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Sony stock downgraded to 'junk' by Fitch

Sony stock downgraded to 'junk' by Fitch

Thu 22 Nov 2012 11:42am GMT / 6:42am EST / 3:42am PST
Financial

BB-minus rating down to poor economy, strong Yen, high competition

Sony's stock has been downgraded to bb-minus status by rating company Fitch, the first group to label the corporation's shares as 'junk'.

Earlier this month, Moody's also downgraded the stock, although not to junk status.

Junk status is not an officially defined term, but generally refers to anything of BB status or below with a high risk of default and very little chance of any short or medium term gains.

The move "reflects Fitch's belief that meaningful recovery will be slow, given the company's loss of technology leadership in key products, high competition, weak economic conditions in developed markets and the strong yen," said the ratings group.

These conditions have hit Sony hard over the past year or two, partly prompting the promotion of former PlayStation boss Kaz Hirai to CEO and president of the group. His strategy of a 'joined up' Sony hopes to curb losses and build business by consolidating profitable areas of the business and building strategies for struggling branches such as flatscreen TVs.

However, with quarterly financial reports still showing a downward trend for both the games business and other core areas, Hirai's task is not getting any easier.

25 Comments

Bruce Everiss
Marketing Consultant

1,692 594 0.4
The poor economy, strong Yen and high competition apply equally to DeNA and Gree. How come they aren't BB-minus?
And have you seen how well Apple are doing in Japan?

I would suggest that Sony's problems are from backing losers.

Posted:A year ago

#1
Problem is Sony is not just a games company. its a multi national with winning divisions and loss making divisions as a hollistic home entertainment brand. How does such a multinational adapt and evolve. Like a air craft carrier, it make take a godly amount of time to turn around/ change course.

Thus comparison to DeNa or Gree is looking purely at one small segment.
Comparison to Apple is similar, but closer to the mark, One should look at Apple in Germany, and the years of slow groth and penetration to become more mainstream now...

Sony have other issues really, and thus lies the challenge to reinvent, trim and bottom out the nose dive.

Posted:A year ago

#2
This proves, once and for all, that the XBOX is superior to the Playstation.

Posted:A year ago

#3
Is it so hard for the consumer scene to admit that the PS3 was a bad move for SONY? - That was badly managed, and to try and redress the situation caused a lot of expense and required major management restructuring to try and reverse. All this and some appalling management regarding online, marketing and R&D across the corporation (not just gaming).

I suppose that as many of the ex-SONY management from the games division are hoping to find positions in the current consumer scene there is a aversion not to ask too many questions and admit the reality of the final outcome? Claim a major success to avoid serious questions!

Posted:A year ago

#4

Klaus Preisinger
Freelance Writing

1,072 1,007 0.9
In any market Sony competes in, they either have fierce competition (TVs, Console), or getting outright slaughtered (all types of mobile devices). The main competition isn't even other hardware manufacturers, it is software companies such as Microsoft, Apple and Google. They own the software, meaning they own the platforms and the revenue. They either build their own devices in China (Xbox, Nexus, iPhones), or license the software (Android, Windows), turning each hardware manufacturer into a manufacturer with lesser profits, an interchangeable pawn in a software based platform strategy..

Posted:A year ago

#5
There problems are more than just bad economical conditions or global conditions, this is a collapse in their whole business approach based on complacency and arrogance from previous success.


- bloated- joint R&D project linked to Namco System 357 arcade hardware specs
- delayed- and inaccurate PS3-SDK to developers (particularly in the West)
- over-priced- and badly developed hardware, minimal profit
- late- to launch with appalling and confused marketing
- unreliable- and high number of failures in the field
- failure- of online connection at a high rate
- disparity- between same games performance against PC and XB360
- expensive- to develop on using complicated official SDK process

- forced- requirement to create Slim / cost-save version to address original failings
- vulnerable- allows multiple hack of online services, accounts, and data


Posted:A year ago

#6

Paul Jace
Merchandiser

902 1,333 1.5
Sony's fall from grace continues. I think they personally need to further streamline their business and get out of some of the less profitable segments, such as mobile and tvs. Those two areas are still profitable in general but Sony isn't making hardly anything from either.

Posted:A year ago

#7

Jeffrey Ates
Critic/Writer/Enthusiast

24 1 0.0
@ James Hoysa
Oh absolutely, I mean, you could resist all those ad's on the dashboard that are always present, even if you pay for gold?
And not a day should go by without mentioning those amazing sales that MS has for avatar gear instead of actual software. Sony did the right move and dropped the ball in the marketing department. Combined with a lack of better support for third parties to make sure there are no disparities with 3rd party games have caused all the mainstream negative dogma that has prevented Sony from keeping a tight game with MS even when they have been the leader in software quality and consistent releases. They had good intentions but unless they can show people how great the PS3 and Vita are as multimedia devices, they wont get back their lead (Sadly).
The Xbox dashboard is slick, the system is easy to set up, the interface is clean and the marketing makes people feel at home. And other than the 3 good exclusive games that release every year and the cross-game chat, Im still baffled by the lead the Xbox has secured.

