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Sony's credit rating cut to "Junk"

Sony's credit rating cut to "Junk"

Mon 27 Jan 2014 9:50am GMT / 4:50am EST / 1:50am PST
HardwarePublishing

PS4 performance not enough to convince Moody's that Sony stock is worth investment

Sony Computer Entertainment

Sony Computer Entertainment is a Japanese videogame company specialising in a variety of areas in the...

playstation.com

Moody's Investors Service has cut Sony's credit rating to "junk" over its continuing struggles to make money in a number of its business units.

Sony's rating has been lowered from Baa3 to Ba1, which is one level below investment grade. While Moody's described its outlook for the company as "stable," the move will be discouraging for potential investors and may increase the cost of borrowing money.

"While Sony has made progress in its restructuring and benefits from continued profitability in several of its business segments, it still faces challenges to improve and stabilize its overall profitability and, in the near term, to achieve a profile that Moody's views as consistent with an investment grade rating," Moody's said in a statement released today.

"Of primary concern are the challenges facing the company's TV and PC businesses, both of which face intense global competition, rapid changes in technology, and product obsolescence.

"Sony's profitability is likely to remain weak and volatile, as 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 did acknowledge the likelihood of an increase in profitability for Sony's games business, but, "not to the extent seen with the profitability level in 2010."

With so much attention focused on console sales, it is easy to forget that both Sony and Microsoft have extensive businesses outside of the games market. This is still an issue for Sony in particular, because as well as the PlayStation 4 has performed, it may not be enough to counterbalance the longstanding problems elsewhere.

In October last year, partial gains in Sony's games division were subsumed by the bigger picture, the company cutting its net profit forecast for the year by 40 per cent.

9 Comments

Ruben Monteiro
Engineer

74 182 2.5
Popular Comment
What I'd like to see is Moody's itself in the junk, along with the rest of the rating agency scourge...

Posted:7 months ago

#1

Steve Wetz
Reviewer/Assistant Editor

213 529 2.5
Popular Comment
We're talking about the same agency that had sub-prime housing loan notes rated at AAA (which is basically golden) right before the housing crash, right?

You're fine, Sony.

Posted:7 months ago

#2
Obviously someone has paid a. Great amount to influence Moody's moody outlook :)

Posted:7 months ago

#3

Frank Trottier
Analyst programmer

22 22 1.0
What is a bit sad is that they are doing well over all looking at their numbers but the economic conjunctures/currency is not on their side. So the bad credit rating is more about what they cannot control. The world economic is based on the US dollard.

Posted:7 months ago

#4

Alfonso Sexto
Lead Tester

807 637 0.8
@Ruben Monteiro:

Fully disagree; I want to see them in jail. Every single one of them.

Posted:7 months ago

#5

Sandy Lobban
Founder and Creative Director

314 206 0.7
I've worked at Sony and recognise how vast the company is. Whilst the games business and playstation is a shining light within and doing all the right things at the moment, the company has around 100,000 employees. SCEE during my time was around 2000 - 2500 employees. A tiny fraction of the workforce that in effect propped up many other areas of the business. They clearly have some way to go in convicing investors that the business outside of games is worthy of investment. Most people would be more than happy to invest in the Playstation brand and other successful nuggets in the organisation, but that still comes with a lot of baggage. If you feel differently and think they are wrong though, then its the perfect time to buy some shares!

Edited 1 times. Last edit by Sandy Lobban on 28th January 2014 12:45pm

Posted:7 months ago

#6

Jim Webb
Executive Editor/Community Director

2,266 2,404 1.1
I think all of SCE is nearly 10,000. But that is small compared to the nearly 150,000 of the whole of Sony.

Posted:7 months ago

#7

Christian Keichel
Journalist

674 922 1.4
Whilst the games business and playstation is a shining light within and doing all the right things at the moment, the company has around 100,000 employees.
I wouldn't call the Sony's games business a "shining light", the gaming section barely made a profit in fiscal year 2011 ($2.8 million), that was almost gone in fiscal year 2012 ($0.8 million) and in the years before 2011, the separate divisions in which the games business was in reported losses of several hundred million of dollars for 4 or 5 years in a row.

Posted:7 months ago

#8

Sandy Lobban
Founder and Creative Director

314 206 0.7
@Christian. Yeah, true. Probably more a beacon of hope in that it has the most potential for growth.

Posted:7 months ago

#9

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