Sony Credit Rating Reduced by S&P

SonyEarlier this week, Bloomberg Businessweek reported that Sony’s credit rating has been reduced from A- to BBB+ by Standard and Poor’s (S&P). That is S&P’s third-lowest investment grade from A-. The reason for the downgrade is that Sony has had difficulty turning a profit from their television division. For the past eight fiscal years, Sony has lost $11 billion; and last week Sony lost more than double its annual loss forecast to $2.9 billion.
At the time of the announcement, Sony blamed “a stronger yen, production setbacks caused by floods in Thailand, and the cost of exiting a display panel venture with Samsung.”

S&P was not the only company to downgrade Sony’s credit rating; Moody’s Investors Service and Fitch Ratings lowered theirs as well. Moody’s assigned Sony a Baa1, its third-lowest investment grade; while Fitch gave a BBB- rating, one level above junk. Today, Reuters is reporting that Sony CEO Kazuo Hirai plans to get the company back into a profitable operation within two years. He said Sony will be focusing on LED TVs and would be squeezing other divisions to achieve this goal. Kazuo Hirai made the following statement today:

“We have to make some hard decisions on where there are some redundancies and reduce the fixed costs in a variety of different areas.”

After the announcement that Kazuo Hirai would become the next CEO of Sony, the company’s shares rose by 13%.

Analysis: I’ve never heard of Kazuo Hirai being quick to blame the consumer for anything, from what I remember, and he has done the responsible thing and always looked in-house for Sony’s problems. This is what Sony needs to get back on track. Too bad Hirai couldn’t have come into the position of CEO sooner.

Many believe right now that Sony is in a losing battle, and they would be right if one just looked at their past performance. I’m not going to say you should invest everything in Sony, but taking a cautious approach to investing with them would be wise. Now, if Kazuo Hirai can show that he is slowly turning things around, that would bring back confidence in the company financially. I still believe that quality is part of Sony, and if nothing else, I’ll continue to support them because of that.


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