Global ratings agency Fitch has downgraded Sony Corporation’s rating to junk after consistently poor performance by the company and a negative outlook.
Sony’s rating has dropped three notches from ‘BBB-‘ to ‘BB-, showing “Fitch’s belief that meaningful recovery will be slow” as Sony has lost its technology leadership with key products, suffers from high competition, is hit by the weak economic conditions in developed markets and struggles with the strong yen.
Fitch believes that continuing weakness in the home entertainment & sound and mobile products & communications segments will offset the relatively stable music and pictures segments and improvement in the devices segment which makes semiconductors and components.
Any significant recovery in 2015 “will be a challenge given the company’s circumstances.” CEO Kaz Hirai’s recovery plans that he announced in April 2012 “are the right approach”, but the execution and “intense competition across almost all of Sony’s key products may delay the recovery.”
Matt Jamieson, head of corporate research, spoke to the Financial Times about the downgrade of Sony and Panasonic:
This wasn’t an easy decision. But their reputations have been hit so much that it’ll take a long while to crawl back.
Damian Thong, an equity analyst at Macquarie Securities in Tokyo, added:
I don’t think the banks will push either of these companies to the wall. But they do need to convince people that tough restructuring moves will be done in good time, while minimizing unnecessary damage to healthy businesses.
Steve Durose, Fitch’s head of Asia Pacific technology, media and telecoms ratings, shared his thoughts on the businesses:
Without a radical change to the structure of their businesses it is difficult to see profitability improving enough for them to regain investment-grade ratings.
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