Standard & Poor's downgrades Sony's credit rating

Electronics and media giant Sony has suffered a major financial setback, with top risk analysis and ratings firm Standard & Poor's downgrading the company's credit rating for the first time in over a decade.

Described by the Financial Times, which reported on the downgrade, as "an embarrassment," the move saw Standard and Poor's dropping Sony's rating from A+ to A, marking its first drop since 1993.

The rating affects Sony's ability to secure credit and negotiate favourable rates for loans, and as such is important to the business - and while an A rating is still high, it's nevertheless worrying for the firm that it would drop at all.

The downgrade comes in the wake of Sony's second quarter results at the end of last month, which saw a drop of 83 per cent in operating profits for the key electronics business unit, and the simultaneous announcement of pricing for the PlayStation Portable - which stunned the industry by being priced at 19,800 Yen (147 Euro), around half the price expected by most commentators.

"The downgrade and negative outlook primarily reflect Sony's profitability," Standard & Poor's analyst Osamu Kobayashi explained, "which has been strained from product and price competition, especially in its core electronics business, where there is still uncertainty regarding sustainable improvement in Sony's earnings-generating ability."

"Sony has been undergoing major restructuring efforts to reduce fixed costs and increase its overall competitiveness," he continued. "However, Sony's efforts to strengthen its product portfolio, including audiovisual products - a traditional strength for Sony - have lagged behind in an increasingly competitive market characterised by aggressive development and marketing of new products."

While the PlayStation Portable was not specifically mentioned in the explanation of the downgrade, the enormous losses which Sony is expected to take on each unit of the handheld console sold may well have been a factor, along with the widely perceived failure of the PSX home media device - a combination of PlayStation 2 console, DVD burner and hard disc video recorder which was championed by the firm as one of its headline products for 2004.