Sony’s investment rating nears ‘junk’ status

As customer demand for consumer electronics wanes, Sony finds itself rated one step above “junk.”

That junk status is the lowest rating a company can receive from financial firm Moody’s Investors Services. Moody’s announced today that it has decreased Sony’s rating to BB, which is the next lowest classification.

“Their debt is still investment grade [according to Moody’s], but just barely,” Wedbush Securities analyst Michael Pachter told GamesBeat. “They aren’t in any danger, but their borrowing costs will be a little higher.”

This is a determination that Moody’s makes to help financial types decide how to approach buying a company’s debt. The BB classification basically slaps a big “high risk” sticker on Sony’s corporate forehead, like a low personal credit rating would for an individual. Put in its simplest terms, it means that Moody’s has doubts that those who put money into Sony will see a return.

“I suppose it might as well be junk,” said Roger Kay, an analyst with Endpoint Technologies Associates. “The most important aspect of such a status is the stigma associated with [it] and higher borrowing costs.”

In 2011, Sony recorded a loss of $5.7 billion. Consumers aren’t after its hardware like it was in the previous decade, and the profit margins on televisions are down in a competitive market.

In February, Sony Computer Entertainment exec Kazuo Hirai replaced Howard Stringer as Sony’s chief executive officer. Hirai’s implementing a restructuring that will close a number of offices and cut up to 10,000 jobs. Still, Moody’s is doubtful that this will be enough to completely turn around the electronics-maker’s fortunes.

Smartphone sales continue to gobble up the market for low-end point-and-shoot cameras and handheld gaming consoles like the PlayStation Vita. Moody’s doubts Sony will able to break free from its debt without some major restructuring (beyond what it’s already done) in the next 12 to 18 months.

Source: Ars Technica