is making a profit now, but if you add R&D costs and losses from selling the PS3 at a loss over the last 5-6 years, it has lost money overall.

          This old article on 1up sums up the situation pretty nicely.
          http://www.1up.com/news/sony-lost-ps3-ps2

            Sounds about right. The Cell has killed Sony it seems

              And for what! The thing that burns me about this Cell processor is that it doesn't seem to do much that a 360 can't do, despite all the talk when it first came out about how powerful it was.

              It reminds me of the N64, a system which was so lauded for it's power that Time Magazine award it "machine of the year", only to see games late in the PS1's life eclipse it in terms of visuals

    Sad to hear. I want Sony to do better, but not buying sony products because they are being out done in terms of value. They still however make quality products, which is why I want them to make a comeback.

    Sony need to give up on intellectual property. First and foremost that is their problem. That's what's holding them back from being a great hardware manufacturer. Noone buys a Bluray Player or TV thinking "hmm is this going to force me to watch the trailers and copyright messages? I totally want to see those!!!" Not One Person. People want their stuff to "Just Work" I don't want to fuck with regions, or converting files. I want all my stuff in one place, whether it was legally acquired or illegally, and I want it to run. I don't want to be locked into your stupid online store. I want to shift content around. It's about ease of access and ease of use. Sony is no longer making people's lives easier and they're no longer raking in the money because of it. They don't offer anything I can't get elsewhere. They need to give up on trying to protect IP until deathknock because it is going to kill them. Region Free on PS3 is the only really smart move they've made so far. Killing Linux on the console, crippling DLNA, none of these things makes me want a sony product. The fact that my Samsung TV handles more of my media (including subtitles, forward/backwards skipping) streaming from my network server than my PS3 can, basically puts the writing on the wall for Sony. They are going to die as a home Electronics company soon and it's because of Sony Music and Sony Films. For the record I own more than 30 PS3 Titles, I consume a LOT of media including films and television and I pay a lot of money to do so. But Sony is not really appealing to me as someone who would consider buying a TV or a set top box, the PS4 losing backwards compatibility with PS3 similarly is not helping me to make a buying decision.

    To put this in perspective, the Apple iPod despite AAC and the iTunes music store, let you play pirated mp3 files easily. Where is the MKV support on the PS3? the console is powerful enough to stream/play every mkv file out there, but it's streaming support is so crippled and broken it can't even decode subtitles properly. Meanwhile Samsung TVs are handling everything except Flac audio and some media profiles few people are using. Sony need to put some engineers online, start studying things like XBMC and Front Row, and start offering real products people want to use. (and make a Sony tv remote work on a PS3 because seriously, Samsung let you use one remote for your TV/Bluray player)

    Last edited 24/11/12 6:44 am

      Regarding the last point, our Sony TV remote works with our Sony Bluray player. They've actually been pretty good with this for a long time. As to why their remotes don't work with the PS3 (don't have one, taking your word here), I'm not sure - they always worked with the PS2 (at least the slim).

    You'd hope they'd divest some of their areas, although it's been said before, if Playstation was it's own business independant of Sony's massive heft, it would be more like Nintendo is now, trying to avoid taking a loss on hardware and without the clout to take on some of their more esoteric projects, however given things like Move or Wonderbook, maybe a more barebones Sony is a good thing!

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