Sony Cut to Junk by Moody"s as Mobile Devices Lure Buyers

Sony Corp. (6758) 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

e-mailed statement yesterday. 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 Inc. and Samsung Electronics Co. (005930) 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.”

Photographer: Patrick T. Fallon/Bloomberg

Attendees visit the Sony Corp. booth during the 2014 Consumer Electronics Show (CES) in Las Vegas.

Attendees visit the Sony Corp. booth during the 2014 Consumer Electronics Show (CES) in Las Vegas. Close

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Photographer: Patrick T. Fallon/Bloomberg

Attendees visit the Sony Corp. booth during the 2014 Consumer Electronics Show (CES) in Las Vegas.

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.

Slumping Televisions

“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

yesterday.

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.

Forecast Cut

“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 Inc.

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.

Sliding Share

Yesterday’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

Group Inc.

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 and Xperia smartphone shipments.

While the PS4 has posted record sales, Japan’s biggest

electronics exporter is also being hit in its camera and

camcorder businesses, as mobile devices from Samsung and Apple

with more sophisticated lenses and sensors eat into demand.

Sony’s Hollywood film studio began cutting jobs, including

its head of technology, as the unit moves forward with $250

million in expense reductions pledged by Hirai, the company said

in a statement on Jan. 22.

To contact the reporters on this story:

Mariko Yasu in Tokyo at

myasu@bloomberg.net;

Grace Huang in Tokyo at

xhuang66@bloomberg.net

To contact the editor responsible for this story:

Michael Tighe at

mtighe4@bloomberg.net

Sony Cut to Junk by Moody"s as Mobile Devices Lure Buyers