Bond credit rating agency Moody’s cut the credit rating of Sony from Baa3 to Ba1 with a stable outlook — Ba1 is also just below investment grade. In other words, Sony is considered a speculative investment right now and it will become harder for the company to borrow money.
Today’s downgrade comes from its volatile net profit. Despite many staff cuts, some divisions, such as its PC and TV activities, are still losing money or are barely in the black. Increased competition in these areas are to blame.
“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,” Moody’s wrote in a statement.
Yet, the PlayStation 4 was very well received by the company’s customers and reviewers — 4 million units were sold during the holidays. But newly launched consoles don’t generate a lot of profit because margins are very thin after launch. Though it’s still a very good sign for the long term outlook when it comes to selling games and consoles at a later stage in the product cycle.
Finally, Sony currently has a solid lineup of cameras, but other companies could take the lead, or smartphones could bring down prices.
Sony is also a major movie studio and music label. These divisions are apparently doing well, but it’s very tough to predict the future. The vast majority of the profit generated by a movie comes in the few months that follow its release in theaters. You have to start over every year and release hit after hit.
Standard & Poor’s still rates Sony at BBB, two ranks above junk status, while the company is rated junk by Fitch. Shares are currently trading at 16.03, 4.13 percent below Friday’s closing price. With today’s downgrade, Moody’s also notes that the company shouldn’t expect any rating improvement in the near future.