Edited 1 times. Last edit by Jeffrey Ates on 22nd November 2012 8:08pm

Posted:A year ago

#8
many people here are talking as if the playstation is the biggest problem sony has which is not true especially if one considers that the ps3 sold more xbox in japan and europe and lags behind the xbox by few millions in the US and it has been in the market a year less than the xbox. Sony is a big company so don't equate sony with playstation, playstation still remains one of the most profitable parts of Sony and with the major restructuring that it is being done in sony especially in the EU to unify all the divisions it will soon return to compete

Posted:A year ago

#9
Popular Comment
Bruce, while I don't disagree that Sony has backed some high-profile losers and made some very poor business decisions in the past couple of decades, your statements otherwise are deeply misleading. Bluntly, I don't think you understand how currency fluctuations work or how they influence corporate finances.
"The poor economy, strong Yen and high competition apply equally to DeNA and Gree. How come they aren't BB-minus?"
Because DeNA and Gree do the vast, vast majority of their sales inside Japan. If you're making a product inside Japan and also selling it in Japan, the transaction is entirely in Yen from end-to-end, so the relative strength of the Yen against foreign currencies is simply irrelevant. If DeNA or Gree had already achieved their goals of overseas expansion (as Sony did many decades ago), they would be equally badly impacted by the currency. (Note also that they're software companies, not hardware companies; Sony's supply chain was hammered and its capital costs boosted by the recent natural disasters across Japan and southeast Asia, which had absolutely no impact on Gree or DeNA.)
And have you seen how well Apple are doing in Japan?
This is the bit that makes me think you simply don't understand currency. Apple are an American company. Their manufacturing costs are racked up in dollars and Yuan, not in Yen - they don't do any manufacturing at all in Japan. Thus, when it comes to selling Apple products in Japan, they can actually afford to discount their goods compared to other markets because of the strong Yen.

In other words, the strong Yen means that Sony's exports are more expensive in overseas markets (or that Sony has to take a vastly reduced profit margin, or even a loss), while Apple's imports to Japan are cheaper (or Apple gets a better margin). Double whammy - harder to compete abroad, harder to compete at home.

Sony have screwed up a lot, but the strong Yen is NOT a fig-leaf covering up the problems - it's a vastly important factor. Note that every other company in the same sector in Japan (i.e. an export-led company dealing in hardware) has the same problems right now. Even the mighty Toyota is struggling for profits, and few would argue that it's made the kind of strategic mistakes Sony did.

Posted:A year ago

#10
Been flagging this for months now. People should be genuinely concerned about the ability of Sony to survive at all. They have a large amount of debt and are losing large amounts of money regularly in lots of super competitive markets. Vita has been a disaster and orbis isn't looking any better. Might need to completely split the company up and go back to just a couple of profitable divisions.

Latest one is camera division now getting hammered...

Posted:A year ago

#11
>... a collapse in their whole business approach based on complacency and arrogance from previous success.

And those failed divisions in order are:
- Sony Electronics (Sony Corp.)
- Sony Mobile Communications
- Sony Computer Entertainment
- Sony Pictures Entertainment
- Sony Financial (Sony Bank)

Posted:A year ago

#12

Steve Peterson
West Coast Editor

108 73 0.7
Sony's problems are mostly from divisions other than games; the PS3 is a relative bright spot compared to the black hole that is Sony's television business, for example. Sure, the PS Vita is struggling, but compared to the billions Sony is losing on TVs it's hardly even a rounding error on the balance sheet. Cameras are the latest problem area, as consumers in general are buying fewer cameras. Why bother when your smartphone does a pretty good job, and you always have it with you?

I think Sony has to make even more dramatic changes to its overall business in order to improve its financial status.

Posted:A year ago

#13

Andrew Goodchild
Studying development

1,235 396 0.3


I thought Blu-Ray was part of the problem in that:
- It drove up the cost of the machine.
- It delayed the machine.
- Whilst inclusion of Blu-Ray helped it "win" over HD-DVD, the uptake isn't what Sony have expected, as people have moved away from buying films on disc.

When DVD was developed, IBM and a panal of computer experts pushed two camps, Sony/Philips MMCD and Toshiba/Panasonic SD disc to pool resources to release one format. This was good advice at the time, and would have been a good move for Sony and Toshiba for Blu-Ray/HD-DVD. They both spent a lot of extra money trying to compete.

