The multitude of functions contained within the average smartphone — camera, phone, computer, even TV screen, to name a few — have slowly rendered things like the landline, a cable subscription and the classic Kodak analog camera obsolete. Now, the smartphone can add another victim to its list: Sony’s Sony’s credit rating, which on Monday was cut to junk status by Moody’s Moody’s Japan K.K., the analytic company’s Japanese division.
The Japanese consumer electronic company’s credit rating was slashed from Baa3 to Ba1, a change that moves Sony’s  long-term senior unsecured bonds from investment grade to junk grade. Moody’s also downgraded the short-term rating of Sony subsidiary Sony Global Treasury Services Plc to Not Prime from Prime-3.
Factoring into Moody’s decision to downgrade were Sony’s high leverage (the company’s most recent adjusted debt-to-capitalization ratio is 52%), weak earnings (it reported negative net profit for four consecutive years and only returned to profit at end of its fiscal year on March 31, 2013), and most worrisome, a drop in demand for the company’s PC and TV products.
“Of primary concern are the challenges facing the company’s TV and PC businesses, both of which face intense global competition, rapid changes in technology, and product obsolescence,†writes Maki Hanatate, senior credit officer for Moody’s Japan K.K., in the rating report. Hanatate believes that Sony’s profitability is likely to remain both weak and volatile, and everything from its TVs to digital cameras will continue to face earnings pressure. “The primary reason is intense competition and the shrinkage in demand, the result in turn of cannibalization caused by the rapid penetration of smartphones.â€
In other words, because consumers can do more and more with their smartphones, they’re looking for Sony products — like digital cameras and televisions — less and less. In fact, Moody’s noted that Sony’s TV business has seen losses since fiscal year-end 2005, including an operating loss of $1.4 billion during the financial year ending March 31, 2012 and a $707 million loss for the financial year ending March 31, 2013. Moody’s also said it is particularly concerned about Sony’s weak earnings in its Devices and Imaging Products Solutions segments given the decline in consumer appetite for digital cameras.
A Sony spokesperson said that the company does not comment on specific ratings, but it will continue to communicate proactively with ratings agencies to ensure its overall business status is clearly understood.
Moody’s did acknowledge that Sony Music and Sony Pictures remain profitable and support the company’s cash flow and profitability, and also noted that Sony has implemented cost restructuring measures that include the consolidation of manufacturing plants and a reduction of costs in its TV business. Moody’s said that Sony’s rating could see a chance for ratings redemption if it turns around its television and PC business, reverses earnings declines and reduces its debt.
As a result of the rating downgrade, shares of Sony stock are also down in Monday activity, and are currently trading for a 4.6% loss. Despite the company’s business struggles, it ended 2013 with a whopping 50.2% return.
Article source: http://www.digitalversus.com/digital-camera/pentax-mx-1-p15130/test.html
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