Moody’s cut its credit rating on Sony Corp. to junk on Monday, saying the electronics giant had more work to do in repairing its battered balance sheet.
The major international ratings agency lowered its view of the company to Ba1 from Baa3, meaning its debt is now seen as below investment grade, a move that threatens to push up Sony’s borrowing costs.
“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,” Moody’s said in a statement.
“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.”
The move comes less than three months after Sony slashed its full-year profit outlook by 40 percent, dealing a blow to a much-vaunted turnaround plan, as it pointed to tepid demand for its digital cameras, personal computers and televisions.
It also pointed to a weaker-than-expected performance in its film business because of such box office flops as “White House Down” and “After Earth.”
The maker of Bravia televisions and PlayStation game consoles cut its full-year profit outlook to ¥30 billion from ¥50 billion.
Monday’s downgrade was the latest to hit Japan’s embattled electronics industry, which has continued to lose ground to overseas rivals even as a weakened yen helps boost profitability.
The sector, including Sony rivals Panasonic and Sharp, has been undergoing painful restructuring to stem years of huge losses as it struggles to keep up in the low-margin TV business.
Apple and South Korea’s Samsung surged ahead of their Japanese rivals in the lucrative smartphone sector, although Sony has done better than its domestic rivals with its Xperia offering.
“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 said.
It added that Sony’s new hot-selling PlayStation 4 console would help earnings at its video games unit, but warned that profitability would likely not top levels seen in previous years.
Sony chief Kazuo Hirai has shrugged off pleas to abandon the television unit, while the firm has also turned down a call from U.S. hedge fund boss Daniel Loeb to spin off 20 percent of its entertainment arm, which includes the Hollywood film studio, to boost profits.
The Moody’s downgrade marks the latest challenge for Hirai, who has vowed to drag the once world-beating firm back to its former glory and make the television and electronics business profitable.
His efforts got a boost after the firm posted a small net profit in its latest business year, after four years in the red. But it was largely due to a weak yen and the sale of assets, including its Manhattan office building for over $1 billion, as part of a wider restructuring.