Posted:A year ago

#14

Bruce Everiss
Marketing Consultant

1,692 594 0.4
If I had been unfortunate to own Sony shares then I would have sold them the day that the Vita was revealed. It is all the evidence you need that they don't understand the market, don't understand the consumer and just basically don't understand consumer electronics any more.
The Yen has been strong for a very long time. Sony have moved much of their manufacturing away from Japan. As have many Japanese hardware manufacturers. You have to wonder about the ability of Sony to even survive.

Posted:A year ago

#15

Robin Clarke
Producer

300 684 2.3
@Kevin Williams

"forced- requirement to create Slim / cost-save version to address original failings"

So you're complaining about problems that the PS3 had at launch and then complaining again for them fixing them?

Not sure where you're getting high failure rate from. If that ever has been an issue, it's been utterly dwarfed by MS needing to fork out $1.1bn to swap out millions of faulty launch machines.

Posted:A year ago

#16

Rodney Smith
Developer

80 40 0.5
Google should try to buy 'Sony Pictures Entertainment' that would really put the cat amongst the pigeons.

Posted:A year ago

#17
@Robin, I am not a fan-boy for one system or the other - and my statement was about PS3, not that it was any better or worse than the standards we have seen from their competitors. The XB360, and the 'ring of death', will be a stain on MS's technical ability till the end of time - but SONY is meant to know better.

When I stated:
- forced- requirement to create Slim / cost-save version to address original failings
I was specifically referring to the intransigence to admit there was a problem, and then botch the solution taking too long to fix it, and avoiding the main issues. It would seem that the executives involved with the first 'Slim' wanted to still flight their corner so made the system improvement still follow their original thinking... only to be kicked out and a second Slim be developed. That intransigence to admit fault seems to underline the management style at this (and other console) operations.

Reports on the high failure rates of PS3.1.0 was commonly reported:

http://seekingalpha.com/article/17605-why-the-playstation-3-will-bankrupt-sony

- and ignoring it dose not help the discussion. Yes the XB360 had a major problem, but again we are talking about PS3!

Just to be clear, I work on the periphery of the consumer scene - focused on the Digital Out-of-Home entertainment (DOE) sector - evaluating how the console content can be utilized in our sector (or visa verse). So my observations are independent, and do not have to pander to some of the misconceptions and egos that seem to blinker some of those commenting.

Edited 2 times. Last edit by kevin williams on 23rd November 2012 2:55pm

Posted:A year ago

#18

Magistretti Roberto
journalist

6 0 0.0
May I ask you why, Rodney? Thanks.

Posted:A year ago

#19
@Magistretti - Rodney's idea is fun; Google needs a manufacturing empire to support their Google Glass and Google TV projects - as well as the new mobile device. SONY has the capability, and would benefit from the injection of a better R&D direction. If they could deal with the Western / Asian management conflict then this could be a marriage made in heaven, rather than the LG merger suggestion.

Posted:A year ago

#20

Magistretti Roberto
journalist

6 0 0.0
Thanks for the answer, Kevin.

Posted:A year ago

#21

Robin Clarke
Producer

300 684 2.3
@Kevin Williams

What was the hardware problem that you're refering to?

The PS3 has had 'slim' hardware revisions for the same reason as every other console since the dawn of time - cutting manufacturing costs.

I'm not trying to sweep something under the rug, I've genuinely not heard of there being a significant issue with failure rates (and there's certainly nothing mentioned in the frankly bizarre article you've linked).

Posted:A year ago

#22

John Bye
Senior Game Designer

480 451 0.9
The PS3's failure rate wasn't great (estimates run as high as 10% for launch models according to some reports), but the initial Xbox 360 models are estimated to have had a 30-50% failure rate. At one point in the run up to launch, yields were apparently so bad that two thirds of Xbox 360s were failing in testing before they even left the factory. Anecdotally, I don't think I know anyone whose PS3 has broken down, and I don't know anyone whose Xbox 360 hasn't broken down, often two or three times.

Posted:A year ago

#23
@Klaus
That's one of the best summaries I've read of Sony's current predicament in the market. The future is about convergence of multiple devices with one software experience. Ironically Sony makes all the devices involved in that future, but they can't wrangle them together into a coherent looking package. Even the Playstation brand itself has become more divided over the years; starting with eliminating backwards compatibility on the PS3, and now to the point where neither the PS3, the Vita, or the next rumored Orbis console will share any hardware architecture.

Edited 2 times. Last edit by Bill Garrison on 25th November 2012 12:49am

Posted:A year ago

#24

Andrew Ihegbu
Studying Bsc Commercial Music

440 146 0.3

Posted:A year ago

#25

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