Sony credit rating hits junk status

Sony had its credit rating cut to junk by Moody’s Investors Service as Japan’s biggest television maker struggles to capture consumer demand for smartphones and tablet computers.

The rating was lowered to Ba1, one level below investment grade, from Baa3, and the outlook is stable, Moody’s said in an emailed statement Monday.

The company is also rated junk at Fitch Ratings, while Standard & Poor’s has Sony on the second-lowest investment grade. The stock fell to the lowest in more than two months.

Sony, which posted a surprise loss in the September quarter, is battling shrinking demand for TVs and personal computers as consumers switch to mobile devices produced by Apple and Samsung Electronics.

Chief Executive Officer Kazuo Hirai is trying to turn around earnings at the Tokyo-based company by wringing benefits out of holdings from consumer electronics to mobile phones and entertainment.

“Sony’s profitability is likely to remain weak and volatile,” Moody’s said in the statement. “We expect the majority of its core consumer electronics businesses - such as TVs, mobile, digital cameras and personal computers - to continue to face significant downward earnings pressure.”

The PC industry had its worst year in 2013, with shipments dropping 10 percent amid the shift to mobile devices. Sony in October cut its annual sales forecast for Vaio computers to 5.8 million units from 6.2 million and said the business needed fundamental reform.

“We’ll continue explaining to the rating company the situations related to our businesses and financials,” Yumi Takahashi, a Tokyo-based spokeswoman for Sony, said by phone Monday.

Sony fell 2.7 percent to 1,665 yen at the close of trade in Tokyo. Sony is scheduled to report third-quarter earnings on Feb. 6.

The cost to insure Sony debt climbed 60 basis points this year to 200 basis points on Jan. 24, headed for the biggest increase since the 118 jump 17 months ago, according to data provider CMA.

The Markit iTraxx Japan index has risen 17 to 85 so far this year, while the gauge for North American corporate bond risk added 10 to 73.

“Moody’s downgrading Sony before its earnings result at this timing makes investors more worried about Sony,” said Mana Nakazora, the chief credit analyst in Tokyo at BNP Paribas SA.

“Investors have thought Sony was moving toward recovery but the downgrade by Moody’s will make people think Sony is still struggling.”

Sony in October cut its sales outlook for Bravia models by 6.7 percent and said it expected to sell 14 million liquid crystal display sets instead of its previous projection for 15 million.

Sony’s share of global TV sales fell to 7.5 percent in the third quarter last year from 8.1 percent the previous quarter, according to NPD DisplaySearch. Sony trails Samsung and LG Electronics.

The value of global TV shipments dropped 11 percent to $98.4 billion last year, the third consecutive annual decline, according to an estimate from Bank of America Merrill Lynch. Sony’s TV business has lost money for nine straight years.

Monday’s cut “probably reflects the rating company’s view that the year-end shopping season might have been tough,” said Junya Ayada, a Tokyo-based analyst at Daiwa Securities.

Hirai has committed to making TVs, and Sony is introducing ultra high definition sets that cost as much as $25,000. Hirai also is focusing on the new PlayStation 4 game console released last year.

While the PS4 has posted record sales, Japan’s biggest electronics exporter is also being hit in its camera and camcorder businesses.

Bloomberg